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Medical Device Reimbursement Coverage and Pricing Rules in Korea: Current Practice and Issues with Access to Innovation

Open ArchivePublished:May 09, 2014DOI:https://doi.org/10.1016/j.jval.2014.03.1719

      Abstract

      The development of health funding policy in Korea has followed the country’s rapid economic development, with a comprehensive National Health Insurance (NHI) system in place by 1989. The funding of medical devices has followed this progression, with incorporation into the NHI reimbursement system in 2000 (several years later than pharmaceuticals), but important issues affecting patient access remain. Although the effect of devices on the NHI budget is relatively modest (only about 4%), because of concerns about NHI sustainability, attention has increasingly been paid to their management and funding. Unlike pharmaceuticals, however, it has been quite challenging to develop clear and fair criteria for reimbursement coverage and pricing of medical devices. The two key and longstanding issues around the reimbursement of medical devices in Korea are how to expedite market entry of improved or innovative medical devices at appropriate prices, and how to satisfactorily lower the reimbursement levels of older devices, thereby making headroom for new technologies to be reimbursed. Despite protracted discussions over the last decade, industry and government have been unable to reach full agreement. There has been some progress (e.g., introduction of the Value Appraisal and the Revaluation Systems), but there remains urgent need for productive discussion and consensus between government and industry regarding reasonable funding rules, transparency, and clarity in the reimbursement pricing process for medical devices.

      Keywords

      Introduction

      The development of health funding policy in Korea has followed the same trajectory as the country’s economic development, with the inaugural Medical Insurance Act enacted in 1966 and implemented in 1977, a universal Medical Insurance System introduced a mere 12 years later, and transformed since 1989 into a comprehensive National Health Insurance (NHI) system. The reimbursement of medical devices has expanded along with this progression in Korean health, but important issues affecting patient access remain. In this policy perspective article, the current reimbursement coverage and pricing rules, and the decision-making process are briefly discussed and the major access issues that remain are outlined.

      Reimbursement Decision Making

      As a statutory requirement to enter the Korean market, medical devices must first be licensed by the Ministry of Food and Drug Safety, which, like its international regulatory counterparts in the United States and elsewhere, undertakes classification and risk-based assessment of the quality, safety, and efficacy of products [

      Korean Ministry of Food and Drug Safety. Medical devices. Available from: http://www.mfds.go.kr/eng/index.do?nMenuCode=7. [Accessed July 10, 2013].

      ]. The Ministry of Food and Drug Safety (previously the Korea Food and Drug Administration) follows similar US Food and Drug Administration classification, with devices categorized from class I (general controls) to class IV (requiring premarket approval).
      Applications for reimbursement of a medical device must be made to the Ministry of Health and Welfare (MOHW) within 30 days of regulatory approval by the Ministry of Food and Drug Safety. The Health Insurance Review and Assessment Services (HIRA) and its Medical Device Expert Evaluation Committee (MDEEC) review the application and make a recommendation to the MOHW, which decides reimbursement coverage and price (Fig. 1 and Table 1). Officially, the lead time for reimbursement approval is 150 days; however, it usually takes significantly longer, particularly for devices that require health technology assessment (HTA) evaluation before application review (because the device and the associated procedure undergo separate reviews, see below) and for new devices that require the establishment of coverage guidelines (specifying the clinical indication, etc.).
      Figure thumbnail gr1
      Fig. 1 Flow chart for the medical device reimbursement approval process.
      Table 1Medical device reimbursement approval process.
      StepProcessProcess description
      1Reimbursement application must be submitted within 30 d after Ministry of Food and Drug Safety (MFDS) approvalApplication to the Ministry of Health and Welfare (MOHW) or Health Insurance Review and Assessment Services (HIRA).
      Manufacturers, medical institutions, and medical societies may submit applications.
      2HIRA reviewReview of appropriateness of coverage and reimbursement price.
      Consideration of eligibility for reimbursement and estimation of budget impact.
      Review of comparable devices already listed.
      Comparison of cost-effectiveness with currently listed devices (by reviewing the application, the literature, seeking medical society opinion, etc.). Collation of internal/external expert opinion.
      3Medical Device Expert Evaluation Committee (MDEEC) reviewRecommendation on reimbursement coverage and price made within 100 d of application.
      Consideration of economic feasibility (i.e., substitutability and cost-effectiveness) and appropriateness for funding.
      4Health Insurance Policy Deliberation Committee (MOHW)Confirmation of decision about reimbursement coverage and price.
      5Publication of reimbursement approval noticeApproval notice published on the MOHW Web site within 150 d of application.
      Under the Korea-US Free Trade Agreement (which took effect March 15, 2012), suppliers may appeal MDEEC decisions through an independent third-party review process introduced to enhance transparency and objectivity [

