Generic pricing should be at original’s 40%-45%

NHIS unveils a report on study of improving drug supply and purchase program

Covers all life-cycle of drug product from development to production, supply, distribution and purchase

Proposing active intervention by the insurer and mandating pharmacist’s alternative prescription goal

The national insurer’s research result claims the volume of generic would increase up to 73 percent to 82 percent if the use of generic is promoted, if the present lump-sum generic pricing reduction is brought down to 40 percent or 45 percent of the original price before patent expiration.

 

Currently, the lump-sum pricing reduction drops generic pricing to 53.55 percent of the initial pricing of the original.

 

To improve pharmaceutical supply structure, the research report recommended three-step enforcement of distribution and new drug-related strategic policies, including; generic pricing reduction policy, generic use promotional policy and pharmaceutical distribution system improving policy.

 

Korea’s National Health Insurance Service (NHIS) recently published a final report of a year-long cosigned study of improving drug supply and purchase program on All Public Information In-One (ALIO) conducted with Sungkyunkwan University’s academic-industry cooperation research team (Principal researcher: Professor Lee Sang-Won of Pharmaceutical Technology & Business Management Department at School of Pharmacy).

 

Also known as ‘Pharmaceutical Product Life-cycle Research Report,’ the study was directly ordered by President Kim Yong-ik of NHIS, who spent 250 million won on the massive research project.

 

According to the report on Jan.

 

6, the research team has laid down regulatory policy recommendations in categories of pharmaceutical supply structure, generic supply structure, pharmaceutical distribution structure, and Korean-made new drug supply structure.

 

◆ Pharmaceutical supply structure: The university research team suggested reforming pharmaceutical supply structure to secure financial health of National Health Insurance (NHI), to supply good quality drugs and to expand Korean generic items’ market share.

 

To achieve the goal, the report recommended seven objectives in three categories; improving generic supply structure (generic quality standard strengthening policy, off-patent drug pricing reduction policy, generic use promoting incentive policy); distribution structure (distribution company competitiveness enhancing policy, fair trade order reinforcing policy); and new drug supply structure (corporate R&D investment expanding policy, technology commercialization supporting policies).

 

The team predicted the seven objectives could be implemented in three steps.

 

Starting from generic quality standard enhancing policy, Step 2 off-patent drug pricing reduction policy and generic use incentive policy and Step 3 distribution structure and new drug supply structure shifting policies should follow, the researchers claimed.

 

The Step 1 objective, generic quality standard enhancing policy, was prioritized as it affects the three policy goals overall, which are ‘NHI financial health,’ ‘outstanding drug supply’ and ‘self-sustained medical technology.’ Policies targeting distribution and new drug supply have been assigned under Step 3 objective, because their importance level was apparently lower than that of generic policies.

 

The researchers commented, “The importance of generic quality standard enhancing policy and generic drug pricing reduction policy are very high and they require intricate plan of action.

 

Also they need to consider each interest group’s stance.” ◆ Generic supply structure: The research team stated the present volume of generic use in Korea (61.8 percent as of 2017) should meet the average level of OECD member countries (over 70 percent) to leverage generic supply structure and industry.

 

To realize the goal, bringing down the generic pricing is essential.

 

The report calculated the ratio of generic use in overall drug volume could be raised up to 73 percent to 82 percent, assuming generic use would soar when the price is dropped to 40 percent to 45 percent of the original’s initial price.

 

Previously, the researchers mentioned of three policies—generic quality standard enhancing policy, off-patent drug pricing reduction policy and generic use incentive policy—to achieve the aim to reform pharmaceutical supply structure.

 

The policy objectives of reforming generic supply structure is to lower pricing to the level of competitive market and increasing volume on par with advanced countries, while enhancing the quality of generic items.

 

More detailed objectives of enhancing generic quality includes tightening management standard change after approving and conducting stringent Good Manufacturing Practice (GMP) due diligence.

 

As for the mechanism of drug pricing reduction, the report recommended reforming actual transaction price (ATP)-based drug pricing reduction and lowering drug price on the level of competitive market.

 

For the ATP-based pricing reduction, the study argued the existing system of calculating reduction rate by each item should be changed to calculate by same class medicine.

 

The report elaborated the change would reduce not only a specific item’s pricing, but affect all items in a same class, which would enable supply of low-priced drugs.

 

Then sales of a company with capacity to supply mass amount of low-priced products would surge and eventually push up the efficiency of NHI expenditure management, the researchers added.

 

Moreover, the report said the equal drug pricing system should be abolished and should rather differentiate pricings of generic and original, bringing down the generic pricing from the current level of 53.55 percent of the original pricing to 40 percent to 45 percent level.

 

Basically, the generic pricing would not reach the level of off-patent original pricing.

 

The report added another recommendation to constantly monitor pricing of off-patent drug market and regulate pricing reduction on generic listed for a long time or with pricing unchanged despite multiple listed generics.

 

After enhancing generic’s quality and lowering pricing, incentive policy is recommended to promote further active use of generic.

 

Increasing demand for low-priced drug in the market would ultimately expand volume of generic use and promote price competition.

 

To increase the demand for low-priced drug, the report proposed the following; providing incentive for using more generic to doctor and pharmacist; reforming payment system to adopt capitation; prescription budget cap; or diagnosis related group payment; and lowering patient copayment or providing incentive point.

 

On the other hand, the report also proposed increasing generic use by the purchasing power of the insurer, NHIS.

 

Apparently, the insurer could select and announce a generic item capable of supplying low-priced product among multiple generic items in equivalent class, or set and mandate alternative prescription goal for pharmacist on preferred generic item.

 

◆ Pharmaceutical distribution structure: The researchers claimed the currently convoluted distribution models should be better sorted out.

 

Depending on a distributor’s business management and scale, the type of distributors should be divided into ‘Total Distributor (owning a nationwide sale network and dealing logistics and commercial distributor),’ and ‘General Distributor (commercial sales),’ and ‘Contract Sales Organization (CSO).’ And the researchers argued idealistic image of Korean drug distributor should be set forth by establishing distributor evaluation index and designating an Innovative Distribution Company based on ‘Special Act on Fostering and Support Pharmaceutical Industry,’

한국의약품유통협회 회원사 527개 대상 의약품 유통 현황 및 선진화 방안을 위한 설문조사

For the changes to be made, approval management and post-management should be reinforced through distributor license renewal and capital reappraisal, all the while government due diligence and statute reform should follow to prevent expedient direct wholesale, such as abusing authoritative position of healthcare institute.

 

Besides, the report presented tasks to reform structure, regulation and environment of the pharmaceutical supply by adopting ‘Pharmaceutical Purchasing Card’ to set straight wholesale profit margin inflated with unreasonable distribution cost; forming ‘Supply Chain Council’ with pharmaceutical company and distributor’s representative to talk about minimum profit margin; enhancing logistics and minimizing return through improved minimum packaging unit and labeling; and requiring aggregation; fostering distribution and marketing specialists to advance distribution industry.

 

◆ Korean-made new drug supply structure: The research team stated the supply structure of new drug developed in Korea should be strengthened in both quality and quantity by inducing innovativeness of new drug, and by setting a reasonable supply volume goal based on global level productivity of new drug.

 

Average 19 new drugs are launched annually these days, but only 1.9 items or ten percent of them are made in Korea.

 

To expand supply of Korean-made new drug and improve its innovativeness, the researchers proposed reinforcing Innovative Pharmaceutical Company support system, changing new drug R&D policy, supporting open innovation and fostering development and commercialization capability.