Controversy has arisen between US drug manufacturers and the Korean government regarding the reform of South Korea’s national health insurance system and its affects on drug pricing. Proposals have been made by Korea’s Health Ministry to implement a new reference pricing system as well as a price reevaluation system for the drug industry. These two systems are meant to decrease costs for the national health insurance system and alleviate its fiscal deficits.
The reference pricing system proposes to set price ceilings on drugs with similar efficacy. With this system, patients will receive insurance benefits for drugs that fall within the range of the reference price. For products that are priced higher, patients will have to pay the difference out of pocket. The price reevaluation system also aims to curb drug prices by establishing mandatory reviews of product prices to be done every three years. This is to ensure prices are properly devalued to reflect the expiration of patent rights.
Both these proposals have raised strong disapproval from US drug manufacturers doing business in South Korea. Should the two systems be implemented, the demand for higher priced drugs manufactured by US companies would undoubtedly be negatively affected. US brand name drug products may be replaced by generic, Korean manufactured, inexpensive versions of the same products. US drug makers, including Pfizer and Jansen, lobbied the US government to raise their concerns to the Korean authorities. However, the sacking of former Health Minister Lee Tae-bok has led many Koreans to believe that the US is pressuring the Korean government to the extent of interfering with internal policymaking. The Korean Research-based Pharmaceutical Industry Association (KRPIA), composed of 27 foreign pharmaceutical manufacturers based in Korea, fervently denies the allegations. However, on July 15th, Mark Johnson, president and CEO of Lilly Korea, resigned as chairman of the KRPIA, leading many to believe that he is avoiding the scheduled parliamentary hearing investigating the influence-peddling of the organization he led. Currently, the two proposed systems to overhaul drug pricing in Korea have been stalled but continue to be considered as probable solutions to lower costs for the health insurance system.