Korea to cut drug prices drastically

Pharmaceutical firms vow to defy measure designed to reduce insurance expenditures


The government plans to slash the price of about half the drugs on the market by an average of 14 percent, the Ministry of Health and Welfare said Monday.

The price cuts, if approved by the Prime Minister’s Office in December, will be the largest since the government took away drug sales rights from doctors and gave them exclusively to pharmacists in 1999.

The move, designed to reduce national health insurance expenditures, left pharmaceutical companies vowing to resist the measure, which they said could “threaten their survival.”

According to the ministry, 7,500 items of the 14,000 available on the market here will be subject to price reductions.

For example, DongA Pharmaceutical’s Lipinon, a drug to treat cardiovascular diseases, will be priced at 665 won ($0.5) per pill, down from the current 835 won.

Drugs exempt from the cuts have no competitors, are priced in the bottom 25 percent of items or are used to fight rare diseases. Products manufactured by fewer than three companies will get a smaller price cut.

The authorities expect the plan to save a total of 1.7 trillion won, including 1.2 trillion won in national health insurance fund expenditures.

“The measure will reduce the current portion of drug prices in the national health insurance fund from the current 34 percent to 25 percent,” said Choi Hee-ju, a ministry official.

The plan is scheduled to take effect April 1.

The ministry said the possible losses to be incurred could be compensated by rooting out illegal rebates,where drug makers return a portion of profits to doctors or hospitals in exchange for prescription of their products. The authorities have removed products involved in this practice from coverage under the national health insurance.

“According to the Fair Trade Commission, the domestic pharmaceutical market is estimated at 10.5 trillion won as of 2006. The amount of money used for rebate is about 10-30 percent of the total revenue. If firms stop the rebate practice, it may offset losses from the price-cutting measure,” Choi said.

Still, fierce opposition is expected from pharmaceutical firms. Industry insiders speculate that some firms have started restructuring to cut corners through early retirement.

The Korea Pharmaceutical Manufacturers Association said Monday that it will consider stopping all manufacturing once the price-reduction policy comes into effect.

“We will take legal steps against it,” the organization said in a press release.

By Bae Ji-sook (baejisook@heraldcorp.com)