Pharmaceutical Policy Reform in Korea
Tae-Jin Lee, PhD.Seoul National University, Korea
Outline
• Korean Health Care System• Policy background• New pharmaceutical policy: PLS• Implications• Challenges and responses• Issues
Korean Health Care System
• National health insurance (NHI)– Universal coverage
• 96% of population• rest 4% covered by Medicaid
– Single payer system: NHIC– Financing by premiums (partially by govern-
ment general revenue)– Limited coverage of services: MRI, Ultrasono,
some expensive therapies not covered by NHI• Dominant method of payment/reimbursement
– fee-for-service
Mounting Pressure on Financial Sus-tainability of KNHI
• Demand and supply factors – Continuous expansion of coverage
– Population aging
– New technologies
– Growing demand for and expectation of quality
health care by consumers
• Structural factor: Fee-for-service
NHI Reforms Considered source: Health Insurance Reform Committee (2004)
• Triggered by financial instability of NHI sys-tem, the following changes were suggested
• Change in reimbursement method– FFS DRG Global Budgeting
• Design a separate elderly care system• Introduction of economic evaluation into
health care delivery on– device– pharmaceuticals– procedures
Characteristics of pharmaceuticals
• Imperfect pharmaceutical market (Drummond et al., 1997; Harris et al., 2001)
– Asymmetry of information on drugs– Decision on utilization of drugs by doctors– The third-party payment
Increase in drug expenditures Regulation on the coverage and price of drugs in
most developed countries
Objectives of pharmaceutical policy
• Supply of quality drugs• Ensuring patients’ access to drugs• Containment of drug expenditures• Encouraging R & D
Introduction of Economic Evalua-tion into Pharmaceutical Reim-bursement Decisions and Posi-
tive List System
Background 1-1
• Expenditures on drugs have increased rapidly since 2000
• Per capita health expenditure and expenditure on prescription drug
Year 2000 2001 2002 2003 2004 2005 Annual increase rate (%)
Prescription drug 107 153 160 181 206 242 17.7
THE 780 932 977 1051 1138 1318 11.1
(US $, PPP)
Source: OECD Health Data 2007
Share of drug expenditure out of total KNHI expenditure (2001~2006)
2001 2002 2003 2004 2005 2006
Total exp.
178,195190,606(7.0%↑)
205,336(7.7%↑)
223,559(8.9%↑)
247,968(10.9%↑)
285,580(15.2%↑)
Drug exp.
41,80448,014
(14.9%↑)55,831
(16.3%↑)63,535
(13.8%↑)72,289
(13.8%↑)84,041
(16.3%↑)
Drug share
23.5 25.2 27.2 28.4 29.2 29.4
Note 1: share of drug expenditure out of total KNHI expenditure has been increas-ing from 23.5% (2001) to 29.4% (2006)
Note 2: nominal drug expenditure increased from 4.2 billion KRW to 8.4 billion KRW in 5 years
Note 3: annual increasing rate of 15.0% is compared to 10.6% of KNHI other med-ical expenditure
(unit : 100 million KRW, %)
Background 1-2
Background 2
• The number of drugs reimbursed in the NHI amounted to over 21,000 in 2006
• There were large vari-ations in prices among drugs with same effec-tiveness
17,49719,353
20,73721,740 20,775
15,223
0
5,000
10,000
15,000
20,000
25,000
2003.1. 2004.1. 2005.1. 2006.1. 2007.1. 2008.1.
