[Reporter’s View] MOHW-Industry clash over reform plan

The biggest justification for the drug pricing reform plan, which the Ministry of Health and Welfare is accelerating, is “improving the structure of the domestic pharmaceutical industry with a focus on domestically developed new drugs.”

Minister Eun Kyoung Jeong and Second Vice Minister Hyung-Hoon Lee have expressed their ambition to create a drug pricing environment that properly rewards pharmaceutical companies that generate innovative value through new drugs, as well as those that are willing to develop medicines essential for public health and life despite low profitability.

The ministry has also emphasized the need for a swift overhaul of Korea’s pharmaceutical ecosystem, in which more than 100 companies obtain generic approvals for each active ingredient in a scattered and individual manner, resulting in excessive sales-promotion competition.

The domestic pharmaceutical industry, however, is strongly opposing the reform plan, questioning its effectiveness. Companies that have built clinical achievements in new drugs and improved drugs and contributed to the development of Korean new drugs argue that the reform plan, which centers on price cuts for already listed generics and preferential pricing for innovative pharmaceutical companies, will, in fact, bring considerable regression to the domestic pharmaceutical industry.

They point out that both the reform plan first unveiled by the Ministry on November 28 of last year and the revised version presented at the Health Insurance Policy Deliberation Committee’s subcommittee meeting on the 11th of this month are far removed from policies that genuinely benefit the “real pharmaceutical companies” that have demonstrated tangible achievements in advancing the domestic pharmaceutical industry and improving public health.

A closer look at the domestic industry’s position shows that there is no disagreement with the broad policy direction of rewarding companies that have produced new drug R&D outcomes and contributed to manufacturing drugs vulnerable to supply instability, while cutting prices for those that have not, thereby encouraging new drug creation and a stable supply of essential medicines.

The problem is that the Ministry of Health and Welfare’s reform plan cannot escape criticism that “the devil is in the details”—a cliché, but one that rings true.

The main point of criticism from pharmaceutical companies regarding the Ministry’s reform plan is the “price cuts for already listed generics.”

The Ministry has proposed a policy that uniformly cuts the prices of already listed generics without significant differentiation between pharmaceutical companies that have consistently maintained innovation and continued financial investment, and those that have relied on contract manufacturing of generics to generate profits.

That is precisely the clause in the reform plan first disclosed on November 28 last year, which proposed lowering the current generic pricing ratio of 53.55% uniformly to the 40% range.

Later, in the revised proposal presented at the HIPDC subcommittee on the 11th, the ministry adjusted the generic pricing ratio from the 40% range to the low-to-mid 40% range, while at the same time establishing a provision to temporarily defer price cuts for already listed generics for certified innovative pharmaceutical companies and companies deemed equivalent to innovative pharmaceutical firms.

However, this was accompanied by a proviso stating that the deferment would not apply to ingredients with ‘21 or more listed products.’

Pharmaceutical companies argue that the price reduction deferral for innovative pharmaceutical companies does not offer significant merit or benefit, and that, given the proviso regarding the 21-product threshold, the actual benefit effectively converges to zero.

They argue that the price reduction deferral provision for innovative pharmaceutical companies appears, at first glance, to be a perfectly fine and sweet piece of fruit, but when you cut it open and look inside, it is rotten to the core—a regulation that has no real substance.

Pharmaceutical companies also express dissatisfaction with the preferential drug pricing regulations designed by the Ministry of Health and Welfare, claiming that they are constrained by a piecemeal surcharge system and cannot generate any substantial price benefits, no matter how hard they try. The logic goes that if the government truly wants to build an innovative pharmaceutical ecosystem, it must go beyond mere drug price markups. Through inter-ministerial consultations, the government needs to dramatically strengthen tax benefits and create policies that allow pharmaceutical companies to see tangible benefits, such as regulatory exemptions for those contributing to the production of high-quality medicines, so that companies can generate profits that can then be reinvested into new drug R&D.

Then why are the Ministry of Health and Welfare and the pharmaceutical industry clashing so sharply over the same reform plan when they share the same policy objective?

Ultimately, it is due to insufficient public-private consultation between the government and the industry before the draft reform plan was disclosed on November 28, resulting in a drug pricing system that started strong but fizzled out.

Despite growing backlash from the pharmaceutical industry immediately after the draft was released, the Ministry of Health and Welfare did not engage in any meaningful consultations with pharmaceutical companies until the revised proposal was prepared. The only face-to-face case between the ministry and the pharmaceutical industry was a single working-level consultation in which officials from around 20 pharmaceutical companies were gathered and asked to submit fragmented opinions.

Multiple pricing managers at pharmaceutical companies say, “We have worked in market access and drug pricing policy for 10 or even over 15 years, but we have never seen the ministry put forward such a sweeping and unilateral drug pricing reform plan and then make so little effort at mutual consultation.”

There is also strong criticism saying, “We don’t understand why the Ministry is turning a deaf ear and continuing with unilateral administration. If this continues, a pricing system will be established in which generic prices for domestic pharmaceutical companies are cut in order to fund innovative new drugs from global pharmaceutical companies. That would be the exact opposite of the ministry’s stated policy goal of fostering the domestic pharmaceutical industry and building a pharmaceutical environment based on new drugs.”

There are even accusations that the ministry is merely kowtowing to the Trump administration’s pressure regarding reciprocal drug tariffs, having drafted a drug pricing reform plan out of fear of offending the US, and is now refusing to respond to any requests for revisions.

The one thing the domestic pharmaceutical industry is asking of the ministry is a pause on the drug pricing reform plan that has been pushed forward hastily without mutual consultation.

Pharmaceutical companies are calling on the ministry that, if it truly intends to design and operate the reform plan with the real goal of pharmaceutical industry innovation, it should stop insisting on a unilateral and coercive proposal and instead set a final timetable even now, promptly launch a public-private joint governance framework on the drug pricing reform plan, and derive a fully revised version.

The unwavering stance of solid domestic pharmaceutical companies dedicated to innovation is that the reform plan and amendments presented by the Ministry of Health and Welfare to date are absolutely insufficient to create global blockbuster-level domestic new drugs, resolve crises involving essential medicines and medicines with unstable supply, solve the problem of generic drug proliferation, and eradicate rebate competition caused by pharmaceutical companies trapped in contract generic manufacturing, all of which are necessary to protect both a healthy domestic pharmaceutical environment and the public’s right to health.

The words of one pricing manager that I heard while covering the reform continue to ring in my ears. “If the goal of this price cut is simply to reduce drug spending in the National Health Insurance budget, then there is nothing more to say. But we cannot agree at all with the ministry’s claim that its administrative rationale is preferential treatment for innovative pharmaceutical companies and building a new drug ecosystem. If the goal is to foster the pharmaceutical industry and reward real pharmaceutical companies, why are drug prices being cut across the board? Why does the ministry insist on turning a blind eye to the reality where only global big pharma companies end up laughing while domestic pharmaceutical companies are sweating bullets, calculating their losses? Rather than engaging in media stunts, wouldn’t it be the proper attitude for an administrator to put their heads together with industry practitioners and design a proper system?”