The great rebate debate

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The great rebate debate

The Ministry for Health, Welfare and Family Affairs is trying to tackle the chronic “rebate” disease plaguing the medical and pharmaceutical industry.

As part of these efforts, it plans to criminally punish both those who give and those who receive rebates and extend license suspensions to one year. At the same time, it will provide incentives to medical facilities and drugstores that purchase medicine at lower prices.

The ministry’s solution to the problem actually comes quite late considering that the price of medicine takes up 30 percent of overall medical costs and that rebates ultimately come from the pockets of the public.

The truth is that the pharmaceutical industry has survived through its sales skills rather than by providing quality products.

It has not grown by developing new drugs. Rather, it has opted to make what essentially amounts to copies of foreign versions. So the real competition in the industry revolves around “money on the side.” On this end, drugstores and medical facilities often receive gifts for selecting certain drugs and rebates for prescribing them. The scale of such unofficial money deals is massive, totaling an estimated 2.18 trillion won ($1.9 billion) per year. The amount of money the average pharmaceutical company spends on managing and overseeing sales accounts is roughly 39.2 percent of its entire sales budget. Needless to say, this cost is reflected in the cost of medicine, which is passed on directly to the public.

The Ministry of Welfare says that if the total amount of rebates falls to the point where medical facilities and drugstores can purchase medicine for 10 percent less than current costs, patients can save 309.2 billion won per year.

We can easily draw the conclusion that pharmaceutical companies, hospitals and drugstores have worked together all this time to pick the pockets of the public.

It’s now time to put an end to that and force the pharmaceutical industry to compete on the product side of the equation. A drug for high cholesterol developed by the U.S. company Pfizer records annual sales of 15.2 trillion won, which is higher than the 11.2 trillion won in combined revenue posted by all 237 Korean pharmaceutical companies.

The Korean pharmaceutical industry’s research and development budget is only 400 billion won, which amounts to just 3.6 percent of sales. In addition to the rebate regulation solution, the Ministry of Welfare needs to find ways of supporting pharmaceutical companies to gain global competitiveness. At the same time, innovative incentives are needed to spur the creation of new drugs and increase R&D.
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