Value based contracting for medicine: the experiences of South

KoreaEun 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

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 systemNHI management system

Insurance benefits, etc.

contributions

Co-payment

Medical services

Notification of review findings

Claim of medical expensesNotification of review findings

Payment of medical expenses

• Policy making & policy execution• Review and assessment standards• Scope of medical care benefits• Contribution by the government• etc.

Source: Ministry of Health & Welfare, http://english.mw.go.kr/

The insured

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 non-durables, /capita, US$ purchasing power parity (2011)

Source: OECD health data 2013

Background

Total expenditure on pharmaceuticals and other medical non-durables, % total expenditure on health (2011)

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 cost-containment policies thereafter.

Background

Annual growth in pharmaceutical expenditure per capita, 2001-2005

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

Total

Officially adopted by number of A7 countries a

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. 2013a Number of advanced seven(A7) countries that have adopted the submitted drug

Background

E P Q= Ⅹ

• Positive list• Price negotiation• Price adjustment• ACT

PVA

• Monitoring & fb • Incentive for

cost saving• Amended ACT

• Generic substitution

• Amended ACTcopayment

Source: Mossialos E, 2006.

Cost containment policies in South Korea

Demand side

Supply side

• 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

Coverage decision for drugsR&P policies

Health InsuranceReview Agency

Process of new drug listingManufacturer / Importer

HIRAReviews the applications

Pharmaceutical Benefit Coverage Assessment

Committee

NHIC(price negotiation)

Health Insurance Policy Deliberation Cmte

Application

Report

Report

Tentative list

Disseminate review results

comment

Ask for re-

evaluation (

30 days)

Notify

150(120)days

60days

Benefit Coordination Cmte

(compulsory listing)Report 60days

MOHWListing & Notice

Agree to list

30days

Un-negotiated essential

MOHW

Reject to list

Independent reviewEconomic Sub-Comttee

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

Decision Making

Available alternativ

es

Budget impact

Necessity/

Severity of

disease

Cost-effectiveness

Reimbursement status in other

countries

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)

R&P policies

http://www.hira.or.kr/

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: 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

FO

FNON P

PPP

_

_

R&P policies

Price adjustment after generic entry

• Also applied for drugs listed before 2012

• Price reduced to 53.55% of original drugs

• New pricing rules were applied from Jan 2012

• 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

R&P policies

List price

Reimbursable amount

Purchase price

Purchase price

Reimbursement based on actual transaction cost

incentives

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

Rational Drug Use

Achievements

• The increasing trends of pharmaceutical expenditure has changed– % of pharmaceutical expenditure in total medical

expenditure 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

Will this trend continue?

Source: Yoo, MY (2013)

Performance

Total expenditure on pharmaceuticals and other medical non-durables, /capita, US$ purchasing power parity

US$

Implementation of DERP

Source: OECD health data 2013

Performance

Source: Kwon H-Y, et al (2013). http://dx.doi.org/10.1016/j.healthpol.2013.08.011

Price cuts and Drug SpendingPerformance

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

Decisions made by the committeeUnit: cases, %

Source: HIRA

Performance

• % of positive recommendation PBAC 54.3%, CDR 49.6%, NICE 87.4% (Clement et al, 2009)

Price NegotiationYear 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 ‘07.1 ‘08.1 ‘09.1 ’10.1 ‘11.1 ‘12.1 ‘13.1

Number of listed drugs

20,775

15,223

14,900

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

Performance

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 cost-effective 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 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

Risk sharingIssues & 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

Issues & Challenges

Thank you!Me da se !