      Free Trade Agreement between the Republic of Korea and the United States of America. Chapter five: pharmaceutical products and medical devices. 2013. Available from: http://www.fta.go.kr/korus/main/index.asp. [Accessed July 10, 2013].

      ]. The process, however, is unappealing to suppliers because the lead time is also nominally 187 days and the findings are not legally binding on the MOHW.

       Issues

      Although the number of devices listed for reimbursement has steadily risen, the rate of reimbursement has not been in step with the number of applications being made (currently more than 100/month). For instance, over the period 2010 to 2012, reimbursement applications grew at about 17%/year but listings increased by only about 9% annually—and overall medical devices continue to make up only about 4% of total NHI expenditure (the size of the private, out-of-pocket, sector is unknown, with no official statistics because government is not concerned with price or utilization controls).
      A particular difficulty is that HIRA has adopted a policy of requiring robust evidence of efficacy, safety, and cost-effectiveness as a prerequisite for a positive reimbursement recommendation (Table 2). This poses a major problem for the medical device sector, in which historically (unlike pharmaceuticals) there has not been demand for rigorous economic and other evidence, and therefore the Value Appraisal Standard 2 (VAS 2) criteria were introduced for applications requesting premium prices (see below).
      Table 2Evidence requirements by HIRA for medical device reimbursement applications, decision appeals, and revaluation.
      Application categoryEvidentiary requirement
      Reimbursement applicationNew applicationCopy of MFDS approval letter
      Details of product price calculation included in the reimbursement application
      Evidence supporting cost-effectiveness
      Documents detailing foreign and domestic utilization of the device
      Details of device composition and componentry
      Supporting reports from the literature
      Other supporting documents
      Decision appealDocuments detailing the grounds for appeal
      Details of the appeal
      Details of the calculation of the reimbursement price being appealed
      Other supporting documents
      RevaluationCommon appraisalMFDS approval letter
      Evidence supporting cost-effectiveness, including comparative information
      Details of device composition and componentry; product manual
      Product sample
      Import price/manufacturing cost, domestic and foreign market prices
      Value appraisal
      The additional documents required if a premium reimbursement price is sought.
      Evidence for clinical efficacy and effectiveness, including patient benefits
      Economic evidence including cost-effectiveness analysis
      Documents supporting R&D costs
      Documents supporting technology creativity and product uniqueness
      Foreign government/institution-issued official regulatory documentation
      Other supportive information
      HIRA, Health Insurance Review and Assessment Services; MFDS, Ministry of Food and Drug Safety.
      low asterisk The additional documents required if a premium reimbursement price is sought.
      The MOHW announced revised regulations on February 25, 2013 (effective April 1, 2013) [

      Revision on ‘Criteria of decision and adjustment about procedure and medical device, et cetera’. MOHW Notice 2013-32 (February 25, 2013). Available from: www.mw.go.kr. [Accessed July 19, 2013].

      ]: first, to expedite market entry, the reimbursement application process was shortened by differentiating submissions on the basis of product characteristics and the likely level of review complexity—a positive development welcomed by industry. Second, the MDEEC was reorganized 1) with its pool of experts increased to 300 members (nominated by medical societies and relevant stakeholders) to enhance expertise, objectivity, and fair and efficient operation; and 2) with experts to attend monthly meetings to be randomly selected from the pool and increased in number to 20. This latter reform was opposed by all nongovernment stakeholders on the grounds that the random selection of experts for each reimbursement meeting was likely to result in inconsistent and poor decision making (previously MDEEC meetings were attended by 18 experts, each of whom served a 2-year term). Nevertheless, the new arrangements were implemented.

