South Korea's pharmaceutical industry is stepping up lobbying efforts to persuade the government to postpone its latest round of planned drug price cuts.
IHS Life Sciences perspective | |
Significance | South Korea's pharmaceutical industry is increasing lobbying efforts to persuade the government to postpone its planned drug price cuts, arguing that they would add to the difficult market environment resulting from the Middle East respiratory syndrome (MERS) outbreak earlier this year. |
Implications | South Korea's Department of Health and Human Services plans to introduce a market-based system in March that will result in lower drug prices, as part of a pharmaceutical purchase incentives system between companies and government hospitals. |
Outlook | Further price cuts are expected to significantly affect domestic companies' R&D and overseas expansion plans, with limited likelihood of breathing room in the future, given the government's planned price cuts until 2025. |
South Korea's pharmaceutical industry is escalating its lobbying efforts to persuade the government to postpone its planned drug price cuts by one year, according to NewsWay. Pharmaceutical associations, such as the Korean Research-based Pharmaceutical Industry Association (KRPIA), argue that domestic pharma companies are still recovering from the impact of the Middle East respiratory syndrome (MERS) outbreak earlier this year.
South Korea's Department of Health and Human Services plans to introduce a market-based system (low-cost purchasing incentive system) in March that will result in lower drug prices, as part of a pharmaceutical purchase incentives system between companies and government hospitals. The department has prepared this system to accurately identify real drug prices that pharmaceutical companies and hospitals transact with, and, through this, fix a transparent distribution structure.
The government is also offering an incentive of 70% of the value received by hospitals for pharmaceutical treatments from drug makers or distribution firms directly to hospitals. The government will then determine this value as being the accurate price for the drug in question, and adjust pharmaceutical prices to this value.
For example, if a hospital pays and receives KRW500 (USD.04) for a drug that is registered at KRW1,000, the government will pay that hospital 70% (KRW350, in this case) of this value. The government will then fix the price of that drug at the average of all transacted prices in all hospitals, including that hospital.
The Health Insurance Review and Assessment Service has published the weighted average of pharmaceutical trading prices surveyed for the year to July.
However, pharmaceutical sector associations, such as the Korea Pharmaceutical Manufacturers Association, are lobbying against the government's plan, arguing that drug price cuts would exacerbate the already difficult operating environment following the MERS crisis. The Association of Pharmaceutical Management has contended that price cuts would affect drug development and have an adverse affect on companies' overseas expansion plans. In addition, the KRPIA is lobbying for the government to postpone its plans.
Outlook and implications
South Korea's latest drug price reduction plans appear to have triggered higher levels of frustration than usual, given the destructive effect of the MERS outbreak on domestic pharma firms. According to the KRPIA, South Korea's pharma industry suffered losses of nearly KRW100 billion – an average 16.5% of sales of each company surveyed – between June and July. Further price cuts are expected to significantly affect domestic companies' R&D and overseas expansion plans, with little scope for breathing room in the future, given the government's planned price cuts until 2025.
Although South Korea's government has launched ventures, such as the Global Pharma Industry Development Fund, to boost competitiveness in its pharma sector, the country's ageing population means that the fundamental need for cost containment makes further drug price cuts a certainty, including for patent-protected treatments. Proponents say that this is somewhat inevitable in the face of a rapidly ageing society, with people aged 65 years or older forecast to make up 20% of the population by 2026, compared with 12.6% last year (see South Korea: 30 September 2014: South Korea's healthcare cost per capita exceeds KRW1 mil. for first time, elderly costs soar).
However, public criticism persists over government bureaucracy and red tape, which pharma companies say are deterring multinational companies from investing in South Korea (see South Korea: 18 February 2015: Head of South Korea's pharma industry association criticises drug price controls). The KRPIA has also sent a petition to the country's Ministry of Health and Welfare, calling on the ministry to allow multinational drug companies to sell new treatments at higher prices, as well as a national insurance reimbursement rate of 60% of the average among OECD member countries, compared with 44% at present.