Medical Device Reimbursement Pricing Guideline in Korea

Challenge and Collaboration 

Lee Sang Soo BA, Reimbursement Manager, Medtronic Korea Co., Ltd. Seoul, South Korea 

Overview of Korea Healthcare System

Korea has a public health care insurance system called the National Health Insurance (NHI). The NHI is the single national insurance payer administered by the government of the Republic of Korea covering over 97% Korea population with remaining of medical aid program beneficiaries.  

The NHI Law requires that all income-earning citizens contribute a certain percentage of their salaries or incomes to the NHI on a monthly basis to insure their whole families. The premium rate for 2006 is 4.48 percent of taxable income.  The law also requires that all healthcare providers in Korea be registered with the NHI to receive reimbursement under the NHI. Consequently, the NHI insures the almost entire population in Korea and reimburses all hospitals or clinics for the services provided to all patients.  

The Ministry of Health and Welfare (MOHW) is responsible for operating the NHI. The MOHW is in charge of all policies, regulations, prices and coverage to implement the NHI. It commands two outside entities that were founded by the NHI law : the National Health Insurance Corporation (NHIC) and the Health Insurance Review Agency (HIRA). Under the supervision of MOHW, these two organizations provide different functions in the NHI system. 

NHIC is the official insurer provided by the NHI law. This agency is basically a fund-managing organization that collects premiums from citizens and reimburses healthcare providers for services delivered to patients according to a price list announced by MOHW. It assists MOHW to keep a balance between revenues and expenditures in the NHI. 

HIRA is the technical review organization provided by the NHI law. This agency consists of medical professionals as its employees or part-time professional advisers and provides MOHW with technical assistance in making policies and reviewing reimbursement applications.  

HIRA reviews not only healthcare providers reimbursement claims but also reviews reimbursement price and coverage application from healthcare providers, medical device and pharmaceutical companies for listing and pricing new products or services for reimbursement under the NHI. After certain review procedures, HIRA provides MOHW with its recommendations of the eligibility of reimbursement and prices for application products or services individually. HIRA also reviews reimbursement claims submitted by healthcare providers for services that have been approved for reimbursement after delivery to patients. The HIRA then forwards its approvals of reimbursement to NHIC which reimburses the healthcare providers.   

Medical Device Reimbursement Pricing Guideline

The MOHW implemented the “Guideline to Calculate Maximum Reimbursement Prices of Therapeutic Materials” on March 1, 2006. This has been attached as Appendix 2 to the “Regulation for Deciding or Revising Decisions of New Medical Technologies, Etc.” (MOHW Notification 2006-15, February 20, 2006) – the regulation for pricing new services or products under the NHI. Previously, device pricing regulation existed in the form of an internal HIRA guideline. The agency drafted this internal guideline and obtained approval from the Medical Device Expert Committee whose role is to determine the reimbursement coverage and price.  

The major four criteria determining the price is : (1) purpose of use; (2) materials; (3) shape; and (4) sizes.

·         When a application product is equivalent to comparable products in terms of purpose of use, materials, shape and sizes, it is priced at a) 90 % of the reimbursement price of the comparable product when there is one comparable product in the category, or b) the same rate of the lowest-priced product when there are two or more comparable products listed in the category. In the event that a new product has been evaluated to offer substantial improvements in terms of clinical outcomes or cost-effectiveness, it is priced at the same rate as the highest-price product in the category.   

·         When a application product has the same purpose of use as existing products but is made from different materials or in different shapes or sizes, resulting in remarkable improvements, the new regulation provides that it will be evaluated using the value appraisal form provided with the regulations. The regulation provides that the value approval be made using information submitted by the applicant regarding clinical outcomes, cost-effectiveness, R&D costs, uniqueness of technology, other information proving improved values, etc.  

