Key Components of Increased Drug Expenditure in South Korea: Implications for the Future

The cost of pharmaceuticals has increased rapidly in Korea in recent years. Expenditure is likely to grow further with the policy of expanding National Health Insurance coverage for the following four disease areas: cerebrovascular and cardiovascular disease, rare diseases, and cancer. Consequently, there is a need to analyze the different components leading to this increased expenditure as a basis for suggesting future reforms in Korea.

To quantify the impact of new and established drugs on the growth of total drug spending in South Korea in recent years, specially focusing on the differentiated components of drug spending. These include treatment expansion and drug-mix effects (switching from cheaper drugs to expensive ones and vice versa).

A model was proposed and used to assess the impact of both new and existing drugs on changes in price, quantity, and drug mix over the 5-year period in Korea from 2006 to 2010. The database used was the National Health Insurance claims data, which covers about 97% of the total population of Korea.

Overall drug spending increased 1.43-fold from 2006 to 2010. Drug-mix effect (ε_t = 1.32) was the main factor contributing to increased drug spending, followed by increased drug utilization (Q_t = 1.26). For existing drugs, treatment expansion (Q_I) and drug-mix effect (ε_I) were measured at 1.28 and 1.24, respectively, while those of new drugs were 1.02 (Q_N) and 1.03 (ε_N). Therefore, existing drugs have a much greater effect on drug spending than do new drugs. According to the Anatomical Therapeutic Classification, drug spending rose most significantly for the "sensory organs" class of drugs (E_t = 1.78) followed by the "various" class (E_t = 1.68). For existing drugs in the sensory organs class (S), drug-mix effect (ε_I) was measured at 0.96. This implies that expensive drugs among existing drugs were replaced by cheaper ones. However, the quantity prescribed (Q_I) substantially increased by 1.88-fold. New drugs within this class that were more expensive than existing ones were also prescribed (ε_N = 1.09), further increasing drug expenditure in Korea.

We found contrasting results from previous studies. The drug-mix effect and existing drugs made the largest contribution to drug spending growth rather than new drugs. Policies targeting drug mix, such as promoting cost-effective prescription and rational use of drugs, including the use of cheaper cost generics without compromising care, should be primarily considered to help contain future drug expenditure.