The key elements of government’s drug pricing reform plan

Outline of implementation plan discussed at HIPDC subcommittee…to be finalized at HIPDC meeting on the 26th

Generic pricing ratio in the low-to-mid 40% range…price cut deferral period for innovative companies to gain attention.

New listing premium for 1+3 years…selection criteria to be established for fast-track listed new drugs

Under the government’s new drug pricing reform, price cuts for already listed drugs are expected to begin in the third quarter, with preferential treatment for innovative companies’ new listings expected to begin next year.

Innovative companies are set to receive a temporary exception from price cuts for existing drugs. However, the duration of these exceptions is scheduled to be finalized at the Health Insurance Policy Deliberation Committee meeting on the 26th.

In addition, the fast-track listing–post-evaluation and adjustment track is planned for 2028, and its criteria will be established to select which products are eligible.

According to industry sources on the 16th, the Ministry of Health and Welfare plans to finalize the drug pricing reform at the HIPDC plenary meeting on the 26th. Based on the discussions at the subcommittee, the direction of the reform will be fixed after some further adjustments.

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◆ Generic pricing ratio in low-to-mid 40% range…failure to meet required criteria: 85% → 80% = The pricing ratio, which had been described as “in the 40% range” last November, has recently narrowed to the low-to-mid 40% range at the HIPDC subcommittee.

The industry expects it to fall somewhere between 43% and 45%. Since many had hoped for the high 40% range, the industry had expressed disappointment. However, because time remains before the HIPDC meeting, the final rate still remains to be seen.

If the required conditions for generic pricing are not met, the pricing level is expected to be lowered from 85% to 80%. If a company does not submit its own bioequivalence data or fails to use APIs registered with the MFDS, the reduction rate will become greater.

◆ Price cuts for already listed drugs to begin in Q3…cuts will be deferred for innovative companies, but duration undecided=The government plans to begin price cuts for already listed products in Q3. It intends to divide companies into groups based on their listing dates and implement sequential adjustments using varying calculation rates.

Innovative pharmaceutical companies will be granted a deferral period under a separate pricing calculation rule. However, an exception is being discussed for ingredients with 21 or more listed products. A deferral period of 4 to 5 years has been mentioned, but it will be finalized at the HIPDC meeting on the 26th.

For innovative companies, their reduction ratio under the price-volume agreement will be raised from 30% to 50%, with application expected to start at the end of this year.

◆ New “innovation-equivalent” category to be established next year…50% preferential pricing=When newly listing drugs, innovative companies will receive a 60% pricing add-on. The period for this premium will be 1+3 years. If the product is manufactured domestically, an additional 3 years will be granted.

In addition, the government is considering adding a category of companies equivalent to innovative firms, with 50% preferential pricing. These “quasi-innovative” companies would be defined based on annual sales above or below KRW 100 billion, with R&D investment ratios of at least 5% or 7% of sales, respectively.

However, companies that have received administrative sanctions for rebates within the past 5 years will be excluded. The preferential period for quasi-innovative companies is expected to be the same as that for certified innovative companies.

The preferential measures for innovative and quasi-innovative companies are expected to take effect starting next year.

◆ Stepwise price reduction from the 13th product onward…15% reduction rate maintained=To manage multiple generic listings, the government plans to strengthen the stepwise reduction system. The stepwise reduction, which currently begins from the 21st product, is expected to shift to the 13th listed product.

The reduction rate itself is expected to remain unchanged, with the price set at 85% of the previous lowest price. However, if multiple products are listed at the point when the 13th product is entered, the price of those products will be adjusted to the 85% level one year later.

The strengthened stepwise reduction and multi-product listing management are expected to take effect next year.

◆ 100-day fast-track listing to be institutionalized next year…selection criteria for ‘innovative new drugs’ to be established=The government plans to institutionalize fast-track listing for innovative new drugs next year. It also plans to establish post-evaluation and price-adjustment mechanisms.

Selection criteria will also be established for determining which innovative new drugs will qualify for fast-track listing. The operation of a grading system is also under review.

The government plans to operate a performance-based evaluation model incorporating digital healthcare elements such as hospital EMR systems and AI data, and is also reviewing the creation of a specialized agency.

It appears that decisions to delist drugs will be made through post-market evaluation. The plan is to establish an evaluation and adjustment system to determine selective reimbursement coverage and appropriate drug prices.

◆ Flexible drug pricing contract system to expand in Q2…will prepare measures to prevent inconvenience to patients =The expansion of the so-called ‘flexible drug pricing contract system,’ which allows for contract prices different from the listed price, is expected to be implemented in Q2.

The expanded scope is expected to include listed new drugs, already listed off-patent originals, new drugs whose RSA refund period has ended, incrementally modified new drugs, and biosimilars.

As the number of products subject to dual pricing increases, the government is preparing measures to prevent inconvenience to patients. One approach under review is to charge patients based on the separately contracted price rather than the listed price, thereby preventing the need for refunds.

◆ Price evaluation and adjustment every 3–5 years…targeting ingredients 5 years after first generic entry=The government is establishing a system for evaluating and adjusting drug prices every 3–5 years. This involves comparing, by ingredient, ▲the number of products, ▲market structure, and ▲drug prices in major countries.

The target appears to be ingredients for which 5 years have passed since the first generic entered the market. The specific operational model will be established and implemented after gathering industry feedback.

The Ministry of Health and Welfare is reportedly expected to revise and supplement the reform plan containing these elements and approve it at the HIPDC meeting on the 26th.