Controversy Erupts Over South Korea's New Drug Compensation Price Reform: 68 Drugs Face Refund Risks!

The Ministry of Health and Welfare (MHW) recently announced an implementation plan to improve the compensation price system for innovative new drugs, which aims to revise the current regulations on drug compensation and price setting. The proposal is currently under public consultation until Dec 16, 2024. Overall, the new reforms covered by the latest proposal could provide manufacturers with greater flexibility to handle drug reimbursement and pricing negotiations with South Korean authorities.

Under the proposal, the Ministry of Health and Welfare plans to introduce two new risk-sharing agreements, namely fixed-cost initial treatment refunds and performance-based refunds, on top of four existing mechanisms. Under the fixed-cost initial treatment refund RSA, drug manufacturers would be required to return a certain amount of money for their products upon each patient receiving their first dose. As for the performance-based refund RSA, if the patient fails to achieve a certain clinical benefit after receiving the product, the manufacturer will need to repay the government. In addition to the two newly introduced RSA types, the existing RSA types in Korea are mandatory economic evaluation/spending caps, rebates, patient-level usage limits/usage caps, and a conditional continuing treatment type plus a money-back guarantee.

Risk sharing agreements (RSAs) are a commonly used pricing and reimbursement strategy for insurance payers to control the future financial impact resulting from treatments with a high degree of uncertainty about clinical benefits or economic effects. Overall, the implementation of RSAs has had a positive impact on the pharmaceutical industry, implying that high-cost new therapies with highly uncertain cost-benefit outcomes can gain reimbursement status at an earlier stage under more flexible price negotiation strategies. GlobalData has identified at least 25 markets worldwide that use RSA mechanisms, both developed and emerging. South Korea introduced the RSA system in 2013. A total of 68 drugs have been introduced into South Korea's RSAs reimbursement list as of August 2023, according to an official at the National Health Insurance Service (NHIS), the pricing agency.

In the Asia-Pacific region, several markets with comprehensive healthcare systems and established reimbursement systems for drugs already use RSAs under their national health insurance schemes. Australia, New Zealand, and Taiwan Province of China (along with South Korea) are prominent examples of widespread use of RSA in drug reimbursement decision-making processes. All four markets have formal RSA systems that can support access to national health insurance benefits for a drug at an early stage. There are seven RSA mechanisms in New Zealand, with rebates being the most commonly used RSA.NHIA also has the flexibility to accept other types of RSA.

However, the two largest markets in Asia Pacific, China and Japan, have yet to implement official RSAs in their drug reimbursement decision-making process. Japan reimburses almost all prescription drugs under its national health insurance program and thus uses its strict repricing rules to control pharmaceutical spending. In the case of China, the coverage of the National Reimbursement Drug List (NRDL) is highly dependent on confidential price negotiations, in which case RSAs are less likely to be used. However, Chinese commercial firms use the RSA mechanism to reimburse for new high-cost treatments. Recently, Chinese drug developer Fosun Cate Biotech (China; A joint venture between Fosun Pharmaceutical and Kite Pharma) launched RSA of Yescarta (axicabtagene ciloleucel), a performance-based chimeric antigen receptor T-cell (CAR-T) therapy, This scheme was not included in the NRDL.

As the RSA system in Korea is expected to be expanded under this reform, manufacturers with high-cost therapeutic products will have greater flexibility in reaching price agreements with NHIS. This will open up more opportunities for the pharmaceutical industry, while also providing patients with more treatment options.