Pharmaceutical Policy Reform in Korea

1. Pharmaceutical Policy Reform in Korea Tae-Jin Lee, PhD. Seoul National University, Korea

2. Outline • Korean Health Care System • Policy background • New pharmaceutical policy: PLS • Implications • Challenges and responses • Issues

3. Korean Health Care System • National health insurance (NHI) • Universal coverage • 96% of population • rest 4% covered by Medicaid • Single payer system: NHIC • Financing by premiums (partially by government general revenue) • Limited coverage of services: MRI, Ultrasono, some expensive therapies not covered by NHI • Dominant method of payment/reimbursement • fee-for-service

4. Mounting Pressure on Financial Sustainability of KNHI • Demand and supply factors • Continuous expansion of coverage • Population aging • New technologies • Growing demand for and expectation of quality health care by consumers • Structural factor: Fee-for-service

5. NHI Reforms Considered source: Health Insurance Reform Committee (2004) • Triggered by financial instability of NHI system, the following changes were suggested • Change in reimbursement method • FFS DRG Global Budgeting • Design a separate elderly care system • Introduction of economic evaluation into health care delivery on • device • pharmaceuticals • procedures

6. Characteristics of pharmaceuticals • Imperfect pharmaceutical market (Drummond et al., 1997; Harris et al., 2001) • Asymmetry of information on drugs • Decision on utilization of drugs by doctors • The third-party payment  Increase in drug expenditures  Regulation on the coverage and price of drugs in most developed countries

7. Objectives of pharmaceutical policy • Supply of quality drugs • Ensuring patients’ access to drugs • Containment of drug expenditures • Encouraging R & D

8. Introduction of Economic Evaluation into Pharmaceutical Reimbursement Decisions and Positive List System

9. Background 1-1 • Expenditures on drugs have increased rapidly since 2000 • Per capita health expenditure and expenditure on prescription drug (US $, PPP) Source: OECD Health Data 2007

10. Background 1-2 Share of drug expenditure out of total KNHI expenditure (2001~2006) (unit : 100 million KRW, %) Note 1: share of drug expenditure out of total KNHI expenditure has been increasing from 23.5% (2001) to 29.4% (2006) Note 2: nominal drug expenditure increased from 4.2 billion KRW to 8.4 billion KRW in 5 years Note 3: annual increasing rate of 15.0% is compared to 10.6% of KNHI other medical expenditure

11. Background 2 • The number of drugs reimbursed in the NHI amounted to over 21,000 in 2006 • There were large variations in prices among drugs with same effectiveness Source: HIRA

12. Fast Introduction of New Drugs into KNHI Reimbursement List: 2003-2005 Background 3 Note 1: Annually, about 50 new drugs are introduced into Korean NHI Note 2: There were 7 Korean new drugs Note 3: Korean NHI introduced 67 (40.8%) new drugs as 2nd country in the world; 32 products (19.5%) 3rd in the world Source: MOH, Korea

13. Issue with Fast Introduction • Drug pricing done based on A7-country prices as reference • A7 countries: US, UK, Switzerland, Japan, France, Germany, Italy • With few countries adopting a certain new drug, not enough price and clinical data available to guarantee reasonable pricing in Korea • For example, 25 new drugs in 2003, for which Korea reviews as the 2nd country in the world, Korean price to be determined based on only one A7 price as a reference • Seen as a problem from health financing perspective

14. Summary of Concerns • New drugs are entering into the Korean market very quickly • Drugs had been included in the reimbursement list with little consideration of budget impacts and cost-effectiveness • Drug expenditure is increasing rapidly, compared to other portions, resulting in higher proportion of NHI expenditures • Value for money in drug expenditure needs to be examined at the system level

15. Preparation period • A series of studies on drug reimbursement policy • Policy measures to improve drug benefit program (2002) • Policy measures to differentiate drug reimbursement by the therapeutic characteristics of drugs (2004) • Policy measures to improve drug benefit program with positive list (2005) • Health Insurance Review & Assessment Service (HIRA) developed “Guideline for Economic Evaluation of Pharmaceuticals” (2005)

16. Policy changes: PLS • As a measure of containing expenditures on drug, the government introduced a “Positive List” system in December 2006, which was characterized as • Selective listing of drugs • Enhanced importance of cost effectiveness in addition to clinical effectiveness • Separation of decision on listing from pricing • New procedure for price negotiation

17. Procedure for reimbursement decision Production or import of a new drug Korea Food & Drug Administration: Evaluation on the safety and effectiveness / approval of marketing HIRA: Decision on listing NHIC: Negotiation on drug price Inclusion of the drug in positive list

18. Procedure for reimbursement decision Source: Bae et al. (2009)

19. Listing new drugs • For new drugs to be reimbursed under the NHI, submission of pharmaco-economic evidence became mandatory from 2008 • Criteria for reimbursement decision considered by Drug Reimbursement Evaluation Committee of HIRA • Clinical benefits such as severity of disease and potential to replace existing therapies, • Cost-effectiveness, • Budget impact based on target population, expected sales and substitution effect • Whether and at what price the medicine of interest is reimbursed in other countries, and • Other impact on health of the population

20. Clinical effectiveness vs. Cost effectiveness New Drug (X) IQWIG Clinical Effectiveness 1. Benefit assessment A (B, C...) vs. X A (B, C...) vs. X Benefit : X = A Effectiveness Effectiveness : X = A Effectiveness : X > A : X > A Effectiveness : X < A Benefit : X < A Benefit : X > A Benefit : X ? A IQWIG Cost Minimization Cost-Effectiveness 2. Cost - Benefit analysis analysis assessment Potential to get a good price depending on ICER Priced lower than weighted price of comparator drugs Ceiling price Not reimbursable by NHI Ceiling price

