Korea to implement new drug pricing policy that rewards innovation

The Ministry of Health and Welfare on Thursday announced a significant policy change in pharmaceutical pricing that will take effect in March, aimed at rewarding innovation in new drugs and ensuring a stable supply of essential medicines.

The new policy, officially named "Measures to Improve Drug Pricing Systems to Reward Innovation and Strengthen Health Security," will be implemented after more than a year of refinement following its initial proposal by the government's Bio-Health Innovation Committee in December 2023.

The policy changes have been long advocated by the pharmaceutical industry. After the Yoon Suk Yeol administration began in 2022 and made deregulation a national priority, pharmaceutical industry support measures gained momentum.

The changes are expected to benefit both domestic and global pharmaceutical companies operating in Korea, contributing to the country's ambitions to become a global bio-health center while ensuring patients have better access to innovative treatments.

Under the new system, innovative drugs with similar or non-inferior efficacy compared to existing treatments will receive more favorable pricing.

Even without submitting economic evaluation data, manufacturers can secure pricing at either the "highest price among alternative drugs" or "about 1.8 times the weighted average price of alternative drugs," whichever is lower.

The policy also includes a maximum 27 percent price premium for nationally essential medicines that use ingredients manufactured in Korea. This measure was introduced to address supply shortages of certain medicines, including fever reducers, experienced during the Covid-19 pandemic.

Additionally, the economic evaluation criteria for new drugs will be relaxed.

Previously, cost-effectiveness was strictly measured through incremental cost-effectiveness ratio (ICER) thresholds, typically around 50 million won for cancer drugs. Under the new policy, drugs meeting innovation criteria can be evaluated with greater flexibility.

The risk-sharing agreement (RSA), previously limited to cancer drugs and rare disease treatments, will also be expanded to include severe conditions that are difficult to cure, cause irreversible disability or organ damage, and impose significant disease burden, even if they don't qualify for current special calculation exceptions.

“The policy is a positive step toward aligning Korea's pricing environment with global standards,” a representative from a multinational pharmaceutical company said, asking to remain anonymous due to the sensitivity of the issue. "The flexibility in economic evaluations for truly innovative medicines demonstrates Korea's commitment to ensuring patients have access to breakthrough treatments.”

This creates a more predictable environment for global R&D investment in the Korean market, she added.

An official from a different global pharmaceutical firm noted, "The expansion of the RSA program beyond oncology is particularly welcome as there are many drugs that target chronic conditions with high unmet needs.

This change could significantly accelerate Korean patients' access to these therapies, the official said.

However, not all global pharmaceutical companies view the changes favorably.

An official from a third multinational company expressed concern.

"While we welcome the expanded RSA program, the 27 percent premium for domestic ingredients appears to prioritize national interests over fair competition,” the official said. "We're also concerned that the definition of 'innovation' may be applied inconsistently, favoring incremental improvements from Korean companies while holding global breakthrough therapies to higher standards."