As the government moves to cut prices for generics and drugs with expired patents, the pharmaceutical industry says the bigger burden is not the price cuts themselves but the unpredictable policy changes.
They note that repeated price adjustments dampen research and development (R&D) investment and mid- to long-term management strategies and could, in the long run, also halve the health insurance cost-saving effect.
◇ Lesson from the 2012 drug price cuts: industry says "price cuts alone have limits"
Industry concerns about this overhaul stem from assessments of market changes that followed past drug price cuts. After the government's large-scale price reductions in 2012, drug spending fell in the short term, but various analyses emerged on subsequent market shifts and the policy's effectiveness.
According to a policy report by the Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA), consumers' out-of-pocket expense for medicines actually rose 13.8% at the time. That was because profitability of reimbursed drugs fell, prompting some corporations to increase the share of non-reimbursed drugs or to expand co-promotion with multinational drugmakers.
The industry worries that the latest pricing overhaul could again lead to structural changes in the market. As pressure to cut prices grows, competition among drugmakers could intensify, and existing sales practices such as using contract sales organizations (CSOs) for indirect marketing could expand.
A pharmaceutical industry official said, "Sales through CSOs keep expanding, but oversight systems remain insufficient," adding, "Lowering prices alone will not make the market transparent."
Industry officials also worry that intensified price competition will not stop at reshaping sales structures but could affect corporations' capacity to invest in research and development (R&D). Because new drug development is a long-term investment area that takes more than 10 years from candidate discovery to approval, repeated changes to the pricing system make it hard for corporations to set mid- to long-term investment plans.
Some also note that the impact of price cuts could vary by company size and business structure. While the government has created preferential pricing measures for innovative and quasi-innovative drugmakers, small and midsize companies focused on simple generics could shoulder a relatively heavier burden.
Jeong Yoon-taek, head of the Pharmaceutical Industry Strategy Research Institute, said, "The government has set up pricing incentives (preferences) for innovative and quasi-innovative corporations, but small and midsize companies centered on simple generics could take a direct hit," adding, "There is also a risk that the competitiveness of corporations producing niche-market or essential medicines where large firms do not compete could weaken."
◇ Experts say "predictability matters more than price cuts; complementary policies are needed"
The government says the overhaul aims to both save health insurance finances and spur innovation by granting price preferences to corporations that invest in research and development. It also plans phased implementation and support for essential medicines (withdrawal-prevention drugs), which recently raised supply shortage concerns, to minimize supply instability.
However, experts say price cuts alone are not enough to build a sustainable pharmaceutical industry structure. They argue that follow-up policies are needed to offset corporations' reduced investment capacity from the cuts and to encourage innovation.
Kim Dong-suk, a professor in the Department of Health Administration at Kongju National University, said, "Sustained innovation ultimately requires investment, but under the current system, corporations have fewer resources to tap," adding, "Even after price cuts, there must be incentive policies and complementary measures so new drug development can continue."
Kim noted that lowering list prices and actually expanding the use of low-cost medicines in the market are separate issues. "If a generic has been granted bioequivalence, a lower price does not mean poorer quality," he said. "The effects of price cuts can emerge only when prescribing structures change in tandem, such as creating an environment where doctors can prescribe cheaper drugs."
Experts also stress the need for a predictable pricing system that allows corporations to set mid- to long-term plans.
Jeong said, "From a corporation's perspective, the biggest risk is not the price cuts themselves but policy uncertainty," adding, "While it is inevitable for the government to consider fiscal soundness, corporations can set mid- to long-term investment plans only if they can foresee the direction and standards of system reforms."
Ahn Jeong-hoon, a professor in the Department of Convergence Health at Ewha Womans University, proposed through a Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA) policy report introducing an "R-zone" that would defer cuts when prices fluctuate within a set range. The idea is to help corporations reduce pricing volatility risks and establish stable production and research and development plans.
Overseas cases are also offered as alternatives. The United Kingdom indirectly regulates prices by managing the total profits that pharmaceutical corporations earn from the National Health Service (NHS) through the Pharmaceutical Price Regulation Scheme (PPRS). The government and the Association of the British Pharmaceutical Industry (ABPI) adjust the system every five years through consultations, increasing market predictability.
Jeong suggested, "Like the U.K., there is a need to raise policy predictability through a framework where the government and industry consult regularly," adding, "The Health Insurance Policy Deliberation Committee should also establish a discussion structure that can reflect industry views more evenly."