German Austerity Measures Continue As Firms Dispute How Much Has Already Been Saved
This article was originally published in The Pink Sheet Daily
Executive Summary
Despite overall economic growth, the German health ministry refuses to lift the pharmaceutical price freeze or obligatory rebate to health insurers, saying industry is coping well with them; firms say they have already sacrificed more than had initially been asked.
German’s austerity measures on drug pricing appear set to remain in place for the foreseeable future, and the pharmaceutical industry, while chafing against what it feels are unfair presumptions underlying the policy, doesn’t not appear poised to mount an all-out fight against the discounting scheme.
When cost-controls were first introduced as part of the law on restructuring the health service in 2010 (AMNOG), the aim was to save just in excess of €2.2 billion ($3 billion) per annum (Also see "Tweaks To German Pharma Law Require Firms to Prove Drugs' Value Within a Year" - Pink Sheet, 8 Nov, 2010.).
But the industry maintains that it is losing almost €300 million ($407 million) more each year than the projected savings and argues that this should mean that cost-containment should end sooner rather than later. However, the Federal Ministry of Health said that its austerity measures had not yet achieved the savings it had hoped for and this would take much longer.
Industry, though, appears loathe do anything practical to pressure the Federal Ministry of Health to repeal or limit the savings measures, other than to maintain its criticisms of the government and lobby parliament. The country’s largest pharmaceutical industry association, VFA, says it is not prepared at this stage to take the issue to court.
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The austerity measure’s combination of a price freeze and an obligatory rebate of 16% of the list price that manufacturers are obliged to pay health insurers in Europe’s largest market cost the industry some €2.5 billion ($ 3.4 billion) in 2011, said Birgit Fischer, director general of the VFA. “We are looking at a similar figure for 2012.”
Moreover, given that the statutory health insurance funds have amassed a financial surplus of €27 billion ($36.5 billion), the Federal Ministry of Health’s decision was nothing short of “a farce,” said Fischer. The ministry, known as the BMG, announced Jan. 30 that the rebating would continue.
The law requires the health ministry to annually review the drug price freeze and obligatory rebate. It makes a final decision based on submissions from interested parties, including insurers, health care service providers and the pharmaceutical industry, and on an assessment of the overall economy (Also see "Germany's Health Reform Law Stumbles Through Parliament" - Pink Sheet, 11 Nov, 2010.).
What Do Waivers Indicate About Austerity?
The BMG says it has come to its conclusion to persevere with the existing austerity measures firstly because the ongoing Eurozone crisis continues to threaten the stability of the statutory health insurance funds and because the industry does not appear to be negatively impacted by them. It notes for example, that despite cost containment, turnover has increased for non-fixed pricing category drugs.
The VFA said that there is no logical connection between economic burden on the industry and increased turnover. “Turnover is not profit,” it pointed out in a statement and added that even if profits were up, this was a sign of a properly functioning market economy and nothing more.
The pharmaceutical industry conceded at the end of 2012, though, that it had dealt impressively with the government’s cost-cutting measures, but added that they were beginning to take their toll on R&D and innovation (Also see "German End-Of-Year Figures Highlight Potential Danger To Pharma R&D" - Pink Sheet, 28 Dec, 2012.).
More surprisingly, the BMG said that because the number of applications to the Federal Office of Economics and Export Control to waive the forced rebate and price freeze have been so minimal, it appears that pharmaceutical companies are not suffering excessively. Moreover, the BMG pointed to the annual Association of German Chambers of Commerce and Industry report for 2012, in which pharmaceutical manufacturers expressed a positive view on the future of the industry.
Henning Fahrenkamp, director general of the pharmaceutical industry association the BPI (which represents mostly smaller and medium sized companies), said that the BMG’s reasons were groundless and were not supported by facts or figures. Fahrenkamp expressed astonishment at the BMG’s waiver claims. “If companies can only get a waiver if they can prove that they are on the brink of bankruptcy, this has nothing to do with whether it is economically viable to produce a specific medicine or not,” he added.