      Reimbursement Pricing Mechanism

      Reimbursement decisions about new devices are usually made on the basis of comparisons with devices already on the MOHW list, “unreimbursed” devices (these are also listed, making up about 10% of the total), and the relevant procedure fee. New devices are then placed into one of three categories: reimbursed, funded under the procedure fee, and unreimbursed.
      “Reimbursed” category: A device is reimbursed by brand, with its own code and price, and can be claimed for separately. The reimbursement level is determined by comparing the product with those already listed and in the same “functional category.” In this context, the functional category of a medical device is determined by considering both its indication for use and three physical characteristics: compositional material, shape, and size; for instance, all pacemakers, regardless of manufacturer and brand, are placed in the same functional category. Most new medical devices are determined at the lowest price, or 90% of the highest ceiling price in the same functional category; however, for a new device considered significantly superior, reimbursement is determined by application of VAS 2 criteria (see below) and a new functional category is created (Table 3).
      Table 3“Reimbursed” medical device category: Reimbursement-level criteria and awards.
      In comparison with listed devices in the same functional category, the cost, effectiveness, or clinical performance of the new device isIn comparison with listed devices in the same functional category, the reimbursement price level awarded is
      equal or similar90% of the listed price or equal to the lowest price
      superiorequal to the highest ceiling price
      significantly superiorequal to the highest ceiling price + Value Appraisal Standard 2 premium
      inferior<90% of the listed price or equal to the lowest price
      Relevant functional group(s) assessed through the Revaluation System.Equal to the functional price (e.g., all brands of drug-eluting stents would get the same price)
      “Funding under procedure fee” category: Devices in this category (e.g., syringes, disposable needles, and similar products) are generally considered consumables and included in the procedure fee (which also includes both hospital and physician fees).
      Unreimbursed category: Devices in this category are those that the MOHW assesses as not deserving reimbursement, and therefore they must be funded by patients out of pocket. At the end of 2012 there were 1770 products in this category; most are expensive or devices considered not clinically essential, but there is no clear guidance about which characteristics determine their out-of-pocket classification and ineligibility for reimbursement.
      If a new device is innovative and dissimilar from listed products in the same functional group, its reimbursement price is determined by considering various factors, for example, manufacturing costs (or importation costs), clinical safety and efficacy, economic impact, and so on. In most cases, an innovative device is associated with an innovative procedure or interventional technique, and therefore both must undergo the HTA evaluation process before an application for reimbursement can be considered.

       Issues

      Many single-use devices are in the funding under procedure fee category, and because their real costs are not properly reflected in the procedure fee, problems associated with inappropriate reuse arise. Despite MFDS approval, innovative devices that differ from anything available cannot enter the Korean market without an HTA review. Unfortunately, for lack of evidence of “cost-effectiveness” (there being no clear definition, for example, an incremental cost-effectiveness ratio threshold or range), most of these are then classified as unreimbursed. Both industry and the MFDS have expressed their concerns that these negative outcomes raise issues of equity of access and argue that the current HTA review system is a significant barrier to access by patients to innovative devices.

