Swollen Drug Prices
US Intervention Is Neither Understandable Nor Acceptable
The National Health Insurance Corp. paid $7.7 billion to cover drug expenditure last year, up 73 percent from 2001. The drug cost also accounts for 29.2 percent of total insurance payments, 1.6 times higher and growing 2.1 times faster than the average of major industrial countries. Still, the government’s belated efforts to remove bubbles from drug prices and improve the NHIC’s fiscal health are facing opposition from not only the pharmaceutical industry but also Washington. Seoul should push it through.
As early as in September, the Health-Welfare Ministry plans to change its drug insurance system to cover only cost-effective products. This is natural to both curb soaring drug costs and rectify chronic abuse and misuse of drugs. A Korean prescription usually contains three or four different drugs, compared with one or two in a foreign one. Behind the NHIC’s snowballing deficits are this over-prescription, a near automatic insurance coverage and excessive pricing of new foreign medicines.
The domestic drug distribution system of course leaves much to be desired. Marketing costs at Korean pharmaceutical firms, including PR, rebates and other promotional expenses, account for 35 percent of the total, almost three times higher than manufacturers’ average. The government’s first-come, first-served insurance coverage also drives makers to compete over speed, not quality. The policy shift toward favoring less expensive, more effective drugs is expected to rectify many of these practices.
From now on, less competitive pharmaceutical firms will not just see their businesses decline but face shutdowns as well. The small, lagging domestic makers, whose combined annual sales of $8 billion barely equal that of one multinational giant, should strive to drastically improve their scale and technology. Officials responsible for deciding insurance coverage and setting prices could be targets of intensive industrial lobbying. The exposure to possible corruption requires them to be doubly careful and clear in the process.
The new move could also wrinkle the bottom lines of multinational firms operating here. Currently, Koreans are paying the average cost that consumers in seven major industrial countries are handing over to pharmacists for “original” drugs developed abroad. This is hard to accept, considering the wide gap in national income. The real problem, however, will occur when current prices could double or even triple under a Korea-U.S. free trade accord.
Actually, maintenance of the present drug pricing system was one of the four preconditions set by Washington for launching bilateral trade talks. Seoul officials have maintained such public sectors as medicine and education are not subject for negotiation. Seeing them handle this issue, which forms an important part of medical care, however, not a few Koreans are feeling nervous about the negative effects of the FTA.
05-05-2006 16:32