The South Korean Ministry of Health and Welfare (MHW) has moved to rescind the controversial Market-Bases Actual Transaction Price system that it had only just reinstated this month, bowing to protests from domestic and international industry stakeholders. The MHW has said it is considering an alternative policy.
IHS Global Insight perspective | |
Significance | The Market-Based Actual Transaction Pricing (M-ATP) system was first introduced in 2010, but suspended in 2011 and again in 2012 as a concessionary measure in light of broad price cuts against off-patent medicines. |
Implications | Domestic and international industry stakeholders have vociferously complained about distortions and unintended consequences triggered by the system, which provided rebates to hospitals able to negotiate drug purchase prices with pharma firms below the National Health Insurance-listed price. |
Outlook | The Ministry of Health and Welfare still considers some form of incentive scheme for low-price drug purchasing as desirable, and is carrying out an internal review to devise a softer scheme. |
The South Korean Ministry of Health and Welfare (MHW) has announced it will rescind the Market-Based Actual Transaction Pricing (M-ATP) system that was only reinstated from this month, following consultations with industry stakeholders, as reported by DailyPharm News. The decision follows meetings held last week with doctors, hospitals, local industry representative body Korea Pharmaceutical Manufacturers Association (KPMA), and innovative trade group Korean Research-based Pharmaceutical Industry Association (KRPIA).
The MHW will consider an alternative pricing system to replace the M-ATP under a different title, according to director of the Prescription Drug Coverage Department, Mang Ho-young. He stated: "Indirect incentives will still work, although the market price system is gone. We will start an internal review [and] will also discuss with the Korean Pharmaceutical Association [KPA] about incentives for retail pharmacies," as quoted by the source.
Market distortions under M-ATP
South Korea's M-ATP scheme – also described as an "incentives system for low-price purchase" – was first introduced in 2010, but suspended for one year in August 2011 and again in 2012 as a concession measure amid drug price cuts, before being reinstated from 1 February this year (see South Korea: 24 January 2014: South Korea to implement provider incentives for low-cost drug purchasing from 1 February).
Under the scheme, hospitals, clinics, and pharmacies were required to report actual transaction prices paid for National Health Insurance (NHI)-listed medicines to the Health Insurance Review and Assessment Service (HIRA), which used these data to make annual adjustments to NHI prices. Controversially, the M-ATP also offered a 70% rebate to hospitals and pharmacies on the difference between transaction prices and MRPs, encouraging hospitals to seek discounts below NHI list prices. US trade group PhRMA's latest Special 301 submission for 2014 includes a number of criticisms of the way the scheme was implemented in South Korea in 2010, which it states produced unintended consequences including distortions in hospitals' prescribing behaviour, and in negotiations between hospitals and pharma firms. The KPMA and KRPIA last week argued that the recent price cuts and ongoing government pressure on firms over illegal rebates to doctors meant that the M-ATP system was untenable.
Outlook and implications
The MHW's decision to rescind the M-ATP has been cheered by industry, and described by the KPA as "a turning point for public health and healthcare spending and the healthcare industry", as quoted by DailyPharm News. It represents a second reprieve for the pharma industry in recent months, following the MHW's January decision to suspend a proposal to change the terms of the price-volume agreements between HIRA and pharma firms that would increase the frequency of drug price adjustments (see South Korea: 7 January 2014: South Korean government postpones changes to pharma price-volume agreements to 2015).
Domestic and multinational firms have faced difficult market conditions in a pharma market worth around USD20 billion currently (source: InvestKorea.org). Two consecutive years of price cuts alongside determined anti-corruption campaigns have acted to dampen the market significantly: medium sized South Korean firms reported prescription drug sales falling 4.5% during 2013 (see South Korea: 12 February 2014: South Korea's medium-sized firms suffer 4.5% fall in prescription drug sales during 2013). Although the M-ATP in its current form will not be continued, it remains to be seen what alternative takes its place and industry will hope the reprieve is not a temporary one. The MHW still views some form of incentive scheme for low-price drug purchasing as desirable; alternative systems under consideration reportedly include applying a softer 50% rebate to hospitals/pharmacies on the difference between transaction prices and NHI list prices.