Germany is among those countries that are most widely referenced by other countries in relation to pharmaceutical prices. Candidate Biden also looked to Germany for answers on how to tackle high U.S. drug prices.

The German system principally permits free pricing of in-patent drugs by manufacturers, however, uses a complex set of regulations including but not limited to health technology assessment (HTA), internal reference pricing, external reference pricing and price negotiations to determine the way in which drugs are reimbursed under the statutory health insurance system.

In this newsletter, we will take a closer look at the approaches to pricing and reimbursement of innovative pharmaceuticals in Germany.

Healthcare Financing

Health insurance is mandatory in Germany. 90% of the German population is covered by Statutory Health Insurance (SHI) comprising around 110 Statutory Health Insurances (also called sickness funds). The other 10% is covered by private insurance or special schemes.

Total health expenditure in Germany reached €391 billion (approx. 11% of GDP) in 2018, 6% of which was spent on patented pharmaceuticals.

Authorized prescription drugs are generally reimbursed by sickness funds at launch except those that are statutorily excluded such as OTC medicines, treatments for minor ailments, and life-style medicines or considered ineffective by the Joint Federal Committee (Gemeinsamer Bundesausschuss - G-BA). Compulsory health insurance (statutory and private) covers 84% of the expenditure for outpatient medicines and patients pay the rest through co-insurance payments (10%). Medicines used in inpatient care are fully covered by health insurance.

Important Institutions

The most important self-governing body is the Federal Joint Committee (G-BA). The G-BA is a public entity comprising the umbrella organizations of physicians, dentists, hospitals and health insurance funds. The G-BA plays an important role in pharmaceutical coverage through selecting products to be excluded from coverage; defining reference price clusters; making an inventory of drugs with insufficient proof of efficacy; and defining indications for which OTC products may be reimbursed.

The Federal Association of SHIs (GKV-SV) is the federal level association of all SHIs and is in charge of setting reference prices and prescribing targets. Members of the GKV-SV are represented in the G-BA, thus, have influence over its decision-making. For innovative pharmaceuticals, the GKV-SV also conducts national price negotiations with respective pharmaceutical companies to determine reimbursement prices.

The Institute for Quality and Efficiency in Healthcare (IQWiG) is an independent HTA institution. It evaluates the effectiveness and/or cost- effectiveness of pharmaceuticals, either at the request of the G-BA or, in exceptional cases, on its own initiative. IQWiG’s assessments are non-binding on the G-BA. The G-BA may digress from IQWiG’s assessment recommendations.

Market authorization granted at European level by European Medicines Agency (EMA) or at national level by the Paul–Ehrlich Institute (PEI) for Blood Products, Sera, and Vaccines and the Federal Institute for Pharmaceuticals and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte [BfArM]) for all other pharmaceuticals, is required for launch and reimbursement of pharmaceuticals in Germany.

The AMNOG Process Overview

The introduction of a mandatory benefit assessment process in Germany since January 2011, with the Act of the Reform of the Market for Medicinal Products (Arzneimittelmarktneuordnungsgesetz [AMNOG]), radically changed the environment of market access for innovative pharmaceuticals.

AMNOG has kept the principle of free pricing at launch but imposes a systematic and formal assessment of the “added therapeutic benefit” of new medicines in order to negotiate the price according to the therapeutic value of the drug within twelve months after market launch.

According to AMNOG, manufacturers continue to set drug prices freely at market entry. However, at the time of market launch, manufacturers must submit a dossier with the necessary data to the G-BA. The dossier must support the “added therapeutic benefit” of the medicine over the appropriated comparator (the current standard of care) determined by the G-BA.

The G-BA must assess the added therapeutic benefit of the new medicine over the appropriate comparator within 3 months; within an additional 3 months, pass a binding resolution stipulating the extent of additional benefit, patient groups eligible and the cost of treatment for SHI.

The G-BA resolution is followed by reimbursement price negotiations between the Association of Statutory Health Insurance Funds (‘GKV-SV’) and the respective pharmaceutical company. The negotiated reimbursement price applies as of the 13th month after the initial product launch of the new pharmaceutical.

The AMNOG evaluation and price negotiation process applies to all new patented medicines introduced in the German market, except those with annual SHI expenditure below EUR 1 million.