      Value Appraisal Standards

      Value Appraisal Standard 1 (VAS 1) was created to address the problem of new devices being reimbursed at lower levels than older products. The MOHW recognized that incremental improvements, short life cycles, and a lack of robust clinical evidence are characteristics of the device sector, and therefore provided criteria, based on evidence of improvements in compositional material, shape, and size, for funding new technologies at the highest ceiling prices for listed products (Table 4). For instance, because the improved functional characteristics of new orthopaedic implants composed of more durable materials and designed to enhance patient comfort cannot easily be substantiated at the time of reimbursement application, the mechanical or bench-test data submitted for regulatory approval can be used to support a claim under VAS 1.
      Table 4Value Appraisal Standards 1 and 2: Assessment criteria for reimbursement level for new devices.
      Value appraisal
      “Level of improvement” in each appraisal category is scored on a 5-point scale: none, slight, moderate, significant, and considerable.
      Appraisal categoryFactor
      Standard 1
      The highest ceiling price is granted when the new device receives level 3 (“moderate”) improvement in two or more appraisal categories.
      ProcedureMinimizes invasiveness.
      Facilitates the procedure.
      Reduces procedure time.
      Improves accuracy of procedure.
      FunctionImproves functions, e.g., fixation strength.
      Improves biocompatibility.
      CostReduces costs of other medical devices or drugs.
      Increases device longevity because of enhanced durability.
      PatientReduces pain, discomfort, etc.
      Improves safety.
      OtherOther factors.
      Standard 2Therapeutic effects (clinical usefulness)Improved therapeutic effects.
      Reduce complications, adverse effects, or infection rates.
      Reduced disease recurrence or reintervention rates.
      Cost-effectivenessIncreased longevity due to enhanced durability.
      Reduced use and costs of other devices or medicines.
      Reduced hospital stay and treatment period.
      Reduced operating time.
      Quality-of-life benefitsReduced pain/discomfort.
      Increased clinical benefit.
      Improved independence.
      low asterisk “Level of improvement” in each appraisal category is scored on a 5-point scale: none, slight, moderate, significant, and considerable.
      The highest ceiling price is granted when the new device receives level 3 (“moderate”) improvement in two or more appraisal categories.
      In addition, if there is supportive evidence that a new device is significantly superior to comparable listed products (in terms of cost, effectiveness, and performance, for example), it may be granted a premium (up to 50%) through VAS 2 (Table 4, Table 5, Table 6). The MDEEC, or an advisory subcommittee representing the relevant medical societies and other stakeholders, decides the premium price.
      Table 5Value Appraisal Standard 2: Scoring system for assessment of premium reimbursement level for new devices.
      Appraisal category (maximum score)Level of improvement
      Level of improvement (LOI) score totals are grouped into 5 ordinal categories (“≥10–˂20” to “50”), according to which the percentage price premiums over comparable listed products (from 10% to 50%) are allocated; for example, an LOI of 35 would attract a premium of 30%.
      1 (none)2 (slight)3 (moderate)4 (significant)5 (considerable)
      Therapeutic effects; clinical usefulness (25)06.2512.518.7525
      Cost-effectiveness (15)03.757.511.2515
      Quality-of-life benefits (10)02.557.510
      low asterisk Level of improvement (LOI) score totals are grouped into 5 ordinal categories (“≥10–˂20” to “50”), according to which the percentage price premiums over comparable listed products (from 10% to 50%) are allocated; for example, an LOI of 35 would attract a premium of 30%.
      Table 6Value Appraisal Standard 2: Scoring system for allocation of premium reimbursement level for new devices.
      Total level of improvement scorePercentage price premium over comparable listed products
      ≥10–<2010
      ≥20–<3020
      ≥30–<4030
      ≥40–<5040
      5050

       Issues

      Although the MOHW meant well by establishing the VAS 1 and VAS 2 criteria, and they provide useful solutions in principle, in practice they are not used often (perhaps to minimize expenditure, for instance, by avoiding the creation of new functional categories under VAS 2); for example, in 2010, only 5.6% of the devices (93 out of 1653 applications) were granted the highest ceiling prices, and only 4 devices (0.2% of applications) obtained premium prices, which at best were only 20% higher than those of listed comparators []. VAS 1 and VAS 2 are useful tools to guide appropriate pricing decisions, if they are properly used. Unfortunately, HIRA does not actively use them, and pricing decisions using VAS 2 are sometimes unreasonable. For instance, recently, a new deep brain stimulator (for Parkinson’s disease) with improved device longevity, which eliminates the need for a second implantation procedure, was granted only a 20% premium price; as a result, the device remains off the market and the manufacturer continues to appeal for a more appropriate reimbursement.