The regulation provides that MOHW/HIRA use the form to evaluate the degree of improvements offered by application device. The value appraisal form was designed to evaluate a product from two different perspectives: (1) clinical outcomes and (2) cost effectiveness. These two criteria are further divided into four (4) sub-criteria to make a total of 100 marks at maximum. Each sub-criterion is allotted different caps for the marks as below;

ü        40 marks for therapeutic effects,

ü        20 marks for reduction in use of medicines or other devices, and

ü        20 marks for reduction in operating time or recovery period  

Application product is evaluated from those four (4) different perspectives on a scale of 1 to 5 grades, that is ;

ü        grade 1 refers to “no improvement”,

ü        grade 2 refers to “minimal improvement”,

ü        grade 3 refers to “moderate improvement”,

ü        grade 4 refers to “significant improvement”, and

ü        grade 5 refers to “maximal improvement”
 

Each grade then gets different conversion factors, i.e. (1) 0 for grade 1; (2) 2.5 for grade 2; (3) 5 for grade 3; (4) 7.5 for grade 4 and (5) 10 for maximal improvement, grade 5. The regulation mentions no further details to calculate a premium amount.  

Table 1. Criteria of Value Appraisal

Table 2. The Value Appraisal Form

·         There is no regulation providing factors for how to determine innovative technologies. In practice, the MOHW or HIRA puts improvements in cost-effectiveness or clinical outcomes on the top priority. For a device that is costly but excellent in clinical outcomes, the HIRA/MOHW may make a non-reimbursement decision because they think that its price is too high compared to the value of the improvement. Further, when a new product offers a new purpose of use that is different from those products already on the NHI list, its reimbursement rate will be calculated using its manufacturing costs or FOB (import) price, taking into consideration clinical outcomes or cost-effectiveness. The regulation requires that domestically-developed products provide their manufacturing costs, endorsed by a cost-accounting organization meeting requirements provided by the Government Contract Regulation.  

See below for a conceptual diagram explaining the medical device pricing system.  

Diagram 1. Medical device pricing system

Challenge and Collaboration

Korea determines the reimbursement price of a new product by comparing features and benefits with the products with the same purpose of use among those already listed in the NHI, which has disadvantaged late entries to the market by reducing its prices.  

Considering the medical device characteristics such as continuously incremental technology improvement and short life-cycle on average 18 months, it is not reasonable to lower the reimbursement price of new products simply applying 90% or lowest pricing rule in most cases. Most of medical device companies are facing serious problems in launching next generation products for fear of price reduction.  

MOHW first implemented the reimbursement price list of medical devices on November 1, 2000. Since then, only four (4) products have since been approved for premium pricing when products have been already listed for the same purpose of use. Three products obtained 30% premiums over their comparative products respectively, and one product obtained a 13% premium as follows:  

• Synergy Spinal Cord Stimulation System (Medtronic) – 30% over 1^st generation product
• Cypher drug-eluting stent (Johnson & Johnson) – 30% premium over bare metal stent
• Oxinium artificial knee prosthesis femoral component (Smith & Nephew) – 30% over metal component
• Vicryl Plus anti-bacterial suture – 13% premium over its previous version    

It is not reasonable only 4 products are approved for premium price during last 6 years. More serious problem is that HIRA implicitly cap the premium price at the maximum of 30% over the listed products. This application barriers the introduction of newly upgraded product into healthcare market and access of new technology to the patients. Ultimately the patient care and health improvement opportunity could be lost. 

Although MOHW established the value appraisal system for the much improved products, there is no record to utilize it in practice. Lack of the value appraisal system application is another barrier to the innovation technology products making industry embarrassed.  

However, both MOHW/HIRA and industry reached the agreement to solve the outstanding price guideline issues and now collaborating together to revise and elaborate the current guideline through taskforce team since late 2004. Although the progress is slower than the industry expected, the industry has single great consensus with government. Both of them have the shared goal for better healthcare service to the nation. For the common goal, I am confident that both can newly establish reasonable and balanced price guideline in the near future.  

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