Number of Listed Drugs
Source: HIRA
Fast Introduction of New Drugs into KNHI Reim-bursement List: 2003-2005
No. of Countries Adopted
0 1 2 3 4 5 6
164 New Drugs to
Korea
Number 7 67 32 20 17 12 9
% 4.3 40.8 19.5 12.2 10.4 7.3 5.5
Note 1: Annually, about 50 new drugs are introduced into Korean NHI Note 2: There were 7 Korean new drugsNote 3: Korean NHI introduced 67 (40.8%) new drugs as 2nd country in the world; 32 products (19.5%) 3rd in the world
Source: MOH, Korea
Background 3
Issue with Fast Introduction
• Drug pricing done based on A7-country prices as reference– A7 countries: US, UK, Switzerland, Japan, France,
Germany, Italy• With few countries adopting a certain new
drug, not enough price and clinical data avail-able to guarantee reasonable pricing in Korea– For example, 25 new drugs in 2003, for which Korea
reviews as the 2nd country in the world, Korean price to be determined based on only one A7 price as a reference
• Seen as a problem from health financing per-spective
• New drugs are entering into the Korean market very quickly
• Drugs had been included in the reimbursement list with little consideration of budget impacts and cost-effectiveness
• Drug expenditure is increasing rapidly, compared to other portions, resulting in higher proportion of NHI expenditures
• Value for money in drug expenditure needs to be examined at the system level
Summary of Concerns
Preparation period
• A series of studies on drug reimbursement policy
– Policy measures to improve drug benefit program (2002)– Policy measures to differentiate drug reimbursement by the
therapeutic characteristics of drugs (2004)– Policy measures to improve drug benefit program with posi-
tive list (2005)
• Health Insurance Review & Assessment Service (HIRA) developed “Guideline for Economic Evaluation of Pharmaceuticals” (2005)
Policy changes: PLS
• As a measure of containing expenditures on drug, the government introduced a “Positive List” sys-tem in December 2006, which was characterized as
– Selective listing of drugs• Enhanced importance of cost effectiveness in addi-
tion to clinical effectiveness
– Separation of decision on listing from pricing• New procedure for price negotiation
Procedure for reimbursement decision
Production or import of a new drug
Korea Food & Drug Administration: Evaluation on the safety and effec-
tiveness / approval of marketing
HIRA: Decision on listing
NHIC: Negotiation on drug price
Inclusion of the drug in positive list
Procedure for reimbursement decision
Source: Bae et al. (2009)
Listing new drugs
• For new drugs to be reimbursed under the NHI, submission of pharmaco-economic evidence became mandatory from 2008
• Criteria for reimbursement decision considered by Drug Re-imbursement Evaluation Committee of HIRA
– Clinical benefits such as severity of disease and potential to replace existing therapies,
– Cost-effectiveness,– Budget impact based on target population, expected sales and
substitution effect– Whether and at what price the medicine of interest is reim-
bursed in other countries, and– Other impact on health of the population
IQWIG 1. Benefitassessment
A (B, C...) vs. X
Benefit: X > ABenefit: X = A Benefit: X ? A
Benefit: X < A
IQWIG 2. Cost-Benefitassessment
Ceilingprice
Clinical EffectivenessA (B, C...) vs. X
: X > A Effectiveness: X = A Effectiveness: X < A
Cost-Effectivenessanalysis
Potential to get a good price depending on ICER
New Drug (X)
Effectiveness
Cost Minimizationanalysis
CeilingpricePriced lower than weighted
price of comparator
drugs
Not reimbursable
by NHI
Effectiveness: X > A
Clinical effectiveness vs. Cost effectiveness
ICER and Threshold
Threshold (λ) of ICER: - No explicit threshold
- May depend on per capita GDP
- Decided by taking account of other factors such as severity of dis-ease, burden of disease, impact on quality of life, innovativeness and so on
Reimbursement decision and price ne-gotiation on new medicines
Results
2007(2007.1~2008.4)
2006 2005
Number of prod-
ucts%
Number of prod-
ucts%
Number of prod-
ucts%
Listing & pricing completed 10 11.9 79 76.0 31 62.0
Price negotiation under way 26 31.0 - - - -
Price negotiation broken down 11 13.1 - - - -
Decision not to list 25 29.8 14 13.5 14 28.0
To be re-as-sessed 12 14.3 11 10.6 5 10.0
Total 84 100.0 104 100.0 50 100.0Source: HIRA
Reasons for deciding not to reimburse
Source: HIRA, Jirawattanapisal et al. (2009)
Pricing new drugs
• Pricing process was separate from decision mak-ing on listing from 2007– Once HIRA decides to reimburse a new drug in the NHI,
the manufacturer has to negotiate its price with the Na-tional Health Insurance Corporation (NHIC)
• A price-volume arrangement was introduced to control drug expenditures– Considering budget impact, NHIC negotiates price based
on the expected sales of new drugs as well as their sub-stitution effect. If actual sales exceed the expected ones during a specified period, the price of the drug should be reduced proportionately
Factors considered for price negotia-tion
• Assessment report by DREC of HIRA• Budget impact• Price of the drug in foreign countries including
