On September 1, 2014, the amended Enforcement Decree of the National Health Insurance Act (the “Decree”) and Rule of the National Health Insurance Benefit Criteria (the “Rule”) were implemented. The amended Decree and Rule relate to the national health insurance drug pricing system linked to drug approvals, rewards for reducing pharmaceutical expenditures, and ex-officio adjustment of drug prices for failure to comply with risk sharing agreements. The new system under the amended Decree and Rule is expected to shorten the timeframe required for the listing of drugs in the national health insurance drug price list (“Drug Price List”) and to drive down drug prices so that drugs can be supplied at reasonable prices and in an expedited manner.

National Health Insurance Drug Pricing System Linked to Drug Approvals for Innovative Drugs

Previously, an application for the listing in the Drug Price List could be submitted only after the drug was approved by the Ministry of Food and Drug Safety (the “MFDS”). However, under Article 10-2 of the amended Rule, the listing application can be filed after the MFDS issues a notice of safety and efficacy review results.

Under this new system, drug approvals by the MFDS and listing in the Drug Price List by the Health Insurance Review & Assessment Service can be processed simultaneously. Accordingly the timeframe required for the listing of drugs in the Drug Price List can be shortened by 30 to 60 days, and drugs can be supplied in an expedited manner.

This new system applies only to innovative drugs, the specifics of which are to be announced by the Ministry of Health and Welfare (the “MOHW”) by the end of this month.

Rewards for Reducing Pharmaceutical Expenditure System

The amended Decree and the MOHW’s Reward Payment Criteria have changed the previous system to create incentives to purchase drugs at lower prices into the new system to provide rewards for reducing pharmaceutical expenditures.

Under the new system, in addition to receiving incentives to purchase drugs at lower prices, medical care institutions may also be rewarded for reducing pharmaceutical expenditures by lowering the number of drugs prescribed or prescribing lower-priced drugs on a half yearly basis.

Meanwhile, the amended MOHW’s Drug and Treatment Material Pricing Criteria authorizes the Korea Pharmaceutical Information Service Center to investigate drug prices and follow up on them.

Ex-Officio Adjustment of Drug Prices and Others

Risk sharing agreements by which pharmaceutical companies agree to share risk by linking payment to actual performance of drugs are generally entered into where there is uncertainty about effectiveness or performance of drugs. Under the new system, in case of failure to comply with terms and conditions of a risk sharing agreement, the drug’s maximum price in the Drug Price List may be adjusted ex-officio. In addition, insurance reimbursement for a drug may be limited or suspended if behaviors, such as illegal rebates, that may throw the drug market in disarray get involved in the distribution of the drug.