Value based contracting for medicine:
the experiences of South Korea
Eun Young Bae
Nov5, 2013
Gyeongsang National University
Contents
• Background
• Reimbursement and pricing policies
– Positive list system
– Price negotiation
– Price adjustment
• Strategies for rational drug use
• Issues and Challenges
Background
South Korea
• Population:
– 50.22 million (2013)
– Pop ≥65years : 12.2%
• Life Expectancy:
– Males 77.7 years, females 84.5
years (2011)
– Infant mortality rate: 3 deaths
per 1000 live births
• National Heath Expenditure:
–
–
–
–
7.5% of GDP (2011)
2,315 US$ PPP (per capita)
% Public exp: 54.4
% Out of pocket payment: 36.1
• Pharmaceutical Industry:
– 1.3% of GDP (2011)
Background
Korean Health Security System
• Two components:
• National Health Insurance (96.4% of pop.)
– Achieving universal health coverage in 1989, only 12
years after the introduction of NHI in 1977
– Funded by beneficiaries contributions
• Medical Assistance (3.6% of pop.)
– Provides support to lower income groups
– Funded by the government
Background
NHI management system
• Policy making & policy execution
• Review and assessment standards
• Scope of medical care benefits
• Contribution by the government
• etc.
Insurance
benefits, etc.
contributions
Co-payment
Medical services
The insured
Notification of review
findings
Notification of review
findings
Claim of medical expenses
Payment of medical expenses
Source: Ministry of Health & Welfare, http://english.mw.go.kr/
Background
Pharmaceutical Industry
• The size of Korean market
– 17,863millionUSD
– 15th largest market in 2010 (IMS Market Prognosis,
Apr.2011)
• No. of Manufacturers
– Total number of manufacturers: 828
– Number of active producers: 638
• No. of Employees: 74,477 (2011)
• In terms of production value, the share of the largest 50
companies stood at about 78% in 2011
• Generic share is more than 40% (Shin & Choi, 2008)
Background
Total expenditure on pharmaceuticals and other medical nondurables, /capita, US$ purchasing power parity (2011)
1200.0
1000.0
800.0
600.0
400.0
200.0
0.0
Source: OECD health data 2013
Background
40.0
Total expenditure on pharmaceuticals and other medical nondurables, % total expenditure on health (2011)
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Source: OECD health data 2013
Background
Separation of prescribing and
dispensing
• In 2000, the government initiated a reform that separated
the role of prescribing from dispensing
• The reform aims to reduce the overuse and misuse of
drugs by eliminating the provider’s profits from drugs
• Since then, the use of antibiotics and injections has fallen,
and the number of drugs per prescription has decreased
• However, the pharmaceutical expenditure continued to
increase contrary to expectations, and the share of high
priced brands has increased
• Therefore, the government introduced a series of costcontainment policies thereafter.
Background
Annual growth in pharmaceutical
expenditure per capita, 2001-2005
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Source: OECD Health Data 2013
Background
Drug Expenditure Rationalization Plan
• In 2006, the MOHW implemented the Drug
Expenditure Rationalization Plan (DERP)
• Implementation of the positive list system was the core
feature of DERP
• Background of DERP
– The share of drug spending was relatively high, and had
increased more than the other medical expenditure
– Need to strengthen the insurer’s purchasing power
– PE guidelines were published in 2006.
– Strong political will to reform drug policies
Background
Introduction of New Drugs into South Korean
National Health Insurance Review
Officially adopted by number of A7 countries
a
Total
0
1
2
3-7
2003a
61
3 (4.9)
25 (41.0)
16 (26.2)
17 (27.9)
2004a
50
1 (2.0)
19 (38.0)
11 (22.0)
19 (38.0)
2005a
50
2 (4.0)
14 (28.0)
16 (32.0)
18 (36.0)
2007b
11
3 (27.3)
2 (18.2)
4 (36.4)
2 (18.2)
2008b
30
9 (30.0)
8 (26.7)
1 (3.3)
12 (40.0)
2009b
28
7 (25.0)
4 (14.3)
1 (3.6)
16 (57.1)
2010b
19
2 (10.5)
6 (31.6)
1 (5.3)
10 (52.6)
2011b
18
2 (11.1)
4 (22.2)
3 (16.7)
9 (50.0)
Source: aYang BM, et al. 2008; bYang BM, et al. 2013
a Number of advanced seven(A7) countries that have adopted the submitted drug
Cost containment policies in South Korea
• Monitoring & fb
• Incentive for cost
saving
• Amended ACT
Demand side
E
P
=
Supply side
Source: Mossialos E, 2006.
