Pharmaceutical Policy in Korea: Role of Health Insurance in Pricing, Reimbursement and Monitoring

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1 Pharmaceutical Policy in : Role of Health Insurance in Pricing, Reimbursement and Monitoring Soonman KWON* and Sukyeong KIM** *Dean, School of Public Health Seoul National University ** Director, Research Department Review and Assessment Research Institute, HIRA 1

2 ROAD MAP 1. Health Insurance System in 2. Pharmaceutical Pricing and Reimbursement in Health Insurance 3. Monitoring of Prescribing and Utilization in Health Insurance 4. Challenges 2

3 Pharmaceuticals (in and East Asia) Pharmaceutical expenditure accounts for a large share of total health expenditure Rapid increase in pharmaceutical expenditure (Health care and pharmaceutical) cost containment is a challenge in an era of rapid aging of population 3

4 Expenditure on Pharmaceuticals and other Medical Non-durables in (OECD Health Data) % total expenditure on health /capita, US$ PPP

5 I. Health Insurance System in 1. Health Care Financing - Social health insurance first introduced for workers in large corporations in 1977, universal coverage of population achieved in Health insurance societies were merged to form a single payer system in 2000 Cost sharing for patients (with exemptions and ceilings) - 20% for the inpatient care % for the outpatient care, depending on clinics, hospitals, general hospitals, tertiary hospitals - 30% for outpatient medicines: for 52 minor diseases, 40% for general hospitals, 50% for tertiary hospitals 5

6 2. Health Care Delivery - Private delivery (90% of hospitals are private) - Fee-for-service payment for health services with a tight control of fee - Pharmaceuticals have been an important source of profit for health care providers: difference between the purchase price and reimbursed price by the insurer -> especially before the introduction of the separation of drug prescribing and dispensing 3. Insurance Organization - National Health Insurance Corporation (NHIC) - Health Insurance Review and Assessment (HIRA) 6

7 II. Pharmaceutical Pricing and Reimbursement in Health Insurance 1. Reimbursement to Medical Providers Reimbursement of real cost of purchase (No margin on medicines) - No incentive for providers to purchase medicines in a cost-effective way - Pharmaceutical manufacturers and distributors provide informal pay-back to hospitals/physicians Changes in Allow providers to keep a given portion of the difference between the real cost of purchase and prevailing market price 7

8 2. Pricing of Pharmaceuticals Pricing of New Medicines: external reference pricing Average of manufacturing prices (65% of list price) in 7 countries (USA, UK, Germany, France, Italy, Swiss, Japan) plus VAT and distributors margin Pricing of non-new (generic) Medicines With patent expiration, 20% reduction in the price of originator 1 st -5 th generic medicine: 85% of the reduced price of originator drug (68% of the price of originator before patent expiration) 6 th - : 90% of the lowest price of the existing generic 8

9 International Price Comparisons of Generics: Price Index (1) (Kim, Kwon, et al., 2010) No M/P/ S Laspeyre s USD Paasch e Walsh Fisher Laspeyre s USD-PPP Paasch e Walsh Fisher USA Norway Sweden UK Spain Germany Belgium

10 International Price Comparisons of Generics: Price Index (2) (Kim, Kwon, et al., 2010) No M/P/ S Laspeyre s USD Paasch e Walsh Fisher Laspeyre s USD-PPP Paasch e Walsh Fisher Italy Netherlan ds Australia Austria France Swiss Japan

11 3. Reform in the Pricing of Pharmaceuticals 1) Economic Evaluation Introduction of positive listing (included in the benefit package) based on cost effectiveness, starting in > HIRA (Health Insurance Review and Assessment) reviews the data submitted by pharmaceutical manufacturers 2) Pricing for Originator Medicine Instead of formula-based external reference pricing (average price in 7 countries) -> Introduce price negotiation between NHIC (National Health Insurance Corporation) and pharmaceutical manufacturers with price-volume consideration 11

