Will incentives for low-price purchasing be expanded?

Fears rise over the ‘race to the bottom’

50% increase in incentives to save on drug costs discussed

Industry expresses concern that the measure would ignite an ultra-low-price bidding war

Concerns are emerging that expanding low-price purchase incentives without safeguards could lead to a market collapse, ridden with ultra-low-price bidding wars, eroding the entire pharmaceutical ecosystem.

 

The criticism is that a system focused solely on price competition directly contradicts the government’s stated goals of encouraging pharmaceutical and biotech R&D.

 

According to industry sources on the 25th, the government’s upcoming drug-pricing reform package is expected to include a substantial expansion of low-price purchasing incentives.

 

The low-price purchase incentive is a system where, if a healthcare institution purchases a drug at an actual transaction price lower than the reimbursement ceiling, a portion of the price reduction is provided as an incentive payment.

 

Approximately 20-30% of the price difference is paid to the healthcare institution based on the incentive payment standards announced by the Ministry of Health and Welfare.

 

Although the specific details remain undisclosed, one option being discussed is maintaining the current rule of not lowering drug prices based on actual transaction prices, while increasing the incentive rate to up to 50%.

 

However, there are concerns that even without lowering drug prices based on actual transaction prices, a system that encourages ultra-low-price competition will ultimately lead to a steep decline in profits for manufacturers and distributors.

 

Mr.

 

A from a domestic pharmaceutical company expressed concern, “They are essentially fueling price competition.

 

While I understand the intent to create an ecosystem where competition enables cheaper transactions, it will ultimately lead to a resurgence of 1-won and 2-won bids.

 

Everyone will flock to what is effectively legalized rebates, and the manufacturing ecosystem will collapse.” Critics point out that in a situation where small and medium-sized distributors, including CSOs, proliferate and the lack of transparency in distribution channels is a constant issue, a policy solely focused on encouraging price competition will likely cause more harm than good.

 

The same representative added, “Many injectable drugs have already been through 5 rounds of price cuts based on actual transaction prices, with reductions of around 20% each time.

 

If price competition intensifies further, the damage to injectables will be greater.

 

It’s not enough to simply expand incentives; the government must implement safeguards.” Advice was also given that setting an appropriate minimum bid price would be necessary.

 

Another domestic company representative, Mr.

 

B, stated, “It's hard to predict the outcome, but without setting an appropriate minimum bid price, profits will plummet dramatically.

 

At the very least, it should guarantee cost recovery.

 

Considering the relationship between large hospitals and pharmaceutical companies, they might all rush in with a ‘let's all go down together’ attitude.” Mr.

 

B added, "Furthermore, if incentives rise to 50%, even institutions that have been quiet until now may start making more demands.

 

Currently, payments aren't high enough to warrant claiming the maximum price, but if the reimbursement rate hits 50%, that changes.

 

It may essentially turn into a legalized rebate structure." Some have proposed specific restrictions similar to the minimum-price guarantee applied to Essential Exit-Prevention Drugs, arguing that price-protection mechanisms must accompany any incentive expansion.

 

Mr.

 

A added, “It's necessary to put brakes in place.

 

For injectables with high in-hospital usage rates, we could cap prices at 91% of the drug price, similar to exit prevention drugs.

 

Simply trying to intensify low-price competition is armchair theorizing.

 

Once the ecosystem collapses, it's difficult to recover.

 

The government needs to listen more to real-world concerns.”