At the Health Insurance Policy Deliberation Committee meeting on the 28th, the Ministry of Health and Welfare's drug pricing reform plan is expected to be tabled. In particular, as the likelihood grows that the plan will include lowering the prices of generics—drugs made with the same ingredients as medicines whose patents have expired—the domestic pharmaceutical industry is watching closely.
There are also concerns that cuts to generic prices could eventually spread to price cuts for original drugs in the long term. The reform plan will undergo final review after collecting industry opinions, and implementation is likely in July next year.
The government's push to overhaul drug prices is driven by a judgment that it needs to reduce the burden on the National Health Insurance finances and improve the fundamentals of Korea's pharmaceutical industry.
Cho Won-jun, senior health care policy expert at the Policy Committee of the Democratic Party of Korea, who oversaw Lee Jae-myung's presidential campaign pledges, said at a recent Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA) forum, "We want to send a clear signal to corporations that have been passive about research and development (R&D) by riding on the system," adding, "We will reinvest the savings as R&D incentives to create a virtuous cycle of innovation."
Generics account for about 90% of reimbursed drugs in Korea. According to the 2024 reimbursed drug claims status released by the Health Insurance Review & Assessment Service (HIRA) in Jun., as of Jan. this year there were 21,962 reimbursed items listed, of which only 2,474 (11.3%) were original drugs listed as single-ingredient products. Most of the rest are structures where generics with the same ingredients are listed together.
They account for more than half of total drug spending. According to a study on improving the drug pricing system for generics released by the Ministry of Health and Welfare last year, of the total 25.9 trillion won in drug spending in 2022, generics accounted for 53%, or 13.6 trillion won, in prescriptions.
◇ Tweaking the "stepwise price table"… government may adjust calculation rate
Currently, generic prices are set at "just over half of the original price." If two basic requirements are met—conducting a bioequivalence test independently and using registered drug master file (DMF) ingredients—the price is set at 53.55% of the original.
If these conditions are not met in full, 0.85 is multiplied to the 53.55% calculation rate, cutting the price by 15% step by step. It is a "stepwise price table" where the more requirements you meet, the higher the price, and the fewer you meet, the cheaper it gets.
According to the industry, the government is reviewing a plan to lower this calculation rate (53.55%) to 50% or less. However, confusion is growing because the government has shared only the direction with the industry without presenting specific figures.
Some observers say the rate could fall to as low as 40%. When implementing the across-the-board drug price cut system in 2012, the government lowered the rate from 68% to 53.55%, a drop of 14.45 percentage points.
The government is also said to be considering favoring the current price level for three years only for some, such as corporations that invest a certain portion of sales in R&D. In response, the industry is voicing concern that "once the three-year preferential period ends, a new uniform cut rate will in effect be applied to all generics."
A pharmaceutical company official said, "If generic prices are cut all at once after the grace period, original drugs could also face steep cuts when their patents expire," adding, "The burden is heavy because it is already difficult to procure materials and supplies due to the strong dollar."
◇ Fear of repeating the "2012 nightmare"… industry forms emergency committee to respond
Drugmakers worry that falling generic prices will translate directly into deteriorating profitability across the industry. According to an empirical study published last year by the Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA), when the across-the-board drug price cut system was implemented in 2012, the sales of the relevant corporations fell an average of 34% in 2013 and continued to decline by 26% to 51.2% through 2019.
There are also claims that, contrary to the government's intent, the capacity to invest in R&D for new drug development is likely to shrink. Developing a domestic new drug takes on average more than 15 years and costs more than 2 trillion won, and many corporations with the capacity to do so have structures that reinvest generic revenue into new drug development. Small and midsize drugmakers that cannot invest in R&D may see jobs shrink or shutter their doors.
The industry also says that if the number of generics is reduced, the problem of recurring instability in drug supply each year is likely to worsen. With influenza spreading now, pharmacies expect supply of key items such as Tylenol to normalize around mid next month.
Amid this sense of crisis, five groups including the Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA) and the KoreaBiomedicine Industry Association launched an emergency response committee on the 24th. Through this, they plan to publicly highlight issues such as disruptions to R&D investment and supply stability that drug price cuts for generics could cause, and, once the government announces specifics, present counterarguments based on quantitative impact analysis.
An emergency committee official said, "This reform plan should not focus solely on saving National Health Insurance finances, and a compensation system for innovative new drug development must be reflected."
◇ "Undervalued drug prices shake even global market entry strategies"
The industry views as more serious the fact that the current pricing system fails to properly value innovative new drugs.
Another pharmaceutical company official said, "No matter how innovative a new drug is, its price is currently set at the 'average price of existing drugs with similar effects,'" adding, "If domestic new drugs are trapped in an undervalued pricing system, cases like SK Biopharm's epilepsy treatment 'Xcopri,' where clinical trials and launches proceed overseas first, will increase." There are concerns that a reversal could occur in which Korean patients are the last to benefit from innovative new drugs developed by domestic corporations.
To address these issues, in Mar. the government created a system to give price preferences to new drugs developed by Innovative Pharmaceutical Companies (Korea Health Industry Development Institute (KHIDI), selected by the Ministry of Health and Welfare), but drugs listed before the system took effect were excluded. Daewoong Pharmaceutical's gastroesophageal reflux disease treatment "Fexuclue" is one example. It was listed for reimbursement in 2022, and its price was set about 10% lower than the average of existing treatments.
Such low prices do not stay only in Korea. Korea was designated as a reference price country by major countries—Saudi Arabia in 2013, China in 2018, and Canada in 2019—so Korea's drug prices are used as a basis for overseas price decisions. In fact, in China the price of Fexuclue reflected the Korean price as is and was set in the 900-won range. Prices of similar class drugs, such as Japan's Takeda's Vonosinti, are in the 2,000-won range in China.