Three new policies to transform game rules
Under a proposed new policy, subsidies would be provided to hospitals that reduce their drug expenditure. We believe that the new policy will lead hospitals: 1) to strive to purchase drugs at lower prices; 2) to reduce the amount of drugs prescribed to patients; and 3) to substitute existing drugs with lower-costing alternatives. Meanwhile, an expected policy that would end redemptions on drugs marketed via rebate practices will likely decrease pharma players’ marketing activities. Elsewhere, we believe that the MoHW’s expected introduction of an approval-patent linkage policy will transform the generic market, providing benefits to generic drugmakers succeeding in patent challenges.
Gov’t to introduce subsidies aimed at reducing hospital drug expenditure
- In Jul or Aug 2014, the Ministry of Health and Welfare (MoHW) plans to introduce a policy under which subsidies would be provided to hospitals that reduce their expenditure on pharmaceuticals. The legislation would subsidize hospitals that: 1) purchase drugs at low prices; and 2) reduce the amount of drugs prescribed. The proposed subsidies would amount to 10~30% of the insurance-covered drug price less the purchase price and/or 10~50% of the government-mandated drug expenditure less the actual drug expenditure during the applicable period. Under the legislation, the MoHW will—based on surveys of actual transaction prices—adjust drug prices each year going forward. The first survey period would be set for Feb 1, 2014~Jan 31, 2015, and the extent of the potential price cuts would be capped at 10% based on the weighted average of actual market prices as end-2015 (pharmaceutical firms deemed as being ‘innovative’ by the government would receive a 30% exemption from any decrease in their drug prices).
- Of note, the existing policy provides 70% of the insurance-covered drug price less the purchase price as an incentive to hospitals, but the subsidy rate will be 10~30% under the new policy. The major addition in the new policy is the subsidies for hospitals that lower their expenditure on drugs (through efforts such as reducing the number of drugs prescribed or prescribing low-cost drugs). We believe that the new policy will lead hospitals: 1) to strive to purchase drugs at lower prices; 2) to reduce the amount of drugs prescribed to patients; and 3) to substitute existing drugs with lower-costing alternatives.
Jul 2014: Government to cease redemptions on drugs marketed via rebates and exclude them from insurance coverage list
- In Jul 2014, the MoHW plans to cease redemptions on drugs promoted via illegal rebate practices and (potentially permanently) exclude these products from insurance coverage. Under the existing system, a dual punishment system regarding rebates punishes violators with a one-time penalty and temporary suspension from insurance coverage. Under the new rules, any pharmaceutical company caught offering a rebate to prescribe a drug would have the drug in question suspended from insurance coverage for one year. Should the company again be caught offering a rebate for that same drug, the product would be permanently eliminated from the insurance coverage list.
Mar 2015: Government to introduce approval-patent linkage policy
- On Mar 15, 2015, the MoHW plans to introduce its approval-patent linkage policy, under which the first generic drugmaker to challenge patents on the original drug and win the related court case would be entitled to 12 months of exclusive marketing in the respective market. However, should the original maker raise credible patent questions regarding the challenger’s generic during the related court case, the original maker’s exclusive marketing rights would be extended for additional 12 months, thereby delaying generic makers entrance into the market.
*Source: Woori Investment & Securities Co.