Generic Drug Price Reduction: How Much Benefit Will It Bring to Patients?

These days, the pharmaceutical industry is focused on the topic of 'drug price reduction.' As the government announced its intention to lower the prices of generics (copy drugs), there are efforts to prevent it, claiming that "the pharmaceutical industry will be ruined." The argument is that price reductions will lead to decreased profits for pharmaceutical companies, further damaging an already fragile research and development (R&D) foundation.

So, how will patients who consume these drugs be affected? Will they receive financial benefits from the price reductions? To what extent?

In November of last year, the Ministry of Health and Welfare submitted a proposal for improving the drug pricing system to the Health Insurance Policy Review Committee (HIRC). The aim is to promote innovation in the pharmaceutical industry, enhance patient access to treatment, and alleviate the burden of drug costs. The core content involves adjusting the pricing rate for generics and off-patent drugs from the current 53.55% to the 40% range. The government plans to implement this after gathering opinions from the pharmaceutical industry, following the HIRC's decision in February.

To properly understand the method and process of drug price reduction, one must first know what original drugs and generics are.

Original drugs are those developed by pharmaceutical companies that first create a new drug that did not exist before, based on patents. Original drugs receive patent protection for 20 to 25 years after filing a patent, allowing them to be sold exclusively. However, once the patent period ends, other pharmaceutical companies can produce and sell drugs with the same ingredients and effects.

The drugs that come out in this way are called generic drugs (copy drugs). Since there is almost no capital or labor invested in R&D, they are supplied to the market at much lower prices compared to original drugs. While there is only one original drug, there are usually dozens to hundreds of generics available in the market. For example, among cholesterol-lowering medications, the original drug with the ingredient Rosuvastatin is 'Crestor,' but there are countless generic products with the Rosuvastatin ingredient available in the domestic market.

The government has targeted generics for price reductions. So, what exactly is the drug price, and will the prices for drug consumers (patients) decrease? First, we need to understand what is meant by drug price here.

The drug price is the 'insurance upper limit price' that serves as the basis for the government to support patients' drug costs through health insurance. In other words, it is the price set for how much health insurance will cover for this drug. Patients pay a certain percentage of this price, and the rest is covered by health insurance. According to the Ministry of Health and Welfare's 'Guidelines for the Operation of the Differential Burden System for Drug Costs,' patients are generally known to bear about 30% of the cost.

For example, let's say the original drug price is 1000 won. If the upper limit for generic drug prices is reduced from 53.55% to 40%, the generic drug price will drop from 536 won to 400 won. This means the patient will bear 120 won, while health insurance finances 280 won. If additional amounts for dispensing and medication guidance are included, this will become the final price the patient pays at the pharmacy. It is true that when drug prices are reduced, the amount patients pay decreases.

So, does this mean that the prices of all medications we use will decrease? The price reduction applies to generics that are covered by insurance. Non-covered drugs or original new drugs are excluded from this. In other words, general over-the-counter medications that we purchase at pharmacies without a prescription, even if they are generics, are not subject to price reductions.

The prices of generics covered by insurance will decrease starting in July of this year. However, since the initial prices are already low and the out-of-pocket costs are also paid at a low rate, it is expected to be difficult to feel the change.

Jung Yoon-taek, head of the Pharmaceutical Industry Strategy Research Institute, stated, "It is true that the burden on the public decreases as drug prices go down," but he also explained, "Since generics already have low prices and the out-of-pocket rate is about 30%, the changes felt by patients may be limited."

From the patient's perspective, any reduction, even by a penny, can be seen as a benefit. However, there are also concerns about potential side effects. If pharmaceutical companies abandon the production of generics that are not financially viable, it could lead to instability in the supply of medications or an expansion of non-covered items.

Jung pointed out, "As competition intensifies and profitability decreases, small and medium-sized pharmaceutical companies will be the first to stop production," and he added, "If the remaining large pharmaceutical companies also cease production, there will be no companies to replace them, leading to supply shortages."

Some have raised concerns that the drug price reduction policy could trigger a 'balloon effect' that drives up the prices of over-the-counter medications. A source from the pharmaceutical industry predicted, "Pharmaceutical companies may raise the prices of over-the-counter medications, which they can set autonomously, to recover losses incurred from drug price reductions."

In fact, patients may find it difficult to feel a significant price reduction, and in the long term, it could lead to instability in the supply of medications in the market, suggesting that the government should consider adjusting prescription volumes.

One of the government's objectives in reducing drug prices is to enhance the financial soundness of health insurance. Jung stated, "Total drug expenditure is determined by the product of drug prices and prescription volumes; while drug price reductions have short-term effects, they can cause distortions across the industry," and he emphasized, "It is necessary to change the prescription structure centered on high-priced drugs through the activation of alternative dispensing." If low-cost generics with the same ingredients become the basic choice, it will be possible to maintain prescription volumes while reducing overall drug expenditure.