The South Korean government will provide incentives such as preferential price reduction rates to innovative pharmaceutical companies focused on research and development while pushing ahead with generic drug price cuts. However, specific support measures including differentiated reduction rates and grace periods will be discussed at the Health Insurance Policy Deliberation Committee meeting scheduled for later this month.
According to the pharmaceutical and biotech industry on the 14th, the Ministry of Health and Welfare discussed measures to differentiate between innovative and general pharmaceutical companies when cutting prices of already-listed generic drugs at a subcommittee meeting of the Health Insurance Policy Deliberation Committee held on the 11th.
A proposal to apply lower reduction rates to certified innovative pharmaceutical companies and comparable firms than to general companies is being actively reviewed. Differentiated rates were discussed: innovative drugmakers would receive approximately 48% of the original drug price, companies comparable to innovative firms would get 45%, and general pharmaceutical companies would receive 43%.
Also on the table are proposals to grant innovative drugmakers and comparable companies a 3-5 percentage point preferential reduction rate or a grace period on price cuts compared to general companies. A grace period of up to five years has been mentioned. However, these preferential measures are expected to apply only temporarily. Specific criteria for "quasi-innovative companies," including differentiated reduction rates and grace periods, will be discussed at the main committee meeting later this month.
The innovative pharmaceutical company certification system, introduced in 2012, is a Ministry of Health and Welfare program that certifies pharmaceutical and biotech companies with high R&D investment relative to sales, new drug development achievements, and overseas expansion capabilities. Currently, 48 companies are certified. The preferential treatment proposal was reportedly submitted to health authorities by the Korea Pharmaceutical and Bio-Pharma Manufacturers Association. The issue is that only 36 of the association's 296 member companies are certified. Some in the industry worry that if the price cut preferences materialize, the burden on the remaining 260-plus pharmaceutical companies could increase relatively.
Another variable is that the innovative pharmaceutical company certification system faces a major overhaul more than a decade after its introduction. Companies are on high alert as the release of system improvement measures, originally expected last year, has been delayed and may now be pursued in conjunction with drug pricing policy.
Meanwhile, the Ministry of Health and Welfare announced in November last year plans to improve the drug pricing system, including lowering the pricing rate for generics and off-patent drugs from the current 53.55% of original drug prices to the 40% range. The aim is to stabilize health insurance finances and encourage structural improvement in the pharmaceutical industry. The industry is pushing back strongly, arguing this could lead to stunted growth for drugmakers, job cuts, and a pharmaceutical supply chain crisis.