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Value based contracting for medicine: the experiences of South Korea. Eun 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 - PowerPoint PPT Presentation
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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 !
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