Korea Unveils Flexible Drug Pricing to Prevent Global Pharma Bypass

South Korea is pursuing a "flexible drug pricing contract system" that will manage drug prices across six different categories spanning the entire lifecycle of new drugs—from initial listing to indication expansion to generic entry.

According to pharmaceutical industry sources on the 18th, the Ministry of Health and Welfare has designed a structure that separates official drug prices from actual transaction prices, managing them through contracts rather than the existing approach of setting a single price for most medications. The flexible pricing system will be limited to new drugs and advanced biopharmaceuticals as defined under the Pharmaceutical Affairs Act.

The system aims to minimize the impact of international reference pricing while managing national health insurance financial burdens and alleviating the so-called "Korea Passing" problem, where global pharmaceutical companies delay domestic launches. The key is maintaining official drug prices while adjusting actual transaction prices through contracts.

Specifically, the flexible pricing targets are divided into six categories based on situations that may arise after new drug listing: △new drug listing △indication expansion (scope expansion) △calculation (generics) △volume-price linkage △already-listed new drugs △and risk-sharing contract termination. Among these, new drug listing, indication expansion, and risk-sharing contract termination cases will go through the Drug Reimbursement Evaluation Committee before negotiating flexible contracts with the National Health Insurance Service. Already-listed new drugs, volume-price linkages that adjust prices based on usage increases, and generic drugs can negotiate flexible contracts directly with NHIS without separate committee review.

The contract structure sets the reimbursement ceiling within the adjusted maximum price of eight major pharmaceutical market countries (A8), while the separate agreed amount corresponding to the actual transaction price is determined through NHIS negotiations. The adjusted maximum price refers to the highest value among prices from eight major advanced countries that the Health Insurance Review and Assessment Service references when calculating drug prices, recalculated to match domestic price levels.

However, for new drugs already listed for reimbursement, the ceiling established through existing reimbursement evaluation will likely be used as the separate agreed amount. Another feature is that no specific contract period is set, and termination is possible upon pharmaceutical company request.

The ministry's pursuit of the flexible pricing system is analyzed as a response to criticism that the existing dual pricing system was limited to certain high-cost drugs with strict conditions and restricted scope. Accordingly, the government has been pushing reforms to expand dual pricing coverage to all new drugs, change the name to "flexible drug pricing contract system" to improve the system's image, and reorganize the negotiation framework.

A Ministry of Health and Welfare official explained, "We conducted industry consultations in February this year, and while there are detailed differences in opinions among pharmaceutical companies depending on drug characteristics, there is generally no major disagreement across the industry regarding the procedures themselves," adding, "The specific system has not been finalized, and we plan to continue discussions at the Health Insurance Policy Deliberation Committee at the end of this month, reflecting industry opinions."