Pharmacoeconomic guidelines have now been developed in Korea and it is likely that pharmacoeconomic evaluations will increasingly influence drug funding across the region over the coming decade. Peter Davey, principal of HEOR for IMS Health Asia Pacific and Japan, considers the potential implications.
Mandatory requirements for companies to include cost effectiveness analysis as part of reimbursement submissions are in place across much of Europe, Canada and Australia. Over the next few years, Korea is expected follow the lead of these countries and focus on concepts such as assessment and efficiency.
In early 2003, the Korean Ministry of Health and Welfare announced its intention to make greater use of pharmacoeconomic evaluations in reaching pricing and reimbursement decisions. The Korean Health Insurance Review Agency (HIRA) drafted pharmacoeconomic guidelines in 2005. Once implemented, the guidelines will be voluntary for the first few years, prior to becoming mandatory.
The focus on economic evaluation in Korea follows a string of reforms that have been introduced to curtail the cost of the National Health Insurance system. The rise in pharmaceutical spending has been one of the factors behind the increase in total health care spending in Korea. In 2003, expenditure on pharmaceuticals accounted for 28.8 per cent of total health spending in Korea, the second highest share in the OECD and above the OECD average of 17.7 per cent. In response, cost-containment policy initiatives in Korea have included regular cuts in reimbursement prices, delisting of OTC products from reimbursement, stricter monitoring of reimbursement claims, reducing over-prescribing of injectables and antibiotics, promoting generic substitution and separation of dispensing and prescribing.
What distinguishes the implementation of pharmacoeconomic guidelines from other cost-containment policies is the perception of economic evaluation as a mechanism to improve efficiency in an evidence-based decision-making environment, not just an instrument to contain costs.
Even though initially the pharmacoeconomic guidelines will be voluntary, HIRA expects their existence to encourage the submission of good quality pharmacoeconomic studies and to lead to the efficient allocation of resources. However, there is concern in the pharmaceutical industry that their use will be selective as an additional weapon for cost-containment. The important question then is how will the application of pharmaceconomics by reimbursement authorities impact pharmaceutical reimbursement?
To gain better insight into what lies ahead for Korea and other Asian countries of the use of pharmacoeconomics, it is worth exploring the implications of their introduction in two pioneering countries: Australia and the UK.
Australia introduced mandatory pharmacoeconomic guidelines in 1993; in the UK (England and Wales only), the National Institute of Clinical Excellence (NICE) began using cost effectiveness in 1999. The experience of these countries demonstrates that the impact of pharmacoeconomic requirements on pharmaceutical prices and sales is dependent on the Government's desire to control cost and structure of the funding environment.
The initial impact on pharmaceutical prices and volume was not dramatic. However, as pharmaceutical budgets escalated, governments began using economic evaluation as a sharp weapon to control costs rather than a blunt tool to encourage efficiency.
UK Pharmaceuticals Costs
Australia Pharmaceuticals Costs
In the UK, NICE disseminates guidance on the use of new and existing medicines based on submitted clinical and economic evidence to which prescribers are expected to adhere. As NICE recommendations are not absolute and autonomy to prescribe a product still rests with the physician, NICE's ability to directly control price and access to drugs is limited. Australia, however, has a limited list system: If a drug is not approved by reimbursement authorities, the government will not fund the drug. This gives the regulatory authorities tremendous bargaining power when dealing with pharmaceutical companies.
Recently, the Australian government undertook a range of policy initiatives to restrict the overall cost of the national drug scheme. An integral component of this has been the use of cost effectiveness analysis to control the introduction of new drugs in Australia. This has been achieved in a number of ways: by restricting the price at listing, restricting the uptake of the drug to the population in which it is most cost effective, and denying drugs access to subsidy.
In both of these countries, pharmacoeconomic requirements have increased the cost of doing business for pharmaceutical companies. In Australia, it is common for pharmaceutical companies to employ six or seven health economists. In the UK, staffing levels continue to grow.
The cost to government of evaluating pharmacoeconomic reimbursement submissions has not been insignificant either. In both Australia and the UK, the Governments have had to strengthen their evaluation capacity to ensure that they are capable of appraising economic evaluations.
Finally, pharmacoeconomic requirements have had subtle effects on the relative prices offered and on the types of drugs that receive a positive recommendation and, in the case of Australia, are listed on government formularies. History has shown that economic evaluations result in a preference for drugs with good quality data, where clinically significant benefits are proven and which generate survival gains and substantial quality of life improvements.
Conversely, pharmacoeconomic requirements work against higher priced drugs, pharmaceutical products that offer no proven clinical benefit or drugs that offer limited benefits, such as improvements in drug delivery or administration.
So, what conclusions can be drawn from this? There are two key lessons observers of pharmacoeconomic developments in Korea can take from the Australian and UK experience. First, in Asian countries that have drug formularies and a Government that is currently engaged in restricting drug costs, the introduction of pharmacoeconomics is likely to limit drug prices and access. Second, the lack of government regulators and industry professionals skilled in pharmacoeconomics may initially limit the ability of the new system to generate an efficient allocation of resources and could create unpredictable or perverse outcomes.
As the introduction of pharmacoeconomic requirements is discussed across Asia over the next five years, understanding the potential ramifications, both direct and indirect, should be on the radar screen for any company operating in this region.