      The Revaluation System

      The Revaluation System was introduced in 2010 with the following objectives (in order): to improve unfair pricing rules, to secure appropriate pricing rules through reclassification of “functional category” groups, and to enhance the efficiency of the device management system. To resolve the “90% or lowest price rule” issue, the MOHW introduced two new rules: to grant a single price to products in the same functional category and to grant premium prices through the application of VAS 1 and VAS 2 (as outlined above).
      The Revaluation System requires manufacturers to submit the documents and dossiers listed in Table 2. Medical devices with significant clinical and economic superiority can acquire a premium (up to a maximum 50%) over the “single functional category” price. Adjustments for medical devices revaluated in 2010 were to take effect in 2011, with revised functional category classification and prices. Because there were more than 14,000 devices listed in 2010, completing the revaluation in time was impossible; therefore, the MOHW aimed to complete the first round of the Revaluation System by the end of 2012.

       Issues

      Because the single functional category price (that is to say, one price for all devices in the same functional category) is calculated using a weighted average based on the most recent year’s claim volumes and prices, under the Revaluation System in some cases low reimbursement prices were raised and vice versa. MOHW’s original plan to complete the first Revaluation round by the end of 2012 was not achieved; it is now expected to be completed around mid-2014.

      Reimbursement Price Adjustment: Actual Transaction Price Mechanism

      The Actual Transaction Price system was introduced to adjust reimbursement prices using a market mechanism, as follows: HIRA investigates market prices at the hospital level in a random sample of transactions (or sometimes manufacturers’ selling prices are audited), and where gaps between reimbursement level and actual purchase price are found, reimbursement is adjusted (lowered usually) to the level of the hospital purchase price.

      Reimbursement Price Adjustment: Foreign Exchange Rate Mechanism

      This price adjustment mechanism was adopted to allow for foreign exchange rate fluctuations. The Korean device industry is heavily dependent on imports (about 64.9% overall in 2011, and a higher proportion for products in the reimbursed category) and therefore supply is sensitive to external economic variables, particularly foreign exchange rates. When exchange rates suddenly skyrocketed during the global financial crisis (September 2008), the MOHW and industry reached agreement to develop a pricing rule reflecting fluctuations in foreign exchange rate; this was announced on April 10, 2009 (effective April 15, 2009) [

      Revision on ‘Criteria of decision and adjustment about new technology, et cetera’. MOHW Notice 2009-66 (April 10th, 2009). Available from: www.mw.go.kr. [Accessed July 20, 2013].

      ]. Essentially, reimbursement price adjustments, reflecting exchange rate changes against the US dollar (for convenience), may be implemented every 6 months (on April 1 and October 1) against the baseline reimbursement price on April 1, 2009.

      Medical Device Management: Unresolved Issues

      Most of the medical devices have been incorporated into the NHI reimbursement system only since 2000 (unlike pharmaceuticals, which were included years earlier). Although the effect of devices on the NHI budget is small (about 4%), attention has increasingly been paid to their management and funding (including the introduction of HTA review) as a result of concerns about sustainability of the NHI system. Although the criteria for reimbursement coverage and pricing of pharmaceuticals are clear and local economic evaluation guidelines are available, the development of correspondingly clear and fair criteria for medical devices in Korea has proved very challenging, and the current “4th hurdle” process is far behind those in established major European markets; for instance, HTA of innovative devices is undertaken by National Evidence-based Healthcare Collaborating Agency, the Korean HTA agency, but afterwards pricing and reimbursement decisions are made independently by a completely separate office, HIRA. Despite considerable controversy, lengthy discussions, repeated examinations of foreign device management systems, and similar initiatives, there has been very little progress toward achieving transparent and clear pricing rules for the reimbursement of devices.
      A major factor contributing to the ongoing lack of clear criteria regarding reimbursement coverage and pricing rules lies in the nature of the medical device industry itself. Typically, the clinical evidence supporting product value is poor—largely because it is not required for licensing, but also because of short product lifecycles (usually <2 years) and the difficulty of conducting longitudinal comparative effectiveness research with devices [
      • Sorenson C.
      • Tarricone R.
      • Siebert M.
      • Drummond M.
      Applying health economics for policy decision making: do devices differ from drugs?.
      ]. Therefore, it is unreasonable to simply expect policies designed for and applied to pharmaceuticals (which have a very different path to market) to also apply to medical devices. Nevertheless, clearly the link between value and reimbursement level must apply to all medical technologies—which makes the lack of evidence for devices a fundamental problem and a global one, with the foreign countries that Korean authorities reference, for example, Taiwan and France, facing similar difficulties [