21. ICER and Threshold Threshold (λ) of ICER: - No explicit threshold - May depend on per capita GDP - Decided by taking account of other factors such as severity of disease, burden of disease, impact on quality of life, innovativeness and so on

22. Reimbursement decision and price negotiation on new medicines Source: HIRA

23. Reasons for deciding not to reimburse Source: HIRA, Jirawattanapisal et al. (2009)

24. Pricing new drugs • Pricing process was separate from decision making on listing from 2007 • Once HIRA decides to reimburse a new drug in the NHI, the manufacturer has to negotiate its price with the National Health Insurance Corporation (NHIC) • A price-volume arrangement was introduced to control drug expenditures • Considering budget impact, NHIC negotiates price based on the expected sales of new drugs as well as their substitution effect. If actual sales exceed the expected ones during a specified period, the price of the drug should be reduced proportionately

25. Factors considered for price negotiation • Assessment report by DREC of HIRA • Budget impact • Price of the drug in foreign countries including OECD • Patent status • Domestic R & D expenditures

26. Price-volume arrangement • Two types of price-volume arrangement • Type 1: • When actual volume consumed exceeds expected volume by 30+% each year after the drug was included in the reimbursement list • Type 2: • When consumption volume increases by 30+% for 6 months after adding new indications, compared to volume consumed for the previous 6 months

27. Price-volume arrangement • Baseline price for negotiation for type 1 = 0.9*P0+0.1*{P0*(Ve/Va)} where P0: current drug price Ve: expected volume Va: actual volume consumed • Baseline price for negotiation for type 2 • Similar to formula for type 1

28. Results from price negotiation Note: As of April 30, 2009 Source: NHIC

29. Re-assessment of listed drugs • Drugs reimbursed under the previous “Negative List” system were allowed to remain in the new “Positive List” • Starting from 2007, 5-year-long re-assessment of 49 therapeutic groups of the listed drugs was planned. • In 2007, two therapeutic groups of drugs, migraine and hyperlipidemia, were re-assessed • In March 2010, re-assessment of drugs for hypertension was completed • Currently, re-assessment of 5 therapeutic groups of drugs is under way • The main criterion for decision on whether to keep them in the list or out of the list is cost-effectiveness in addition to clinical effectiveness

30. Timeline for re-assessment of listed drugs 2 10 15 16 6 * Sweden: started re-assessment in 2002, completed 7 therapeutic groups

31. Variation in daily cost of hypertension drugs Daily cost (KW) Ingredient - Lowest daily cost: KW 30, Highest daily cost: KW 977 Source: Kim et al. (2010)

32. Results from re-assessment • Anti-migraine drugs • Pharmaco-economic study carried out for 3 expensive triptans (Suma-, Nara-, Zolmi-) • Naratriptan and Zolmitriptan dominated by Sumatriptan • Two drugs remain in the List after voluntary price cut • Lipid modifying agents • Pharmaco-economic study carried out for all statins • No statistically significant difference in effectiveness among statins • Compared to no treatment, treatment with statin found very expensive (ICER: >$70,000/QALY for 55-year-old patients, >$40,000/QALY for high risk) • Verdict of 30% price cut resulted in resistance

33. Implications of recent policy • Economic effects • Possible to utilize drugs with similar therapeutic effects at lower costs • Price cut as a byproduct of re-assessment of the listed drugs • Access to new drugs • Delayed due to the fourth hurdle and two-tier process for listing and pricing • Enhanced access to cost-effective quality drugs • Dynamic efficiency • R & D may shrink • Need to look at incentive compatible pricing

34. Some challenges • Question on usefulness of PE • Suspicion about reimbursement decision made regardless of submitting PE • Complaints of no incentive for carrying out PE • Re-assessment of listed drugs delayed • Aversion to the re-assessment • Lack of government’s willingness to make a step forward • Weak infrastructure to carry it out within HIRA

35. Response to challenges • Rationalization of process • Preliminary consultation introduced to avoid unnecessary PE • Application of CEA to a minimal level for the listed drugs • Enhancing the expertise for review and appraisal • Economic sub-committee established • Training manpower within HIRA

36. Issues • Close coordination between HIRA and NHIC • In case of price negotiation being broken, had to go back to HIRA, now don’t have to • Threshold ICER • Better to be flexible depending on severity of diseases • Incorporating other criteria into decision making • Severity, availability of other treatments, equity, budget impact, innovation, and so on • Value-based pricing • Good price for cost-effective innovative drugs

37. Issues • Harmonization of evidence requirement: from Korean perspective • The issue of transferability of clinical data remains as an important HTA issue in Korea • Measurement of Preference • Tools such as EQ-5D and HUI developed in Europe and North America, when used as they are, may fail to reflect preference of Asian cultural aspects, even after reliability and validity of them for certain Asian populations are tested

38. Threshold ICER • Definition • A society’s maximum willingness-to-pay for one unit of effectiveness (usually, 1 QALY) • Ranges for threshold ICER are preferred to point estimates • Examples of threshold ICER • England & Wales (NICE): ￡20,000~￡30,000 / QALY • Australia (PBAC): Aus$ 42,000~76,000/LYG • New Zealand (PHARMAC): NZ$20,000/QALY • US (MCOs): US$ 50,000~100,000/QALY • Canada: CAN$20,000~100,000/QALY

39. Criteria considered for drug reimbursement in NHS Source: NICE

40. Concluding Comments No system can be perfect from the beginning Under many constraints, Korea’s PLS policy started We expect refinements and improvements of the system over the years as it goes