[VIEWPOINT] Health insurance needs repair

The government really thought it could root out unfair trading by way of medical reform.

The Kim Dae-jung administration amateurish tinkering with medical reform and the integration of medical insurance finances have levied 4 trillion won ($3.4 billion) in extra annual costs on the public, greatly inconveniencing the people and not improving services. Why did the reforms fail? We should try to find the answer by looking at the main feature of medical reform the strict division of labor between the nation? doctors and pharmacists.

Before the medical reforms, pharmaceutical companies were allowed to set their own prices for medicine, requiring only that those prices be reported to the government. The National Health Insurance Corporation would then add 3.5 percent to 5 percent to the wholesale price, and that price was the amount that hospitals could claim as reimbursement from the medical insurance system. The hospitals made a bit of profit on the difference between the price they paid for the drugs and the price at which the insurance system would reimburse the hospitals. In fact, competition between drug firms meant that they often sold drugs to some hospitals at prices lower than the price they reported to the government.
Different points of view on the price differences triggered medical reform. Hospitals and clinics assert that because their medical services are not fully reimbursed by the health insurance corporation, the price differences in medicine acted as a necessary de facto subsidy to hospitals. Thanks to that seudo-subsidy, hospitals could survive in spite of the low insurance payments for their medical service. Hospitals were forced to look for those discounts in order to get the highest possible margin.
On the opposite side, the government regarded these attempts by the hospitals to get additional discounts on drug purchases an abuse of their dominant power in the market and thus as unfair trade, and compromised by saying that hospitals could get reimbursements at a 14-percent mark-up over their purchase price. If hospitals purchase drugs at under that floor price, the government issued warnings or compelled pharmaceutical firms to lower their reported prices for the drugs. The government really thought it could root out unfair trading by way of medical reform.

At the initial stage of medical reform, the government implemented a ?eal price system,?under which the health insurance system paid hospitals according to the actual purchase price. This system caused three problems.
First, the system removed hospitals?incentives to buy at lower prices, so they stopped bargaining with the drug companies. Second, hospitals and clinics could not get that pseudo-subsidy anymore, so after medical reform, the health insurance body had to raise the reimbursement price for medical services. Third, before the reform, doctors worried about a declining number of patients if they prescribed expensive medicines. But after the reform, doctors did not have to worry about that, so they felt free to prescribe expensive medicine. Filling prescriptions was a pharmacist? role, and doctors had no financial interest in it. Tinkering with medical reform inflated the health insurance deficit.

The pricing freedom that drug companies have had in the past is part of the problem. Whether Korea goes back to a price reporting system or adopts a price re-evaluation system, consumers?participation in pricing should be left open.

To reduce the use of expensive drugs, it is desirable to set a reference price for drugs and use that as the basis for insurance payments. The patient can still choose to use the expensive drug, but the extra cost comes from his pocket. That reduces the use of higher-priced but similar drugs.

Civic groups oppose this system because of the increased burden on patients using expensive drugs, but there are problems in the present system as well; some patients are prescribed cheaper drugs and others get the expensive ones, and the health insurance system pays for both.

Of course, multinational pharmaceutical companies have the same opportunity to market their products just like domestic firms, but if they interfere in efforts to keep the medical insurance system afloat, or if they refuse to play by the same rules local firms are under, that is not a trade issue; it is meddling in something that is not their affair.

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The writer is the dean of Graduate School of Health Science and Environment at Yonsei University.

by Lee Kyu-sik