Reimbursement price reduction and pharmaceutical firm production behavior in Korea
*Jaeheon Heo, Seoul Cyber University 

Keywords: reimbursement price, production amount, firm behavior, pharmaceutical market

The pharmaceutical reimbursement prices are determined according to the rules in the National health insurance law at the beginning of reimbursement in Korea. And the list prices can be adjusted during the reimbursement period. If the firms decrease in the production of some drugs reimbursement prices are reduced than the earlier reimbursement price, the stability of medicine supply might be harmed. Based on the notion above, this study investigated the effect of the reimbursement price on the production amount of pharmaceutics. The empirical analysis for the panel data on the 12 sub-markets including frequently-used effective ingredients showed the effect of the reimbursement list price on drug production amount. The unbalanced panel data consisted of 2,022 products and 6,907 observations. The dependent variable was production amount of each product and the key explanatory variables were list price and the dummy variables indicating the range of price reducing rate. 919 products (45.5% of 2,022) have experienced list price reduction during the reimbursement period from the year 2003 to 2007. AR(1) GLS analyses were conducted and the reimbursement price was founded to be a significant factor on the production amount(p<0.01). But there was no obvious evidence the price reduction regulation had negative effects on the production. Considering the data where the list price of the price-cut medicines were not likely to be lower than the price of products having no price change, these empirical results holding the law of production seemed to be understandable. Although the effect of list price-cut regulation on the firm production activity was not empirically confirmed to be negative, the results suggested that the list price is an important factor on the medicine production amount and the reimbursement price policy should be managed, considering the effects on the production and supply of medicines and the market change.