OECD• Patent status• Domestic R & D expenditures
Price-volume arrangement
• Two types of price-volume arrangement– Type 1:
• When actual volume consumed exceeds expected volume by 30+% each year after the drug was in-cluded in the reimbursement list
– Type 2:• When consumption volume increases by 30+% for 6
months after adding new indications, compared to volume consumed for the previous 6 months
Price-volume arrangement
• Baseline price for negotiation for type 1
= 0.9*P0+0.1*{P0*(Ve/Va)}
where P0: current drug price
Ve: expected volume
Va: actual volume consumed
• Baseline price for negotiation for type 2– Similar to formula for type 1
Results from price negotiation
Year Application Agreement on price
Negotia-tion broken
Under ne-gotiation
2007 24 12 12 -
2008 72 57 15 -
2009 21 6 1 14
Total 117 75(72.8%)
28(27.2%)
14
Note: As of April 30, 2009
Source: NHIC
Re-assessment of listed drugs
• Drugs reimbursed under the previous “Negative List” sys-tem were allowed to remain in the new “Positive List”
• Starting from 2007, 5-year-long re-assessment of 49 thera-peutic groups of the listed drugs was planned. – In 2007, two therapeutic groups of drugs, migraine and hyper-
lipidemia, were re-assessed– In March 2010, re-assessment of drugs for hypertension was
completed– Currently, re-assessment of 5 therapeutic groups of drugs is
under way
• The main criterion for decision on whether to keep them in the list or out of the list is cost-effectiveness in addition to clinical effectiveness
CategoryNumber of therapeutic groups to be re-assessed
2007 2008 2009 2010 2011
16,529 drugs
Delisting unproduced
drugs
Pilot project
Main project
2
6 10 15 16
Timeline for re-assessment of listed drugs
* Sweden:
started re-assessment in 2002, completed 7 therapeutic groups
Variation in daily cost of hypertension drugs
Source: Kim et al. (2010)
Ingredient
Daily cost (KW)
- Lowest daily cost: KW 30, Highest daily cost: KW 977
Results from re-assessment
• Anti-migraine drugs– Pharmaco-economic study carried out for 3 expensive triptans
(Suma-, Nara-, Zolmi-)– Naratriptan and Zolmitriptan dominated by Sumatriptan– Two drugs remain in the List after voluntary price cut
• Lipid modifying agents– Pharmaco-economic study carried out for all statins– No statistically significant difference in effectiveness among
statins– Compared to no treatment, treatment with statin found very
expensive (ICER: >$70,000/QALY for 55-year-old patients, >$40,000/QALY for high risk)
– Verdict of 30% price cut resulted in resistance
Implications of recent policy
• Economic effects– Possible to utilize drugs with similar therapeutic effects
at lower costs– Price cut as a byproduct of re-assessment of the listed
drugs
• Access to new drugs– Delayed due to the fourth hurdle and two-tier process
for listing and pricing– Enhanced access to cost-effective quality drugs
• Dynamic efficiency– R & D may shrink– Need to look at incentive compatible pricing
Some challenges
• Question on usefulness of PE– Suspicion about reimbursement decision made regard-
less of submitting PE– Complaints of no incentive for carrying out PE
• Re-assessment of listed drugs delayed– Aversion to the re-assessment – Lack of government’s willingness to make a step forward– Weak infrastructure to carry it out within HIRA
Response to challenges
• Rationalization of process– Preliminary consultation introduced to avoid unneces-
sary PE– Application of CEA to a minimal level for the listed drugs
• Enhancing the expertise for review and appraisal– Economic sub-committee established– Training manpower within HIRA
Issues
• Close coordination between HIRA and NHIC– In case of price negotiation being broken, had to go back
to HIRA, now don’t have to
• Threshold ICER– Better to be flexible depending on severity of diseases
• Incorporating other criteria into decision making– Severity, availability of other treatments, equity, budget
impact, innovation, and so on
• Value-based pricing– Good price for cost-effective innovative drugs
Issues• Harmonization of evidence requirement: from
Korean perspective– The issue of transferability of clinical data remains as
an important HTA issue in Korea
• Measurement of Preference– Tools such as EQ-5D and HUI developed in Europe
and North America, when used as they are, may fail to reflect preference of Asian cultural aspects, even after reliability and validity of them for certain Asian
populations are tested
Threshold ICER
• Definition
– A society’s maximum willingness-to-pay for one unit of effectiveness (usually, 1 QALY)
– Ranges for threshold ICER are preferred to point esti-mates
• Examples of threshold ICER
– England & Wales (NICE): £ 20,000~ £ 30,000 / QALY– Australia (PBAC): Aus$ 42,000~76,000/LYG– New Zealand (PHARMAC): NZ$20,000/QALY– US (MCOs): US$ 50,000~100,000/QALY– Canada: CAN$20,000~100,000/QALY
Criteria considered for drug reim-bursement in NHS
Source: NICE
Concluding Comments
• No system can be perfect from the beginning
• Under many constraints, Korea’s PLS policy
started
• We expect refinements and improvements of the
system over the years as it goes