Drug Assessment and Pricing in Germany

Drug Assessment and Pricing in Germany

As the United States looks for new ideas on pharmaceutical reform, it is instructive to look at drug assessment and pricing in Germany, a prosperous nation that features universal coverage, a private multi-payer health insurance system, a large pharmaceutical industry, and drug prices that are lower and more directly linked to clinical benefit than those in the US. BCHT Director James Robinson has been studying the German system with support of the Commonwealth Fund, combining site visits with econometric analyses of the structure, processes, and outcomes of the German system.


German Health Care Financing System

The German health care financing system features 110 “Sickness Funds,” or health plans, that collectively cover health care expenses for 90 percent of the population. Forty-eight indemnity insurance firms cover the remainder. The pharmaceutical pricing system builds on this multi-payer insurance system. New drugs that are authorized for market launch by the European Medicines Agency are subject to clinical evaluation by two quasi-public entities. The Institute for Efficiency and Quality in Healthcare (IQWiG) prepares an evaluation of comparative effectiveness based on clinical evidence. The Joint Federal Committee (GBA) combines the IQWiG reports with testimony gathered in public hearings from the manufacturer, patient advocacy groups, physician associations, and other stakeholder groups.

Initial List Price for New Drugs

Drug manufacturers are permitted to establish an initial list price for their products after EMA authorization, and they are paid these prices for the first year after launch. During this first year, however, IQWiG and GBA conduct their assessment and – for those drugs demonstrating some extent of added benefit – turn it over to the umbrella organization of Sickness Funds to negotiate a new price. The negotiations are based on the drug’s comparative effectiveness, the market price of the comparator drug used in the assessment, the prices of other drugs that treat the same condition but were not chosen as the comparator, and the prices charged by the manufacturer for its new drug in other European markets.

New drugs without added benefit are assigned to therapeutic classes subject to reference pricing, with the Sickness Funds and private insurers limiting the reimbursement amount based on the prices of the existing alternatives within each class.

To date, the BCHT project has focused on (1) the structure of the German pharmaceutical assessment and negotiations and how they obtain prices lower than those paid in the US and (2) the structure of reference pricing for drugs not offering incremental clinical benefits compared to existing alternatives.

Price Negotiations for Newly Launched Drugs

Price negotiations in Germany are structured as a bilateral monopoly, with a single buyer, the umbrella organization of Sickness Funds, facing a single seller, the drug maker. If no agreement can be negotiated, the drug’s price is established by an arbitration panel consisting of representatives of each side plus an appointed chair. The manufacturer can refuse the arbitrators’ price but then forgoes all sales in the continent’s largest market and knows it will enter price negotiations for its next drug with a non-collaborative reputation, always a bad thing in a culture that emphasizes cooperation over conflict.

From 2011 to the end of 2017, the German pharmaceutical system conducted assessments and pricing for 186 novel drugs.  Of these, 35 went to arbitration and 30 were from the market by their manufacturers.  Those withdrawn had been assessed as offering no incremental benefit over existing alternatives, and hence would likely fare poorly in the price negotiations with the Sickness Funds.

More information on the German system of pricing for novel drugs can be found in the BCHT analysis, published in the Health Affairs Blog, Appropriate Use Of Reference Pricing Can Increase Value.

Reference pricing for me-too drugs

If the German pharmaceutical assessment process considers a drug not to offer an incremental benefit over existing treatments, it usually assigns it to one of the therapeutic classes covered by reference pricing. Manufacturers are permitted to set whichever price they feel is appropriate for drugs falling into these classes, but the umbrella organization of health insurers establishes a limit to what individual insurers will contribute toward payment. The limit is set near the 30th percentile in the distribution of prices within each therapeutic class, high enough to ensure that patients have more than one choice but low enough to ensure that the payer is not responsible for paying the highest prices within the class. Most generic drugs fall into the reference pricing system. Approximately 34 percent of drugs, 80 percent of prescriptions, and 33 percent of drug spending is for drugs subject to reference pricing.

Patient Out of Pocket Payments

Patients must pay out of pocket the difference between the price set by the manufacturer and the reference-based reimbursement limit set by the purchaser organization. Many patients are unwilling to contribute out of pocket and prefer drugs priced below the reference limit and their physicians will prescribe drugs at or below the limit. Of products subject to reference pricing, approximately 84 percent are priced by their manufacturers below the reference price limit and therefore not subject to additional cost sharing. These products make up 92 percent of all prescriptions made for reference-priced drugs.

For drugs included in the reference pricing system, patients may be required to pay additional copayments, depending on which drug they select in consultation with their physicians. Patients selecting a drug prices above the reference maximum for their class contribute a copayment plus the difference between their drug’s price and the reference maximum. However, the extra copayments are modest, since most of the drugs included in the reference pricing system are older, generic medications with typically low prices. For drugs not included in the reference pricing system, German health insurers only require patients to pay the cost-sharing amount. 

More information on the German reference pricing system can be found in the BCHT analysis, published as a Commonwealth Fund Issue Brief, Pharmaceutical Reference Pricing: Does It Have a Future in the US?.