Monday, March 08, 2010

The End of Free Drug Pricing in Germany?

According to local press, Germany's health minister Philipp Roesler is about to open fire against the branded drug industry with a proposal to break the sector's so-called 'price monopoly' and force them to negotiate lower prices directly with insurers.

Until now, Germany has been one of Europe's last bastions of "free" upfront drug pricing. Sure, the hurdles come afterwards, but both there and in the UK drug firms have--until now--been allowed to set more or less the price they like for new drugs.

"Focus" magazine reported on Saturday that Roesler would impose upon the branded sector fixed price ceilings for their products, should they not come to an agreement with the insurers. Either way, he's gunning for annual health care cost savings of €2 billion.

Direct price negotiations between insurers and drug firms have been legal since 2007. Unsurprisingly though, few if any branded companies have engaged in price-centric dealmaking (or indeed any dealmaking). Most prefer instead to focus on providing other benefits such as supporting compliance.

Meanwhile, as we reported in-depth last year in IN VIVO, the country's largest insurers have already squeezed out over €500 million in savings from the generics sector through inviting best-deal bids for two-year 'preferred supplier' contracts. That trend looks set to continue as firms compete for the next round of contracts.

This is also very likely what's prompting Roesler to try twist the branded sector's arm into likewise negotiating more competitive deals with insurers. We can't imagine that Christopher Hermann, chief negotiator and deputy CEO at the country's largest insurer, will have much to complain about. Frustrated up until now by the branded sector's reluctance to negotiate on price, he nevertheless appeared to see this coming when, back in early 2009, he told us: "I expect contracts around on-patent drugs to become more numerous, as in the next months and years there will be more contracts between health insurance funds and independent doctors' associations in Germany."

His point: insurance funds' negotiating clout is increasing as they wield more and more influence over precisely what drugs doctors prescribe (even though they're not allowed to dictate what drugs are prescribed, as they are in the case of generics).

Lesser of Two Evils?

If Roesler's plan is put into action, drug firms are unlikely to be able to afford to resist, given the alternative: imposed price ceilings that could impact prices not only in Germany, Europe's largest market, but also more broadly across Europe given that Germany service as a reference price market in several other (fixed-price) countries. Negotiating with sick funds may offer industry a little squeeze-room, for instance to provide or fund supplementary services. Such agreements also exempt them from an assessment by IQWiG, Germany's cost-benefit watchdog.

Indeed, another element of Roesler's plan--due to be presented this Wednesday--will allegedly require drug firms to submit, in parallel with a new drug application, a benefit-assessment study of their product, showing which patients the product will serve and which comparator drugs, if any, are already available.

None of this is particularly surprising in today's era of government spending cuts and (continued) targeting of drug manufacturers to make their quick-wins. But whilst it tastes bitter, it may also be an (the last?) opportunity for firms to avoid government-imposed price cuts.

Indeed, Novo Nordisk's CEO Germany, Willi Schnorpfeil , told us in mid-2009 that he would like to see a de-regulated market in Germany with price negotiations between drug firms and payors permitted from day one, as soon as a drug is authorized. Such a system—replacing the current set-up of free up-front pricing with complex rebate solutions and, potentially, centrally determined cost-benefit assessments slapped on thereafter--would allow faster market access to be a negotiating factor, too, he argued.

image by flickrer finlaystewart used under a creative commons license

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