Healthcare update in South Korea

South Korea’s Second Comprehensive National Health Insurance Plan, being implemented from 2024 to 2028, incorporates significant encouragement for new drug development. Along with enhancing essential medical services and improving sustainability of the National Health Insurance (NHI) system – including enhancing financial sustainability and establishing a stable supply system – the second comprehensive plan outlines key initiatives regarding pharmaceuticals.

Sung Tae Kim
Sung-Tae Kim
Partner
Shin & Kim
Seoul Tel: +82 2 316 4326
Email: [email protected]

Importantly, it enhances patient access through fair compensation for innovative drugs by:

    • Providing preferential treatment during pharmacoeconomic evaluations for new drugs recognised as innovative;
    • Expanding eligibility for the risk-sharing agreement (RSA) to include treatments for severe diseases that cause irreversible and significant deterioration in quality of life; and
    • Facilitating prompt drug price increases to address supply instabilities.

The plan also aims to optimise NHI pharmaceutical expenditure, through:

    • Developing a long-term strategic framework to integrate fragmented mechanisms for drug price adjustments;
    • Reviewing price adjustments for off-patent drugs after comparing domestic prices with corresponding prices in select foreign countries;
    • Strengthening post-market management of high-cost treatments for severe diseases, focusing on patient safety and clinical effectiveness; and
    • Restructuring the pricing system for generic drugs; and
    • Improving the price-volume agreement system.

Evaluation criteria

Hyun Wook Kim
Hyun Wook Kim
Partner
Shin & Kim
Seoul
Tel: +82 2 316 4032
Email: [email protected]

In August 2024, the Health Insurance Review and Assessment Service revised the Detailed Evaluation Criteria for Drugs Subject to Negotiations, Including New Drugs to implement these initiatives.

The key revisions include specifying “innovativeness” for flexible application of the Incremental Cost-Effectiveness Ratio (ICER) threshold. The innovativeness element for flexible application of ICER requires drugs to meet the following three criteria:

    • No alternative or therapeutically equivalent products or treatments exist;
    • Significant clinical improvement based on final outcome indicators, e.g. extended survival, can be recognised; and
    • The drug is approved through the fast-track process by the Ministry of Food and Drug Safety (MFDS), or deemed equivalent by the Drug Reimbursement Evaluation Committee.

RSA eligibility is also expanded under the revision. In practice, the RSA was largely limited to cancer treatments or orphan drugs used for serious, life-threatening diseases with no alternative, or therapeutically equivalent products or treatments.

The revision expands RSA eligibility to include drugs for severe diseases that are difficult to cure, cause irreversible disabilities, organ damage, etc., as they progress, and impose a significant disease burden.

South Korea operates a unified, single-payer NHI system that covers the vast majority of the population, significantly influencing its pharmaceutical industry.

While recent regulatory advancements such as the fair valuation of innovative drugs are encouraging, there remains a clear potential for stronger drug price reduction measures aimed at optimising NHI pharmaceutical expenditure.

Companies are advised to closely monitor these developments and adapt their strategies to respond effectively to evolving policies.

CSO regulations

Youngsik Byun
Youngsik Byun
Senior Adviser
Shin & Kim
Seoul
Tel: +82 2 316 4308
Email: [email protected]

Under the Pharmaceutical Affairs Act, a contract sales organisation (CSO) refers to entities entrusted by pharmaceutical suppliers to perform promotional activities for pharmaceuticals, including those re-entrusted for such purposes.

Previously, CSOs operated outside the formal regulatory framework, complicating oversight and raising concerns about indirect illegal business practices.

To address these issues, the government amended the act in 2021, subjecting CSOs to the dual punishment system for rebates (imposing criminal liability on both providers and recipients of illegal rebate) and requiring them to prepare expenditure reports detailing economic benefits provided to healthcare professionals.

The amended act, effective since October 2024, introduces a CSO reporting system, mandatory training requirements for CSOs and their employees, and the obligation to formalise entrustment of pharmaceutical promotion to CSOs through written contracts.