•
•
•
•
Positive list
Price negotiation
Price adjustment
ACT
• Generic
substitution
• Amended ACT
Ⅹ
copayment
Q
PVA
R&P policies
Coverage decision for drugs
• The positive list system was introduced in 2007
– New drugs should verify its value (Therapeutic & Economic value)
– Paradigm shift from cost-based approach to value based approach
• Cost-effectiveness is an important decision criterion
– Submission of PE data is required to establish a premium price for the
drugs
• Separation of reimbursement and pricing decisions
– NHIC negotiates the price with the company
– If price negotiation fails, the drugs can not be listed, except for “essential
drugs”
• 5 year plan to re-evaluate “listed” drugs (2007-2012)
– On completion of the pilot project, the government decided to
lower the prices without systematic evaluations
R&P policies
Process of new drug listing
Health
Insurance
Review
Agency
Manufacturer / Importer
Application
Notify
Ask for reevaluation (30
days)
HIRA
comment
Reviews the applications
Disseminate review results
Economic Sub-Comttee
Pharmaceutical Benefit
Coverage Assessment
Committee
Report
150(120)days
Independent review
Reject to list
MOHW
Tentative list
NHIC
(price negotiation)
Un-negotiated
essential
60days
Report
Health Insurance Policy
Deliberation Cmte
Report
Agree to list
30days
Benefit Coordination Cmte
(compulsory listing)
60days
MOHW
Listing & Notice
R&P policies
Deliberation by committee
• Pharmaceutical Benefit Coverage Assessment Committee was
newly established in 2007
• PBCAC is an independent committee, and has a mandate to
review the submission and make recommendations on listing
• PBCAC composes of 21 members together with staff from the
KFDA and HIRA who specialize in the following areas:
– Internal medicine / Surgery / Pediatrics / Pharmacology / Epidemiology
/ PE / clinical pharmacy
– 2 members are from the consumer advocacy group
• Committee members should disclose any conflicts of
interest to the committee chair and HIRA in advance.
R&P policies
Factors considered in deliberation
Available
alternatives
Necessity/
Severity of
disease
Budget impact
Decision
Making
Reimbursement
status in other
countries
Costeffectiveness
Therapeutic
benefits
R&P policies
Rule of rescue
• The following drugs are considered “necessary
drugs for treatment”
– When there are no alternative treatments
– When there are no alternative drugs, and indication is
for severe life-threatening diseases
– Used for rare diseases, and is considered necessary to
treat those patients
– Drugs recognized by the committee as necessary for
the treatment of patients
• If price negotiation fails for the above drugs, the
benefit coordination committee can determine the
price (compulsory listing)
http://www.hira.or.kr/
R&P policies
Price negotiation
• When HIRA decides to reimburse a new drug in
the NHI, the manufacturer has to negotiate its
price with the National Health Insurance
Corporation (NHIC)
• Factors considered for price negotiation
–
–
–
–
–
Assessment report by PBCAC of HIRA
Budget impact
Price of the drug in foreign countries including OECD
Patent status
Domestic R&D expenditure
R&P policies
Old pricing rules
• Innovative drugs
– Average of A7 countries’ list prices (France, Germany, Italy, Japan,
Switzerland, UK, USA)
• Other new drugs
– Relative pricing scheme
PN _ F
PN  PO 
PO _ F
PN: price of new drug; PO: price of old drug; PN_F: price of new drug in foreign
countries; PO_F: price of old drug in foreign countries
• Generics
– Stepped pricing: the price of first generic should be lower than 80% of
original drug. The following generics should be priced at a lower price
than existing drugs. If the total number of listed products with same the
molecules exceeds 6, the new generics should be priced at 90% of the
cheapest generic
R&P policies
Price adjustment after generic entry
• New pricing rules
were applied from
Jan 2012
• Also applied for
drugs listed before
2012
• Price reduced to
53.55% of original
drugs
• The price of 6506 products (47.1%) was reduced - average price dropped
14%
Source: Yoo Mi-Young (2013)
R&P policies
Price-volume arrangement
• Listed price will be adjusted in following cases
– When the drug use exceeds the estimated volume by
more than 30% of the company’s original listing
estimate.
