The South Korean government will lower the pricing benchmark for generic drugs from the current 53.55% of the original drug price to as low as 45%. The move marks the first comprehensive overhaul of the drug pricing system in 14 years, since a blanket price cut in 2012. The government's decision is aimed at improving the financial efficiency of the national health insurance system and encouraging pharmaceutical companies to invest in research and development. The strategy is to channel fiscal savings secured through price cuts toward expanding insurance coverage for new drugs and stabilizing the supply of essential medicines, while steering drugmakers away from simple generic sales toward greater R&D investment.
The Ministry of Health and Welfare on Monday convened the sixth Health Insurance Policy Deliberation Committee and approved the drug pricing reform plan. Under the revised plan, generic drug prices for general pharmaceutical companies will be adjusted to approximately 45% of the original drug price.
Patient costs are also expected to decrease. Samjin Pharmaceutical's antiplatelet drug Plaris Tablet (75mg) currently costs approximately 1,077 won per tablet. Under the reform, the price — currently at 49.5% of the original — would drop to approximately 978 won, a reduction of about 99 won per tablet. Given the health insurance co-payment rate of 30% for outpatient clinic visits, the actual reduction patients would feel is approximately 30 won per tablet. Based on one tablet per day, a month's medication cost would fall from 9,693 won to 9,000 won, reducing the burden by approximately 700 won.
"The generic drug price cuts are expected to take effect as early as October this year after revisions to the relevant public notice," a Ministry of Health and Welfare official said. "We expect this reform to reasonably ease the public's burden of pharmaceutical spending."
The pricing reform is designed not as a one-time measure but as a phased reduction structure spanning multiple years. In the first phase, the government will gradually lower prices for drugs listed before 2012, from 2026 through 2032, down to the 45% level, expecting fiscal savings of approximately 1.1 trillion won ($809 million). In the second phase, drugs listed from 2013 onward will undergo additional reductions from 2030 through 2036, targeting savings of approximately 1.3 trillion won ($956 million). Once all price reductions are completed in 2036, the national health insurance system is projected to save approximately 2.4 trillion won ($1.76 billion) annually.
The core of the reform lies not in simple price cuts but in a differentiated pricing structure. While generic drug prices for general pharmaceutical companies will drop to 45% of the original, innovative pharmaceutical companies will receive preferential treatment at 49% for four years, and the newly introduced semi-innovative category will receive 47% for three years. Even within the broader framework of price reductions, the strategy is to maintain innovation incentives by granting relatively higher prices to companies with R&D investment capacity.
To qualify as an innovative pharmaceutical company, firms with average annual pharmaceutical sales of 100 billion won or more over the past three years must invest at least 7% of pharmaceutical sales in R&D, while those with sales below 100 billion won must meet a threshold of 9% or more. The government decided to grant a three-year grace period considering the industry's burden. For the semi-innovative category, companies with sales of 100 billion won or more must invest at least 5% of pharmaceutical sales in R&D, while those below 100 billion won must meet a 7% threshold.
The government's aggressive reform is driven by structural problems in the domestic generic drug market. Generic drug prices in South Korea are estimated at roughly twice the Organisation for Economic Co-operation and Development average. Meanwhile, the market structure remains entrenched in generics, with approximately 80% of all insured drugs being generics.
Accordingly, the government introduced mechanisms to transform the market structure alongside the price cuts. A key measure is the strengthened "step-ladder price reduction" system. This system further lowers prices when the number of generics with the same active ingredient exceeds a certain threshold. The trigger point has been moved forward from the 20th product to the 13th. A new "multi-product listing management" concept is also being introduced. When generics with the same active ingredient exceed a certain level, unfavorable pricing structures will be applied to newly entering products, effectively limiting market entry. The intent is to shift competition within the market from quantitative expansion to qualitative competition.
"We will improve the high-cost structure centered on generics, promote new drug development, and manage the pace of pharmaceutical cost increases to secure the sustainability of health insurance finances," a Ministry of Health and Welfare official stressed. "Achieving both industrial competitiveness and fiscal stability is the core of this reform."
"Regulations Stay the Same… Yet Advanced-Country Pricing Is Being Forced"
The pharmaceutical industry is pushing back. While the government cites the sustainability of health insurance finances, the industry has voiced concerns that this amounts to "asymmetric regulation" — cutting prices while leaving the highly burdensome regulatory environment untouched.
Frustration on the ground is particularly focused on the severe imbalance between regulatory costs and the compensation framework. The government has progressively raised the approval threshold to global standards — expanding mandatory bioequivalence testing to all active ingredients and tightening Drug Master File registration requirements to prevent a flood of generics. Companies argue that the cost burden of regulatory compliance has already reached an all-time high. Yet unilaterally cutting the pricing benchmark could send the signal that even after spending enormous sums on clinical trials to demonstrate quality, companies cannot expect adequate returns, critics point out.
According to the Financial Supervisory Service, 23 out of 30 listed pharmaceutical and bio companies in South Korea — 76% — expanded their R&D investment last year. Total investment rose 10.2% year-on-year to 2.9168 trillion won. More than 76% of surveyed companies, including Samsung Biologics, Celltrion, Chong Kun Dang, Boryung, JW Choongwae Pharmaceutical, and Daewon Pharmaceutical, recorded double-digit investment growth rates, demonstrating their commitment to innovation. These companies maintained their investment drive to develop next-generation revenue sources despite difficult business conditions.
There are concerns that this pricing reform could pour cold water on that investment momentum. If profitability of generics — which serve as the key funding source for new drug development — deteriorates, mid-to-long-term R&D investment capacity could shrink rapidly. The Ministry of Health and Welfare also announced plans on the same day to raise the R&D investment threshold for innovative pharmaceutical companies from 5% to 7% or more, and to immediately revoke certification when rebate violations are detected, significantly strengthening post-certification oversight. Critics point out that companies must increase investment to meet the tightened innovative certification criteria, yet their revenue source — generic drug pricing — is being cut, weakening the industry's investment momentum.
A sense of crisis is intensifying especially among small and mid-sized pharmaceutical companies with vulnerable profit structures. If price cuts materialize under this reform, companies will inevitably undertake aggressive product portfolio restructuring — sequentially halting production or reducing lineups starting with low-margin products. "I understand that many companies have already begun internal profitability simulations," an executive at a major pharmaceutical company said. "With regulatory compliance costs rising while price compensation measures are being reduced, we are in a position where we must question the very sustainability of the business."
The industry is concerned that these measures could weaken the foundational strength of South Korea's pharmaceutical sector. "Rather than focusing on short-term fiscal numbers, effective support measures should be implemented in parallel for companies striving to sustain innovative growth," a senior industry executive said.