US-Korea text and the carve-out for state Medicaid programs
Chapter 5 of the
Korea-US Free Trade Agreement
In 2006, the US
and Korea
began negotiations for a bilateral Free Trade Agreement (Korus FTA), and
reference pricing of pharmaceuticals quickly became a major problem in the
negotiations.As negotiations began,
the American team heard that Korea
was in the process of reforming its National Health Insurance to embrace
reference pricing in a system similar to that used by US state governments.American opposition to the Korean reforms was
extremely strong, and the second formal round of FTA negotiations fell apart
when the US negotiators left the table in protest of these reforms, labeling
them “inconsistent with both the mandate of the pharmaceuticals working group
and the market opening spirit of the Korus FTA,” and accusing the Koreans of
discriminating against foreign pharmaceutical products.The US
team initially tried to get the Koreans to drop their reforms, though they
eventually agreed to drop their objections in return for the inclusion in the
FTA of a Chapter regulating the price negotiations, based on Annex 2(c) of the
trade deal with Australia.
Chapter 5 of the “Korus FTA” contained
the rules on reference pricing that were actually more burdensome for
government negotiators.Under the text
being discussed, health care authorities would need to provide pharmaceutical
companies "meaningful and detailed written information” explaining all of
their listing decisions.Changes in
procedures for determining formulary listings could be made only if the
government formally solicited comments and replied to them in writing – giving
the industry ample opportunities to slow the process.While the trade agreement with Australia
required that systems of reference pricing include a process for appeals, this
trade agreement went further, requiring the creation of an “independent review
body” composed of medical professionals outside the Health Ministry.It is not clear from the text whether or not
such a body will have the authority to overturn the original formulary listing
decisions, but this was clearly the pharmaceutical industry’s wish.While the Korus FTA was under negotiation,
PhRMA testified to the House Ways and Means Committee that, “Ideally, this
independent appeals process would include a panel of experts that would review
reimbursement and listing decisions to determine if the decision is in line
with the regulations and guidelines for the system.“
Perhaps the most alarming provision to
state governments in the Korus FTA was the obligation for price negotiators to
"appropriately recognize the value of patented pharmaceutical products and
medical devices in the amount of reimbursement it provides."This provision would require drug price
negotiators to provide greater reimbursements to expensive brand name drugs
than lower-priced generics, substantially undermining efforts to save money
through generic substitution.
Alarmed state officials once again sought
to persuade the federal government to exclude Medicaid and other state programs
from the reach of the agreement.In
March, legislators from Arizona and Connecticut wrote the
leadership of the Congressional Ways and Means Committee, stating that they
were “extremely troubled by, and strongly oppose, USTR’s efforts to alter
public reimbursement formularies in the Korea FTA.”Also that month, the National Legislative
Assembly for Prescription Drug Prices offered testimony to the House Ways and
Means Committee.The Forum on Democracy
and Trade visited Congressional offices on Capitol Hill throughout the spring,
and alerted the Association of State Medicaid Directors to the potential
conflict.
The Korus FTA negotiations were carried
out as the new Democratic majority came into Congress, and many of the incoming
freshmen were more skeptical of FTAs in general than the incumbents they replaced.Much more attention was paid to potential
problems with this and other FTAs, especially in the areas of labor, the
environment and healthcare.
This time, American trade officials
included a “carve out” for state programs in general, and for Medicaid in
particular, as part of the agreement.Chapter five of the Korus FTA refers constantly to healthcare programs
operated by each Party’s Central level of government, which Article 5.8 defines
as “a health care program in which the health care authorities of a Party's
central level of government make the decisions regarding matters to which this
Chapter applies.”Furthermore, a
footnote to Article 5.8 states that
For
greater certainty, Medicaid is a regional level of government health care
program in the United States,
not a central level of government program.
