SOUTH KOREAN PRICING SYSTEM RESISTS REFORM

South Korea's drug regulators are facing severe challenges in their attempts to introduce a more transparent and lower-cost drug pricing system. Despite a series of attempts to modernise the pharmaceuticals pricing system in recent years, it appears that vested interests have resisted the reform process.

In 1999, South Korea introduced cost-price reimbursement, Actual Transaction Pricing (ATP), in an effort to eliminate illicit "kickbacks" between drug wholesalers and hospitals. ATP was intended to remove the profit motive for healthcare providers, whereby hospitals retained the difference between discounted wholesale prices and the official price. As a result, reimbursement prices fell by an average of 30% following the introduction of ATP.

However, regulators have failed to remove all discounting practices, mainly because hospitals have no incentive to reduce their prices. Higher co-payments in the retail sector — despite pharmacists' freedom to prescribe drugs — have also ensured that hospitals remain the key access point to pharmaceuticals.

Meanwhile, regulators have turned to more direct strategies to control drug costs, as well as a new competitive bidding system for hospital drug purchases announced in December 2001. Although generic drug prices remain high, the price cuts have affected local companies more than multinationals, whose margins to wholesalers — which have a monopoly over the supply of hospitals with more than 100 beds — are kept in close check