Pharmaceutical Pricing

Austerity package set into force on 1 May 2006

The German government passed a draft bill to curb the expansion of pharmaceutical costs within the public healthcare system in December 2005. In the meantime, parliament has adopted the bill and the Law on the Improvement of the Cost Efficiency in the Pharmaceutical Supply [Gesetz zur Verbesserung der Wirtschaftlichkeit in der Arzneimittelversorgung - AVWG] has been in force since 1 May 2006. The austerity package is the first step of a comprehensive restructuring of the German healthcare system, which is planned to be concluded in 2006.

The AVWG is intended to cut pharmaceutical costs in 2006 by nearly € 1 billion and by around € 1.3 billion per annum in subsequent years¹. A price moratorium - also part of the law - will bring additional savings. The main measures of the AVWG can be summarised as follows.

Discounts to pharmacies restricted

The AVWG provides for a prohibition of major discounts to pharmacies. The objective is that manufacturers - as a result - will mark down their prices for the benefit of the health funds rather than widely granting rebates for the benefit of the pharmacies.

Price freeze

The new law still allows price mark-ups. However, if a manufacturer raises the sales price of a medicinal product which has to be reimbursed by a public health fund, the manufacturer on the other hand has to pay a mandatory rebate to the health fund in the amount of the increase. Since nearly 90% of the medicinal products sold in Germany are reimbursed by public health funds, the mandatory rebate, in commercial terms, leads to a compulsory price freeze.

Non-patented pharmaceuticals discounted

In addition to the above-mentioned rebate as well as in reference to still existing mandatory rebates, the AVWG imposes a further mandatory 10% discount on the manufacturers' sale prices for generic pharmaceuticals. The discount also applies to originals as soon as the first generic version is placed on the market. There is only one exemption from the mandatory discount: products that are 30% cheaper than the specifically set reference price for the substance concerned are exempted from the discount. Therefore, in the past weeks all major manufacturers of generic products lowered their prices below that level. It seems that a fierce price competition is about to start: German generic products have to date been the most expensive in Europe.

Bonus/penalty system for physicians introduced

Physicians are impelled by penalties to only prescribe medicinal products the costs of which per daily defined dose (DDD) are cheaper than a specifically set level. If the costs of a doctor's prescriptions practice exceed this level, health funds are entitled to cut the physician's fees. On the other hand bonuses are granted if the average prescription costs per DDD of all physicians in one district are below the officially set DDD costs.

Prescription software restricted

Pursuant to the AVWG physicians who use prescription software are restricted to authorised software. Authorisations are granted by the Federal Association of Physicians Accredited in the Statutory Health Insurance Scheme (SHI) provided that the software contains a minimum of information and seems to generate high cost prescription.

Reference pricing expanded

In Germany a reference price scheme has been running since 1989. The AVWG is going to expand the scheme by including fixed combinations of patented drugs. The reference price scheme will basically be applicable to all fixed pharmaceuticals, whether patented or not.

JOERG SCHICKERT

References

1. The Regulatory Affairs Journal - Pharma, 2006, 17(3), 174-175