      Lang H-C, Zhang L, Chiou XG. Taiwan—medical devices & diagnostics. ISPOR Global health care systems road map. 2013. Available from: http://www.ispor.org/HTARoadMaps/TaiwanMDD.asp. [Accessed September 10, 2013].

      ,
      • Gilard M.
      • Debroucker F.
      • Dubray C.
      • et al.
      Scientific evaluation and pricing of medical devices and associated procedures in France.
      ]. There is no simple and generalizable solution. At a minimum, however, evidence on the benefits, potential harms, and estimates of the costs should be presented whenever possible for all classes of medical devices to inform decision making. To its credit, the MOHW recognized this peculiarity of the devices sector and introduced VAS 1 and VAS 2 and the Revaluation System processes as solutions (Table 4)—which they would indeed be in practice, if only they were used consistently, transparently, and in a timely manner.
      A recommendation to improve the reimbursement process in the short term would be to apply the VAS (1 and 2) and Revaluation System processes consistently, transparently, and in a timely manner. To address the evidence-pricing-access problem in the longer term, a recommendation would be that Korean authorities consider adopting a differentiated approach to the level of evidence required for appropriate reimbursement, perhaps on the basis of the medical device’s benefits to patients and effect on the national health insurance budget. For example, if a medical device is expected to bring significant benefits to patients but also substantially affect the insurance budget, it might be reasonable to require more robust supportive evidence. In this respect, initiatives such as conditional reimbursement (so-called coverage with evidence development) and performance-based reimbursement would be worth exploring in the Korean context [

      Husereau D, Jacobs P. Investigation and Analysis of Options to Enhance Canada’s Patented Medicine Price Ceiling Regulatory Regime. Edmonton, AB, Canada: Institute of Health Economics, 2013. Available from: http://www.ihe.ca/documents/Patented%20Medicine%20Pricing%20Options%20Report.pdf. [Accessed November 11, 2013].

      ]. This would, of course, require the MOHW and related authorities to develop a regulatory environment conducive to evidence development—and for their part, medical device manufacturers to make greater efforts to generate appropriate clinical and economic evidence to support the value of their innovative products.
      As its counterparts in every other developed country, the MOHW is in the service of the Korean government and executes its policies as directed. To improve reimbursement coverage and pricing practice in the longer term, a further recommendation, however, would be to improve the governance and transparency of the principal decision-making bodies; for example, making the outcomes of appeals against MDEEC decisions binding on the MOHW.

      Conclusions

      The two critical and longstanding issues around the reimbursement of medical devices in Korea are how to expedite market entry of improved or innovative medical devices at appropriate prices, and how to appropriately lower the reimbursement levels of listed older devices, thereby making headroom for improved or innovative technologies. Unfortunately, despite protracted discussions over many years, industry and government have been unable to reach consensus, with government holding the position that it cannot concede higher reimbursement prices for improved or innovative devices without an established mechanism to reduce reimbursement for older technology, while industry maintains the opposite position, that it cannot accept a price-lowering mechanism for older technology while unfavorable pricing rules for improved or innovative technologies remain.
      In conclusion, over the last decade there has been little significant improvement in the reimbursement coverage and pricing rules for medical devices in Korea. Although there has been some incremental progress in the regulations (e.g., the introduction of the Value Appraisal System and Revaluation System), there remains large scope for improvement. More productive discussion between funding authorities and industry regarding reasonable rules and transparency in the pricing process are urgently required—Korean patients deserve no less.
      Source of financial support: The authors have no other financial relationships to disclose.

      References

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