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