Korea to Cut Prices of 4,500 Drugs, Overhauls Drug-Pricing System
Reforms include tiered R&D premiums, multi-year price cuts, and a new flexible pricing contract to ease new-drug delays
Starting next July, prices for roughly 4,500 already-listed drugs—those that have long remained between 40% and 53.55% reimbursement rates—will be progressively lowered. The fiscal impact is estimated at up to $680 million.
Alongside these cuts, the government will restructure the pricing system for generics, overhaul the premium add-on scheme to better reward R&D investment, and implement a flexible pricing contract to address delays in new drug launches. The flexible contract system could begin as early as February 2025, pending regulatory updates.
On November 27th, MOHW Director Joong-gyu Lee, joined by Pharmaceutical Benefits Division Director Yeon-sook Kim and Deputy Director Gi-hyun Bae, briefed the ministry’s press corps on the intent behind the reform.
According to Director Lee, the overhaul focuses on three priorities:
1. Supporting timely introduction of innovative new drugs;
2. Ensuring stable supply of essential medicines amid recurring shortages; and
3. Correcting structural imbalances created by outdated pricing and post-management systems.
Higher Prices for Firms with Strong R&D Investment
A central pillar of the reform is the restructuring of the premium add-on system to promote fair and competitive R&D investment. While the base premium of 68% for certified innovative companies will remain, future premiums will be tiered by company revenue and R&D ratio.
Director Lee stated, “We are introducing a tiered structure that rewards companies with higher R&D intensity. We also created a dedicated premium category for small companies with annual revenue under $34.1 million that are developing new drugs, even if they are not classified as innovative firms.”
He noted that a uniform standard would disadvantage small biotech ventures with low revenue but high R&D commitment. “Large pharmaceutical companies and early-stage biotechs cannot be evaluated on the same scale,” he added.
Regarding reforms to the essential medicines system, he acknowledged industry skepticism but reaffirmed its strategic importance. “Using APIs manufactured in Korea supports national health security. Despite concerns that these incentives may have come late, the policy remains meaningful.”
Price Cuts Begin with Drugs Unchanged Since 2012
Director Lee highlighted the need to update generic pricing standards. “When the 2012 stepwise price cut was introduced, around 6,000 products were affected. Yet roughly 3,000 have continued to maintain the 53.55% level for more than a decade, and some 1,500 have seen substantial increases in use,” he said.
The ministry considers these products to have enjoyed excessive margins and will reduce their prices gradually over three to four years, beginning in July 2025 and continuing through 2030.
Director Lee stressed that the initiative is aimed at structural normalization, not aggressive cost-cutting. “We will first adjust products that have benefited for more than ten years. The total impact is expected to remain below USD 680 million, but our goal is to correct a pricing system that has been fixed for 13 years.”
He also reiterated that no new preferential benefits will be added for generics beyond existing measures—such as incentives for companies producing their own APIs or supporting supply stability.
On planned 3–5 year cyclic evaluations, he clarified that this refers to periodic reviews of 27,000 generic products, not automatic price cuts.
Sub-Title: Transparent Pricing Delays New Drugs—Flexible Contract System Introduced
Director Lee explained that Korea’s real-transaction–based pricing, though transparent, has unintentionally deterred companies from launching new drugs in Korea. “Because Korean prices are used as international reference prices, some companies have delayed or even abandoned Korean launches,” he said.
To address this, the ministry will introduce a flexible pricing contract that separates the publicly listed price from the actual payment price. Application could begin as early as February 2025.
He also clarified scope: “At this stage, generics will not be included—only biosimilars. In fact, Korea’s lower prices may offer export advantages for generic manufacturers.”
On discussions surrounding a higher ICER threshold, Director Lee emphasized the need to transition toward post-launch, RWE-based assessments, noting that real-world outcomes for innovative drugs often diverge from clinical trial data. “This shift is a global trend, and Korea must build the infrastructure for a post-market evaluation–centered system.”