[Reporter's View] Drug pricing reform outruns certification

The government's drug pricing reform for newly listed generic drugs is set to take effect next month without a single company having obtained a "Quasi-Innovative Pharmaceutical Company” certification.

The Ministry of Health and Welfare concluded the public consultation yesterday (July 13) on proposed revisions to the ‘Criteria for Decision and Adjustment of Pharmaceutical Drugs,’ which include changes to generic drug pricing and pricing premiums. The revised rules are scheduled to take effect on August 1.

Fostering a new drug development ecosystem has been one of the key objectives of Korea’s drug pricing reform. Creating a more innovation-oriented pharmaceutical industry was also identified as the foremost goal at the Health Insurance Policy Deliberation Committee (HIPDC) meeting in March.

Measures introducing pricing premiums and preferential measures for “quasi-innovative” companies had also been introduced in this aspect. However, despite the nearing implementation date, not a single company has yet received the Quasi-Innovative certification, which remains a major disappointment.

Some in the industry argued that implementation should be postponed several months until certification procedures for both Innovative and Quasi-Innovative Pharmaceutical Companies are completed. The government, however, is reportedly firm in its determination to proceed as scheduled.

One might ask, "Why not select the target companies after first preparing the preferential drug pricing plan for quasi-innovative new companies?" However, the reality is not so simple.

Although estimates differ between the government and industry, 10 to 20 pharmaceutical companies are expected to qualify as Quasi-Innovative Pharmaceutical Companies. Until they obtain certification, these companies will receive a 45% generic pricing rate. Once certified, the rate increases to 50%, with the pricing premium remaining in effect for up to four years.

Under the revised pricing system, the premium is determined not by the characteristics of an individual product but by the innovative status of the company itself. In other words, whether or not a company has obtained the Quasi-Innovative certification directly determines the maximum reimbursement price its generic products can receive.

Although the financial impact will vary depending on market conditions for each product, the combination of a 5 percentage-point increase in the pricing rate and a four-year premium period could have a significant effect on sales.

As a result, the 10 to 20 pharmaceutical companies that may qualify for Quasi-Innovative certification will have to reconsider the timing of generic launches until certification is granted.

The same applies to the few companies that would seek to receive the Innovative Pharmaceutical Company certification in December. Because newly certified Innovative Pharmaceutical Companies become eligible for a 60% pricing premium for four years, some companies may decide to postpone generic reimbursement listings for approximately five months until certification is complete.

The government may argue that companies should simply decide their launch timing based on their own economic interests.

The government may say that companies should decide the timing of generic drug launches based on their own economic interests. However, that is hardly the right approach when the pricing reform itself is meant to initiate gradual change across the pharmaceutical industry.

That objective necessarily requires consideration of how well the reforms can be accepted and implemented by the industry. From that perspective, it is regrettable that the government is moving ahead with the pricing reform before adequate preparations have been completed.