– When the volume has increased by more than 30% in a
6 month period after new indications were added
– When the sales volume rises by more than 60% year
on year
• Prices will be adjusted according to the
negotiation results
• % of price cuts is limited to 10%
R&P policies
Reimbursement based on acquisition
costs
• The providers are reimbursed for drug costs based on actual
transaction costs (ATC)
– The maximum reimbursable amount cannot exceed the list price
– ATC renders lack of incentives to purchase the products at
cheaper price
• Recently, the government has allowed hospitals &
pharmacies to claim 70% of the difference between the
listed price and purchase price when they buy drugs at a
lower price than the listed price
– Based on the transaction information, the government will adjust
the list price next year
• If the pharmaceutical companies give kickbacks to
providers illegally, both parties are punished
Purchase
price
List price
incentives
Purchase
price
Reimbursable
amount
Reimbursement based on actual transaction cost
Rational Drug Use
Strategies for Rational Drug Use
• Monitoring and feedback
– HIRA monitors and evaluates the prescriptions issued
by medical institutions
• Monitoring indicator: percentage of antibiotics prescribed for
upper respiratory diseases, injection rates, percentage of
generics used, etc
– Inform the result to the institution with departmental
average → encourage the physician to change their
irrational prescribing behaviors
– Post the evaluation results on the HIRA website
– Financial incentives or disincentives are being
considered
Rational Drug Use
Strategies for Rational Drug Use
• Incentives for outpatient prescriptions
– Provide incentives to the medical institution to
encourage the prudent issuing of prescriptions
– Institutions which save on the per prescription cost can
get part of those savings back as incentives
• Generic substitution
– Generic substitutions by pharmacists is permitted
– When a substitution occurs, pharmacists should notify
the facts to the prescribed physician
– The substitution rate is very low
Performance
Achievements
• The increasing trends of pharmaceutical expendit
ure has changed
– % of pharmaceutical expenditure in total medical expe
nditure began to decrease
– The increasing rate of pharmaceutical expenditure has
been reduced
• The entry price of new drugs has decreased
– The negotiated price is lower than the determined price
calculated according to the formula in the past
• The number of listed drugs has been reduced
Performance
% of pharmaceutical expenditure
in total medical expenditure
Source: Yoo, MY (2013)
Will this trend continue?
Performance
Total expenditure on pharmaceuticals and other medical nondurables, /capita, US$ purchasing power parity
500.0
Implementation of DERP
450.0
US$ 400.0
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: OECD health data 2013
Performance
Price cuts and Drug Spending
Source: Kwon H-Y, et al (2013).
http://dx.doi.org/10.1016/j.healthpol.2013.08.011
Performance
Decisions made by the committee
Unit: cases, %
Year
accept
reject
total
Acceptance rate
2007
18
13
31
58.1
2008
45
16
61
73.8
2009
35
16
51
68.6
2010
27
14
41
65.9
2011
24
11
35
68.6
total
149
70
219
68.0
Source: HIRA
• % of positive recommendation
 PBAC 54.3%, CDR 49.6%, NICE 87.4% (Clement et al, 2009)
Performance
Price Negotiation
Year
Negotiation result(cases)
Total
success
fail
2007
8
2
10
2008
45
22
67
2009
61
6
67
2010
37
13
50
2011
33
9
42
Source: Kim (2012), presented at ISPOR AP conference
•
For drugs which are used for specified rare diseases, essential for treatment,
and there are no alternatives available, the company can refund the difference
between listed price and negotiated price instead of lowering the list price
Performance
Number of listed drugs
Year
Number
of listed
drugs
‘07.1
‘08.1
‘09.1
20,775 15,223 14,900
’10.1
‘11.1
‘12.1
‘13.1
14,883 14,410 13,814 14,576
•
In the initial stage, drugs not produced nor claimed for 2 years
were excluded
•
Number of new drugs has also decreased since 2007, but its
impact on the length of the list is negligible
Performance
Price level
ratio
negotiated price/A7 avg. price
0.5
negotiated price/relative price
0.85
negotiated price/PBCAC accepted price
0.80
• The negotiated price is lower than the determined price
which is calculated according to the old pricing rule
• Price negotiation has contributed to the lowering of the
drug prices
• PBCAC’s accepted price is 108% of the relative price
Issues & Challenges
Access to new medicine
• There have been concerns about the accessibility
to necessary drugs since the implementation of
PLS
– The acceptance rate is about 70%
– Reasons of rejection
• Uncertain/unacceptable cost-effectiveness 57%
• Uncertain clinical usefulness 30.4%
• Related with new health technology, etc. 12.6%
– Acceptance rate for anti-cancer drugs is lower than the
other categories of drugs, but among the rejected drugs,
only a few are regarded as medically important
Issues & Challenges
Govt’s plan
• Expanding the coverage for severe diseases (Feb,
2013)
– Four severe diseases with a higher burden on patients:
Cancer, Heart Diseases, Cerebrovascular diseases and
Rare diseases
– Goal: to accomplish the complete health insurance
coverage for the essential health care services by 2016
• To cover the necessary drugs, which are not costeffective under the current criteria,
– Risk sharing scheme will be implemented
– To be flexible in considering the threshold of ICER
depending on the severity of the disease.
Issues & Challenges
Risk sharing
• Risk sharing may be the breakthrough in price
negotiation with some medically important
drugs
• However, there is a concern over RS
– It can be used to maintain high prices instead of
lowering the prices to a more cost-effective level
– Increased administrative burdens
– Reduction in the transparency of the system
• Need to expand the RS on a limited basis
Issues & Challenges
Price competition
• It is expected that the generic market will shrink after
price adjustment, as generics lost their price
advantage compared to original drugs
• Policies which stimulate the price competition, and
encourage the use of cheaper generics need to be
implemented in the near future
• Other cost containment policies such as reference
pricing, and expenditure cap also need to be
considered
Thank you!
Me da se !