Will the 53.55% generic drug pricing system be overhauled?

Ministry of Health and Welfare’s moves gain attention

Ministry to explain drug pricing reform direction at KPBMA Board Meeting

Changing generic drug pricing calculation rate from ‘53.55% of original drug price→below 50%’ under review; phased overhaul expected

Agendas include discussion on expanding government support linked to R&D investment, a major overhaul of the post-market surveillance system

The Korean government is moving toward a full-scale overhaul of the national drug pricing system Structural overhauls of the overall domestic drug pricing system are materializing, including adjustments to the generic drug pricing calculation rate, reform of the tiered pricing system, consolidation of post-marketing control systems, expansion of risk-sharing agreement and dual pricing systems, and introduction of R&D investment-linked drug pricing premiums.

 

According to industry sources on the 18th, the Ministry of Health and Welfare is scheduled to attend the Korea Pharmaceutical and Bio-Pharma Manufacturers Association’s board meeting this afternoon to explain the direction of the drug pricing system reform.

 

It is understood that Lee Jung-kyu, Director-General of the Bureau of Health Insurance Policy, will personally explain the reform's purpose and direction and request the pharmaceutical industry's participation.

 

The Ministry has been continuously discussing the reform of the drug pricing system.

 

Discussions have accelerated, particularly since the inauguration of the Lee Jae-myung administration.

 

The outline has been shaped to simplify an overly complex system, making it more predictable, while simultaneously encouraging R&D investment by domestic pharmaceutical and biotech companies.

 

A draft of the reform plan is reportedly already prepared.

 

Following the ministry's briefing to the KPBMA, the discussions on drug pricing system reform, which have been progressing behind the scenes, are expected to move into the official phase.

 

The focal point of interest is the generic drug price calculation rate.

 

Lowering the current 53.55% rate is understood to be one of the core elements of the reform plan.

 

Under the current system, the generic drug price is set at 59.5% of the original drug's highest price for the first year after initial listing.

 

From the second year onward, the price is maintained at a reduced rate of 53.55%.

 

To qualify for the 53.55% rate, both conditions must be met - ‘conducting its own bioequivalence test’ and ‘using a registered Drug Master File registered API.’ Meeting only one condition results in an additional 15% reduction (45.52% of the original price).

 

Failing to meet both conditions leads to a further 15% reduction (38.69% of the original price).

 

The government believes the current 53.55% benchmark is excessively high.

 

Although the exact adjustment level has not been disclosed, industry insiders expect a considerably lower figure, potentially around 40%.

 

An industry official stated, “If the discussion were merely about lowering the 53.55% calculation rate to 50%, the reform talks wouldn't have even started.

 

The consensus is that the final figure will be below 50%.” The tiered generic pricing system is also expected to face revisions.

 

Currently, the first 20 generic products maintain the 53.55% price level, and after the 20th, the price is reduced by 15% sequentially.

 

The 21st generic is priced at 85% of the lowest price among the first 20 products, and the 22nd generic is priced at 85% of the 21st generic, and so on.

 

In this regard, the Ministry of Health and Welfare considers the ‘20-product’ range as excessively broad.

 

It is reported that a plan to reduce this to around 10 products is under review.

 

However, it is understood that discussions are also underway to moderate the structure where prices drop by 15% after the 20th product, meaning fewer generics per tier, but smaller price drops per step.

 

A major consolidation of post-management regulations is also underway.

 

Current systems, including the ▲ Actual Transaction Price (ATP) reduction, ▲ reassessment of reimbursement adequacy, and  ▲ the Price-Volume Agreement system, run simultaneously.

 

The government has also previously considered introducing an external reference pricing-based reevaluation.

 

The Ministry of Health and Welfare plans to consolidate these systems to enhance predictability.

 

To this end, the Ministry commissioned a study titled “Integrated Framework for Post-Management of Drug Pricing” to the Daegu Catholic University Industry-Academic Cooperation Foundation in March this year.

 

Once the results are released at the end of the year, related discussions are expected to accelerate.

 

The drug price premium system is also likely to undergo a significant overhaul.

 

Given persistent criticism that the current premium system is overly complex, the government is considering a method to determine drug price premiums and preferential treatment based on the R&D investment ratio of pharmaceutical and biotech companies.

 

A pharmaceutical industry insider stated, “It is clear that the government intends to overhaul the multi-product, generic-centered market structure.

 

Based on the judgment that the system has become excessively complex due to additions made as needed over time, discussions are proceeding toward streamlining it within a broad framework to enhance predictability.

 

The government intends to strongly convey the message that growth is no longer feasible solely through a generic-centered market.” A government-ruling party official explained, “The focus of this reform is not on cutting healthcare spending.

 

The goal is to create an environment where pharmaceutical innovation can function properly.

 

We are reviewing options such as linking pricing premiums to the company’s R&D investment ratio.

 

The intent is to make R&D investment a key determinant of reward.”