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Abstract
Introduction: A new pricing policy was introduced in Korea in April 2012 with the aim of strengthening competition among off-patent drugs by eliminating price gaps between originators and generics. Objective: Examine the effect of newly implemented pricing policy. Methods: Retrospectively examining the effects through extracting from the National Health Insurance claims data a 30-month panel dataset (January 2011–June 2013) containing consumption data in four major therapeutic classes (antihypertensives, lipid-lowering drugs, antiulcerants and antidepressants). Proxies for market competition were examined before and after the policy. Results: The new pricing policy did not enhance competition among off-patent drugs. In fact, price dispersion significantly decreased as opposed to the expected change. Originator-to-generic utilization increased 6.12 times (p = 0.000) after the new policy. Conclusions: The new pricing policy made no impact on competition among off-patent drugs. Competition in the off-patent market cannot be enhanced unless both supply and demand side measures are coordinated.
Acknowledgements
The authors would like to thank V Wirtz, associate professor at Boston University, who provided insight and expertise that greatly assisted the research. The authors would also like to thank Takemi fellows of 2014–2015, especially, El-Samani for his support and comments. The authors are indebted to the National Health Insurance Service (NHIS) for supporting the data. There are no conflicts of interest to declare among the co-authors.
Financial & competing interests disclosure
The authors have no relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript. This includes employment, consultancies, honoraria, stock ownership or options, expert testimony, grants or patents received or pending or royalties.
No writing assistance was utilized in the production of this manuscript.
In April 2012, a new pricing policy was implemented in South Korea in order to strengthen market competition among off-patent drugs by eliminating the price gaps between originators and generic medicines.
This new pricing policy was supposed to promote market competition among off-patent drugs on the assumption that generic manufacturers might implement price differentiation strategies to penetrate the market if their maximum reimbursement prices were the same as the originators.
We retrospectively evaluated the effect of the new pricing policy analyzing panel data over 30 months (January 2011–June 2013) from the National Health Insurance Claims data. The extent of market competition was expressed as price dispersion, market share of the originators and originator-to-generic utilization ratios.
The results demonstrated that the assumption of strengthened market competition among off-patent drugs following the new pricing policy enactment was not seen in practice. In fact, price dispersion narrowed rather than becoming broader as expected, which implies generic manufacturers have not lowered their prices as a marketing strategy. The originators have been prescribed 6.12 times more often than generic drugs after the new policy implementation.
The new pricing policy has not contributed to promoting market competition. In fact, the reverse has been seen with the originators taking advantage through this policy even after the patent has expired.
Price competition cannot be achieved solely with price regulation policies as this study revealed. Supply-side measures such as price cutting are relatively easy to implement in Korea. However, the lack of demand-side measures failed to create a competitive market. Demand-side measures such as reference pricing should be considered for Korea to take advantage of low cost generics.