12 3. Reform in the Pricing of Pharmaceuticals 3) Changes in Generic Pricing (from March 2012) - First year after patent expiration: 30% reduction in the price of originator, 85% of which (59.5%) is the generic price - From the second year after patent expiration: 53.5% originator price (10% reduction from the year 1) for all generic medicines, regardless of the order of entry Domestic pharmaceutical industry - High profit as a result of high price has been used for rebates - Less competitive producer will exit the market 12

13 III. Monitoring of Prescribing and Utilization in Health Insurance 1. Monitoring and Feedback for Prescribers Prescribing behaviors have been monitored since antibiotics for acute respiratory tract infections - overuse of injectables - polypharmacy (no. of drugs prescribed together) - generic (lower-priced drug) prescribing - medication expenditure per prescription day

14 1. Monitoring and Feedback for Prescribers (continued) Analysis and reporting are done monthly using data warehouse system and profiling system Provide public reports twice a year Chronic disease medication monitoring : anti-hypertensive drugs, diabetes drugs - polypharmacy - compliance (medication possession rate)

15 2. Financial Incentives for Prescribers Financial incentive as a percentage of the savings in the expense of medicines prescribed, taking into account the OPCI (Outpatient Prescribing Costliness Index): saving = expected expense actual expense OPCI: relative measure of medication expense per day, compared with similar type of providers Expected expense = medicines expense per day last year * number of days for medication this year 15

16 2. Financial Incentives for Prescribers (continued) Financial incentive is provided for the savings in medication expenditure if OPCI is decreased (from last year) Amount of the financial incentive (range 10-50%), depending on the value of OPCI last year - 35% of the saving in expenditure, when the OPCI is Greater than 35%, when OPCI is less than Smaller than 35%, when OPCI is greater than 1.0 Relevant information on pharmaceutical expense is also provided to physicians and hospitals 16

17 3. DUR (Drug Utilization Review) Concurrent DUR system - When physicians prescribe and pharmacists dispense medicines, information is forwarded to HIRA (Health Insurance Review and Assessment) - Based on the nation-wide utilization data for patients - Check (real time basis) precautions for age and pregnancy, and duplications and adverse interactions among prescribed drugs and among drugs prescribed and those being consumed Expected effects: health improvement and cost containment 17

18 3. DUR (continued) Future issues - Need to extend the level of drug-drug interactions: Currently level 1, not including level 2 and 3 - Need to check the adequacy of dose, too - Need to include medicines, not in the benefit list - Monitoring how physicians and pharmacists respond to the recommendation to change the prescription Need to be extended to check the overall appropriateness of prescription, taking into account patient characteristics: combined with CDSS (Computerized Clinical Decision Support System) and EHR (Electronic Health Record) 18

19 4. Information Provision to Consumers Information disclosure on the performance of health care providers, in the website of HIRA Regarding outpatient medications, 5-scale evaluations for (compared with the average value for different levels and specialties of health care providers) - Rate of antibiotics prescription - Rate of injectables prescription - Number of medicines per prescription - Expense of medicines prescribed 19

20 IV. Challenges Pharmaceutical expenditure keeps rising in spite of various policy interventions Why pharmaceutical expenditure is so high in?: Not only price but also (or more driven by) quantity (absolute quantity and the mix of originator and generic medicines) How to change the quantity of drugs or prescribing behavior? -> need payment system reform for physicians (e.g., capitation for primary care doctors, outpatient pharmaceutical budget for hospitals) 20

21 IV. Challenges (continued) People s (favorable) perception on drugs: affected by traditional medicine, which relies heavily on medicines (herbs) Controversies over (internal) reference pricing - Differential cost sharing for patients based on the price of medicines - Reimbursement of the lowest price or average price of medicines in the group - Prescribers willingness to provide (unbiased) information on the relative price and effectiveness of medicines? - Effect on the price competition in the pharmaceutical industry? 21

22 THANK YOU! Prof. Soonman KWON (Seoul National Univ.) (Homepage) 22