For orphan drugs, additional therapeutic benefit is assumed by virtue of marketing authorization without reference to an appropriate comparator in Germany for as long as annual SHI expenditure for the entire population treated with the drug (including inpatient setting) remains below EUR 50 million. Manufacturers are exempted from the requirement of submitting data to support additional therapeutic benefit for as long as the threshold is not exceeded.

Health Technology Assessment

The first phase of the AMNOG process is Health Technology Assessment. The rules for the assessment of new medicines are defined in § 35a of the Fifth Social Security Code (Fünftes Sozialgesetzbuch - SGB V).

At the request of the G-BA, IQWiG assesses the Early Benefit Assessment (EBA) dossiers of new pharmaceuticals submitted by manufacturers and prepares evidence reports.

IQWiG’s evaluation results in a non-binding recommendation to G-BA regarding the added patient- relevant benefit of the assessed pharmaceutical. A hearing is established with regard to submitted comments on IQWiG’s evidence report (assessment) by entitled stakeholders in between the time of recommendation by IQWiG and the time of the final decision by G-BA (resolution).

Outcomes considered for EBA in terms of added benefit are grouped into four dimensions: mortality, morbidity, (severe) adverse events, and health-related quality of life (HRQoL).

In the case of an acknowledged added benefit, this benefit can vary in different extents (major, considerable, and minor) or in the case of a not determinable added benefit (not quantifiable). Further, the benefit can also be classified as not available (no added benefit) or lesser in comparison to the comparator (less benefit). G-BA determines the appropriate comparator and additional subgroups for assessment.

In addition, the quality of the evidence base is evaluated. The evidence level is rated as proof, indication, or hint on the basis of the number and characteristics of the submitted studies, the uncertainty of the results, and the consistency of the observed treatment effects.

For orphan drugs, the additional benefit is already set by law and the G-BA only decides on the extent or magnitude of the additional benefit. However, if the drug’s moving annual total sales exceed 50 Mio Euro, the pharmaceutical company has to submit a new dossier with comparative clinical data.

Since 2007, the Health Insurance Competition Enhancing Act allowed IQWiG to perform cost-benefit assessment as basis for defining reimbursement prices for these products. The precondition for the cost-benefit analysis is thus the proven added benefit of a new drug based on an IQWiG benefit assessment. This approach differs from that used by the National Institute for Health and Care Excellence (NICE) in the UK or the Institute of Clinical and Economic Review (ICER) in the US, both conduct economic evaluations as part of an HTA regardless.

Price Negotiation – Added Therapeutic Benefit

If the drug has some added therapeutic benefit, the manufacturer and the national association of statutory health insurance funds (GKV-SV) negotiate a reimbursement price within another six months of G-BA’s resolution. The negotiations are based on the additional benefit assessed by the G-BA, the cost of the therapy in comparison to its comparator; the number of patients in each targeted population; specific requirements to ensure appropriate use; and cost of therapy of other comparable medicines.

External Reference Pricing

External reference pricing (ERP), in place since 2011, is used during the price negotiations between the GKV-SV and the pharmaceutical company and by the arbitration panel as supportive criteria for setting the reimbursement price of pharmaceuticals that demonstrate a clinical added value.

The country basket of Germany is composed of 15 European countries (Austria, Belgium, Czech Republic, Denmark, Finland, France, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Slovakia, Sweden, and the United Kingdom).

Manufacturers must also provide the actual ex-factory prices of the drug marketed in the reference countries and expected sales volumes before the start of the price negotiation.

The negotiated reimbursement price applies as of the 13th month after the initial product launch of the new pharmaceutical in Germany. If parties cannot reach an agreement, the reimbursement price is set by arbitration.

Price Negotiation – No Added Therapeutic Benefit

If the drug has no added therapeutic benefit over the standard of care, the G-BA will include it in a reference price cluster. If clustering is not possible, prices are negotiated in the same manner as for medicines with added benefit. However, the goal of the price negotiation is that annual treatment costs with the new medicine should not exceed those of established therapy.

Internal Reference Pricing

When no additional benefit has been established for a newly approved pharmaceutical, it is allocated to a reference price group with pharmacologically and therapeutically comparable pharmaceuticals.

