The Healthcare System: Review and Reform
South Korea has had a universal system of healthcare for almost two decades. Although patients must contribute toward costs
in many areas, care and treatment are accessible for the majority of the population.
Moreover, the system is beset with inefficiencies. In recent years, these strains, along with the aging population, have drained
government coffers and created a need for cost containment—as seen in some recent regulatory policies that every potential
drug marketer must attend to.
The Positive List In 2006, in an effort to reduce drug spending, the South Korean government introduced the so-called Positive List Formulary—a
comprehensive reimbursement list. The stated goal was to reduce the amount of total health insurance costs that paid for drugs
from about 29 percent in 2005 to 24 percent by 2010.
The government claims to have evaluated pharmacoeconomic data on 14,000 drugs in deciding coverage, and only drugs found to
be effective and lowest priced are now eligible for reimbursement. All other drugs must be paid for by the consumer entirely
out of pocket. According to The Economist, this price squeeze should slash the number of drugs covered from 21,000 to some 5,000 by the end of the decade.
Not surprisingly, this move met with resistance from both local and foreign drugmakers. In addition, the South Korean government
has come under pressure to achieve a more equitable distribution between local and international companies, after being criticized
for favoring local manufacturers.
The pharmacoeconomic evaluation was widely criticized as well. Hampered by a shortage of both resources and data, it has been
slammed as arbitrary and biased. The cheapest drug in a category was often selected as the control, with little attention
to efficacy, safety, and mechanism of drugs. As for new drugs, since most have higher price tags than what's already available,
few made the cut. Out of 40 new drugs in 2007, only nine drugs have been listed on the Positive List.
Finally, the entire goal of cutting spending on drugs has been called into question by the nation's demographics, especially
its fast-growing elderly population and their demand for healthcare. Yet because the private market for prescription drugs
is as large as the public one, the effect of these price controls and restricted access on Big Pharma's products is limited.
If branded manufacturers can show positive clinical benefits and get on the list, then they will benefit from the exclusion
In fact, the new rules will likely favor pharmas with stronger branding power and more distinctive products. South Korea's
many "worried well" generally prefer paying out of pocket for a branded drug not on the formulary if it offers greater effectiveness,
safety, or some other advantage. And they're already used to ponying up for drugs, since under the old public reimbursement
system, their copay was 50 percent.
Prescribing and Dispensing Prior to 2000, doctors not only prescribed drugs, but acted as pharmacists and dispensed drugs, too—a revenue stream that
sometimes led to undue commercial influence over prescribing habits. This changed when the government limited doctors' responsibility
to prescribing. According to The Economist, the upshot appears to be better prescribing decisions by doctors; they've broadened the scope of what they prescribe, and
the number of scrips for branded drugs made by Big Pharma is rising.
US/South Korea Free Trade Agreement Signed in April 2007 after much wrangling on both sides, the Free Trade Agreement (FTA) between South Korea and the US is
expected to abolish most, if not all, of South Korea's protectionist barriers (such as discriminatory drug reimbursement pricing
and the tariffs on imported drug), which favor local drugmakers, especially the nation's burgeoning generic manufacturers.
As a result, the FTA is generally viewed as a boon for Big Pharma, unlocking the South Korean drug market to an influx of
patented products and ending business as usual in a big way.
Local drugmakers are predictably angered by the agreement, and are contesting it in court.
The National Immunization Program There has been a lot of talk in South Korea about which and how many immunizations the National Immunization Program should
fund. Currently, there are 11 key disease areas and six nationally recognized programs. But the government is under pressure
to add more.
At present, there is a great deal of advertising for these vaccines targeted at both parent-consumers and physician-providers.
Should the government opt to introduce free vaccinations for all disease areas, the vaccine makers will be forced to switch
their marketing from DTC campaigns and traditional detailing to public tendering and contract negotiations. In turn, companies
could optimize their product portfolios by freeing up sales forces to focus their efforts elsewhere.
The paradox of South Korea for drugmakers is that it offers, on the one hand, a consumer who is almost too perfect and, on
the other, a government whose healthcare policies leave a lot to be desired. Still, there's little doubt that in the end this
emerging market will come roaring to life. The South Korean people are too smart and too proud to settle for the cheapest
when they can afford the best, especially when it comes to their healthcare.
Junghwa Lee is the head of Synovate Healthcare Korea. She can be reached at email@example.com