In 2000, the government of South Korea implemented a series of reforms to the pharmaceutical market, with the aim of cutting costs and improving service levels, appropriateness of care and drug effectiveness. However, the reforms have in fact led to increased prescribing of high-priced drugs and a greater share of the domestic market for multinational drugmakers, according to a new study published on-line by the journal Health Affairs.

The Korean Health Care System Reform Act of 2000, or Separation of Pricing and Dispensing (SPD), banned the existing practices of doctors dispensing medicines to outpatients and pharmacists prescribing prescription drugs. This system had allowed doctors and pharmacists to make large profits, and patients to unknowingly abuse prescribed drugs, say authors Hak-Ju Kim, chair and associate professor of social welfare at Dongguk University, Seoul, and Jennifer Prah Ruger, assistant professor at Yale University School of Medicine, USA.

The government argues that the reform has been successful, because the use of antibiotics and injections has declined, thus reducing health spending and losing Korea its world-leading ranking for penicillin resistance. But, say the authors, since the reform, the national market share of high-priced drugs has increased from 36.2% to 54.3%, and that of original brand-name medicines has gone up from 11.35% to 14.82%.

Moreover, the growth rate of national medical expenditures (NME) in South Korea has remained higher than the Gross Domestic Product (GDP) growth rate, and NME as a share of GDP has risen, leading to widespread concern that health care costs are out of control, they add.

National pharmaceutical spending in 2006 was 8.4 trillion won, or 29.4% of total health insurance payments, which is 16.2% up on 2005’s total of 7.2 trillion won and compares to a total of just under 4.2 trillion won in 2005. The report suggests that this fast growth is due to more patients taking a greater variety of higher-priced brand-name drugs, driven by supply-side changes including drugmakers’ “fortified” marketing efforts. To resolve this problem, in January 2008 the Ministry of Health and Welfare introduced a positive list, under which only effective and price-competitive medicines will be covered by National Health Insurance (NHI). However, critics believe this attempt to curb demand for high-priced drugs is contrary to the physicians’ duty to select the best medication for each product.

The reform’s implementation, although well-intentioned and successful in some respects, was imperfect from the start, say the authors. For example: - it has failed to prevent pharmacists from supplying prescriptions illegally at the request of patients; - the ban on hospitals and pharmacies from occupying the same building is not enforced; and - government negotiators have given in to many demands from doctors, including the right to sell prescribed intravenous medicines and a 69% hike in prescription charges, which has in turn led to increased insurance premiums.

While the reform has allowed foreign drugmakers to increase their market share, report forecasts that South Korea’s domestic firms will shortly follow the same path as their Japanese counterparts which are now, faced with Japan’s own pharmaceutical reform, going through mergers and acquisitions in order to survive the intensifying competition with multinationals in their home market.

South Korea needs further reform measures to reverse these unintended consequences, including the introduction of drug formularies and restricting insurance benefits for those not on the list, says the authors. Moreover, they add: “thoughtful consideration of evidence-based incentives and disincentives for health care producers will be crucial in future reforms.”