[Ip-health] Earlier USTR agreements on Korean drug pricing

[James Love]

http://www.ustr.gov/assets/Document_Library/Reports_Publications/
2002/2002_NTE_Report/asset_upload_file729_6416.pdf


Pharmaceuticals

Korea is seeking to cut health care costs and is
continuing to consider a variety of proposals,
many of which would adversely affect Korean
patients and U.S. and other foreign
pharmaceutical companies. The Korean
Government often has developed such proposals
in a seemingly piecemeal manner without
adequate input from domestic or foreign
stakeholders. Moreover, the Korean
Government has often failed to provide the U.S.
Government with advance notice of these
proposals, despite the 1999 U.S.-Korea
agreements on pharmaceutical pricing issues.

To address U.S. concerns about transparency
and pre-notification, the Korean Government
agreed in January 2002 to establish a bilateral
health care reform working group. The group is
intended to provide a forum for the U.S.
Government and foreign pharmaceutical
companies to discuss changes the Korean
Government is contemplating and to establish a
dialogue on health care reform issues. The
United States welcomes this development, which
it hopes will address its transparency concerns
and serve to improve Korea=92s plans to develop
comprehensive health care reforms.

The United States and Korea made progress in
addressing some U.S. concerns in the
pharmaceutical sector over the past few years,
but many of these concerns have resurfaced
recently in new proposals. Indeed, in January
2002, the Korean Government publicly released
new proposed measures for national health
insurance financial stabilization, some of which
could have a significant impact on
reimbursement prices for innovative
pharmaceuticals. Among the proposals are both
new cost containment measures and the
repackaging of old proposals, as well as
timetables for implementation of these proposals.
The Korean Government did not consult with the
United States on these proposed measures prior
to their publication and the U.S. Government is
concerned about the Korean Government=92s
failure to provide the United States with
adequate time for meaningful comment prior to
finalization of these proposals and time lines.
The U.S. Government plans to discuss these
concerns and the proposed measures in the
newly established working group.

The Korean Government reached agreement
with the United States in 1999 to price new,
innovative drugs at the average ex-factory price
of A-7 countries (United States, United
Kingdom, Germany, France, Italy, Switzerland,
and Japan). In addition, in 1999, the two
countries agreed to the Actual Transaction Price
(ATP) system, which was intended to abolish
the typical hospital practice of demanding a
discount from pharmaceutical manufacturers
when purchasing drugs and then receiving a full
reimbursement from the government-operated
national health insurance system. The Korean
Government is considering changes to both the
A-7 pricing system and the ATP system, and the
U.S. Government informed Korea any changes
that could affect our bilateral agreements would
require the concordance of the United States.

The Korean Government announced in May
2001 proposed modifications to its
pharmaceutical pricing system, including
implementation of a reference pricing system.
Facing considerable opposition from doctors,
hospitals, patients associations and other
domestic stakeholders, as well as foreign
pharmaceutical companies, the Korean
Government shelved the proposal in the Fall.
However, in late 2001, Korea announced that it
intended to implement a pilot reference pricing
program in 2002. The U.S. Government
continues to have serious concerns about the
proposed reference pricing program, and will
consult closely with Korea on the scope and
form of the pilot program and any future
reference pricing proposals.

As part of its efforts to trim health care costs,
the Health Insurance Reimbursement Agency
(HIRA) has imposed unduly restrictive
reimbursement guidelines on the innovative
drugs of several foreign pharmaceutical
companies. While the process for developing a
reimbursement price for pharmaceutical
products is transparent and subject to appeal, the
product can be reimbursed only for the
indications listed on the product label. These
guidelines are initially set by the Korea Food and
Drug Administration, but can later be modified
by guidelines established by HIRA. The process
for establishing these modified guidelines is
nontransparent and there is no appeals process.
The U.S. Government has raised its concerns
over this issue with the Ministry of Health and
Welfare (MHW), most recently in January 2002,
and MHW responded that it would consider
improvements in the process based on U.S.
comments.

In addition, in October 2001, HIRA established
the Expensive Drug Cost Index, through which it
is seeking to control the use of drugs by hospitals
and clinics solely on the basis of cost. Hospitals
and clinics could be financially penalized for
exceeding the index. The U.S. Government is
concerned that such a system would discourage
Korean doctors from prescribing drugs based on
more appropriate considerations, such as safety,
efficacy, quality of drugs and the best interest of
the patients, and would discriminate against the
products of foreign pharmaceutical
manufacturers.

Certain key regulatory issues under the oversight
of MHW remain unresolved, and new issues
have arisen as a result of the Korean
Government=92s introduction of health care
reforms and cost-containment measures from
1999 to 2001. These issues include batch testing
of biologics and vaccines for product
registration, border testing for already approved
biologics, vaccines, and drugs, the requirement
for duplication in Korea of clinical trials already
completed outside Korea, ostensibly because of
ethnic sensitivity, and authorization for local
clinical studies. (See also "Standards and
Conformity Assessment Procedures").

Korea=92s December 1999 revision to "safety and
efficacy review regulations for drugs" allows the
Korea Food and Drug Administration (KFDA)
to accept foreign clinical data to approve drugs
developed overseas. As a result, KFDA has
approved some drugs based on foreign clinical
data, but foreign companies find it difficult to
determine when separate Korean data will be
required for approval.

Inadequate protection of intellectual property,
business confidentiality, and security for data
continue to be market access concerns for U.S.
pharmaceutical firms. (See also =93Intellectual
Property Rights=94).


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SEE ALSO:

USTR complaints Korea does not rely upon foriegn test data

Finally, Korea has impeded market access for
foreign pharmaceuticals by requiring redundant
local test data for three lots of imported
pharmaceuticals, vaccines and biologics for
purposes of product registration. Moreover,
once registered, each shipment of the a drug
imported into Korea for commercial purposes
must be tested. This is expensive, inefficient
and scientifically unsound. The United States
will continue to emphasize the need for the
Korean Government to implement appropriate
international guidelines on the acceptance of
foreign clinical test data, to make the drug
approval process for new drugs more sciencebased,
and to shorten the overall drug approval
process in Korea (see also "Intellectual Property
Rights Protection" and "Pharmaceuticals").


But in March 2002 USTR also forces Korea to adopt data exclusivity

The Korean Government has taken steps over
the years to remedy data or patent protection
problems that affect pharmaceuticals, but
problems remain, including the lack of
coordination between Korean health and safety
(KFDA) and intellectual property (KIPO)
officials. This lack of coordination results in the
granting of marketing approval for products that
may infringe existing patents. However, in
March 2002, the United States and Korea
resolved questions related to Korea=92s
commitment to provide full protection against
unfair commercial use of test data submitted for
marketing approval, as required by Article 39.3
of the TRIPS Agreement.


---------------------------------
James Love, CPTech / www.cptech.org / mailto:james.love@cptech.org /
tel. +1.202.332.2670 / mobile +1.202.361.3040

"If everyone thinks the same: No one thinks."  Bill Walton