The setting of a reference price for a pharmaceutical is a two-step procedure involving the G-BA and the GKV-SV. First, the G-BA decides to which medicinal product group a price reference can be made and defines groups of medicinal products based either on the same active ingredients, pharmacologically therapeutically comparable active ingredients, or therapeutically comparable action. Second, the GKV-SV sets the reference price for the medicinal products using criteria that are regulated by laws. The list of reference prices for medicinal products is updated quarterly and published on the German Institute for Medical Documentation and Information (DIMDI)’s website.

The reference price allocated to a product constitutes the maximum amount of reimbursement to be paid to the pharmacist by the SHI. Patients are responsible for any difference between the reference-based reimbursement level and a particular drug’s higher market price. Thus, in most cases (not always), pharmaceutical companies lower their market prices to the respective reference price to avoid substitution by competing products in the reference group.

Other Price Controls

Discounts and rebates are widely used in Germany as cost containment tools.

In the outpatient sector, pharmaceutical companies must grant a 7% discount off ex-factory price to sickness funds and other health insurers on patented pharmaceuticals that are not clustered in reference price groups. This mandatory rebate is also applied during the 12 months of free-pricing after the pharmaceutical’s marketing authorization.

Discounts can be negotiated between individual sickness funds and pharmaceutical companies for the exclusive use of a particular drug. These discounts vary widely and can amount to about 20% of the original price.

Price freeze on reimbursed medicines through variable rebates that match any increases in the market price of medicines has been in place since August 2009 and is expected to be lifted at the end 2022.

Finally, Germany encourages parallel imports of cheaper medicines from EU countries.

Pricing and Reimbursement of Inpatient Drugs

Prices of inpatient drugs are negotiated between pharmaceutical companies and hospitals, hospital chains or group purchasing organizations. However, since 2017, prices negotiated for outpatient drugs serve as a ceiling for medicines purchased by hospitals.

The cost of medicines used by hospitals is included in the payments by diagnosis related group (DRG) for the entire treatment episode. Hospitals can obtain additional funding on top of DRG payments for new technologies, including medicines, when their costs have not yet been factored in DRG tariffs under the new diagnostic and treatment methods regulation (Neue Untersuchungs-und Behandlungsmethoden - NUB).

Expenditures for medicines dispensed in hospitals account for 9% of total expenditure on pharmaceuticals (OECD Health data).

Main Critiques of the AMNOG process

• High number of negative assessments. 43% of 349 assessments made by G-BA between 2011 and 2018 concluded no added therapeutic benefit. In most cases, the absence of an additional therapeutic benefit was not due to a negative assessment of clinical data but was based on the absence of data for specific sub-groups. This triggered criticism from the pharmaceutical industry that G-BA possibly ‘slicing’ patient populations into sub- groups and demanding data that cannot be available at the early stages of market entry of an innovative product.

• Determination of low-cost comparators. The determination of the suitable comparator in the G-BA assessment process is of utmost importance. The pharmaceutical industry argues that the selection of comparators by the G-BA has been biased to favor generic comparators in a number of cases when more expensive innovative comparators are more appropriate.

• Unbalanced governance. As a member organization of the G-BA, the GKV-SV has significant influence over the substantive basis for the price negotiations with manufacturers, which it then conducts itself.

References:

1. Biden looks to Germany for answers on how to tackle high U.S. drug prices: analyst https://www.fiercepharma.com/pharma/biden-looks-to-germany-for-answers-how-to-tackle-high-u-s-drug-prices-analyst (Accessed 3/6/21)

2. Pricing and Reimbursement 2020 Germany, https://www.globallegalinsights.com/practice-areas/pricing-and-reimbursement-laws-and-regulations/germany (Accessed 3/6/21)

3. Pharmaceutical Reimbursement and Pricing in Germany, June 2018, OECD

4. Introduction to Market Access for Pharmaceuticals, Mondher Toumi, 2017

5. C. M. Dintsios, F. Worm, J. Ruof, and M. Herpers, Different interpretation of additional evidence for HTA by the commissioned HTA body and the commissioning decision maker in Germany: whenever IQWiG and Federal Joint Committee disagree, Health Economics Review (2019) 9:35, https://healtheconomicsreview.biomedcentral.com/articles/10.1186/s13561-019-0254-6 (Accessed 3/6/21)

6. IQWiG General Methods, Version 6.0, May 2020

7. Pharmaceutical pricing, The use of external reference pricing, 2013, RAND Europe