Concurrently, the amended enforcement rule of the act took effect. This specifies: the criteria and procedures for CSO reporting; training requirements for CSOs (including training content and methods, and the designation of training institutions); mandatory content of entrustment contracts; permissible scope of economic benefits provided by CSOs; and the standards for administrative sanctions in case of non-compliance.

Key provisions of the amended enforcement rule include:

CSO reporting requirements. (1) CSOs should report their place of business; and (2) Reporting should be filed with the relevant local authority, accompanied by documents verifying compliance with reporting criteria and the absence of disqualifications.

CSO training requirements. (1) CSOs should complete 24 hours of training within three months of obtaining a business registration certificate; and (2) Starting the following year, CSOs should complete eight hours of continuing training annually.

Contractual requirements. Entrustment contracts should include details of the entrusted promotional activities, including the names of the pharmaceuticals involved and commission rates per product, the contractual period, and compliance obligations of the entrusted CSOs.

These amendments impose significant compliance obligations on pharmaceutical companies engaging CSOs. Notably, the lack of exceptions to reporting requirements may even classify certain pharmaceutical companies as co-promotional partner CSOs.

Therefore, companies should assess whether to continue operating as co-promotional partner CSOs, if applicable, and revise existing contracts accordingly.

Also, as permissible economic benefits provided by CSOs have been clarified to include only product presentations and the provision of samples, companies are strongly advised to update their internal guidelines for sales and promotional practices to ensure compliance with these new regulatory standards.

While the amendments enhance regulatory clarity and operational standards for CSOs, additional legislative measures may be forthcoming to further promote orderly sales and promotion practices in the pharmaceutical sector. Companies are encouraged to closely monitor regulatory developments and proactively adapt their practices accordingly.

New data protection

Minyoung Park
Minyoung Park
Foreign Attorney
Shin & Kim
Seoul
Tel: +82 2 316 1689
Email: [email protected]

A new Pharmaceutical Data Protection System is designed to safeguard clinical trial data submitted for marketing authorisation applications and restrict the approval of follow-on drugs during the protection period. Korea formally introduced this system in February 2024, through an amendment to the Pharmaceutical Affairs Act (article 31-6). This system is set to take effect on 21 February 2025 – replacing the post-market re-examination programme that has been in operation since 1995.

The post-market re-examination system has functioned as a mechanism to ensure post-market drug safety and protect pharmaceutical data.

Key provisions of the new system are:

    1. Drug manufacturers or distributors are prohibited from newly applying for marketing authorisation or filing notifications (including notification modifications) based on clinical trial data (excluding bioequivalence test data) submitted for marketing authorisation (including modification approvals) of any of the following “protected drugs” during their respective protection periods:
      1. orphan drugs: 10 years from the date of marketing authorisation, extendable by one additional year if pediatric indications are added;
      2. new drugs: six years from the date of marketing authorisation;
      3. previously approved drugs requiring new clinical trial data due to significant modifications (such as changes to active pharmaceutical ingredients) for improved safety, efficacy or utility: six years from the date of marketing authorisation based on the new clinical trial data; and
      4. other drugs requiring new clinical trial data where data protection is deemed necessary, as prescribed by the Ordinance of the Prime Minister: four years from the date of marketing authorisation based on the new clinical trial data.

The above-mentioned prohibitions do not apply if the applicant independently prepares and submits equivalent or superior data (clinical or non-clinical trial data regarding safety and efficacy).

    1. Marketing authorisation applications or notifications during the data protection period are permitted:
      1. where the marketing authorisation holder for the protected drug consents to other drug manufacturers or distributors using its clinical trial data for such applications or notifications; and
      2. where the commissioner of the MFDS deems it necessary to respond effectively to public health emergencies under the Special Act for Promotion of the Development and Emergency Supply of Medical Products in Response to Public Health Crisis.

This new Pharmaceutical Data Protection System is expected to solidify the framework for protecting pharmaceutical intellectual property rights, safeguarding the interests of new drug developers and simultaneously enhancing the R&D capabilities of Korea’s pharmaceutical industry.

SHIN & KIM
23F, D-Tower (D2), 17 Jongno 3-gil,
Jongno-gu, Seoul 03155, Korea
Tel: +82 2 316 4114
Email: [email protected]
www.shinkim.com

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