German health minister Philipp Roesler has opened fire against the branded drug industry with plans to break the sector's so-called "price monopoly" and force it to negotiate lower prices directly with the country's 200 or so health insurers.
If the industry doesn't, he says in a national press interview, it'll face fixed price ceilings.
Until now, Germany has been among the last bastions of open upfront drug pricing in Europe. But Roesler says that has resulted in prices that in many cases are too high. As a short-term, cost-cutting measure, he will introduce mandatory rebates. The long-term aim, though, is to twist the industry's arm into agreeing to lower prices for individual drugs directly with health insurers very soon after a new product is launched. He also is demanding that companies submit, at launch, a study proving their drug's benefit to patients.
Roesler - who apparently announced his plans to the press before talking them through with his party's ruling coalition partner - claims that the measures will become law by the end of 2010 at the latest.
Direct price negotiations between insurers and drug firms have been legal in Germany since 2007. Unsurprisingly, though, few if any branded companies have engaged in price-focused deal-making (or indeed any sort of deal-making). Those that have done so prefer to provide non-financial benefits to insurers such as compliance support programs.
Meanwhile in the generics sector, however, such deals already have squeezed out more than €500 million in savings for the largest insurers alone. These groups invite best-deal bids for two-year "preferred supplier" contracts, and since losers are completely shut out of large chunks of the market, serious price competition ensues. That downward price spiral looks set to continue in the generics sector as firms compete for the next round of contracts.
That success is likely what's driving Roesler to force similar moves among innovator companies; moves he claims could save about €2 billion ($2.7 billion) per year. And certainly the country's health insurers, which spend about €30 billion on drugs and have begun charging member co-pays anyway, won't be complaining.
Christopher Hermann, chief negotiator and deputy CEO of the country's largest insurer, AOK, has been frustrated up until now by the branded sector's reluctance to negotiate on price. But he predicted in an early-2009 interview that "contracts around on-patent drugs will become more numerous," not least because of the burgeoning contracts between health insurance funds and doctors' associations in Germany.
His point: insurers' negotiating power over drug companies will grow as they simultaneously wield more influence over precisely which drugs doctors prescribe (although they aren't allowed to mandate what patented drugs are prescribed, as they can for generics). Meanwhile doctors themselves have been clamoring for drug price-cuts too, keen to protect and maximize their own share of a limited pie.
The drug industry is protesting, of course. Cornelia Yzer, head of Germany's association of research-based pharmaceutical firms (VFA), points out that innovative drugs can help reduce health care costs through delaying or avoiding altogether hospital stays and procedures.
But if Roesler's plan is put into action - it still has to go through parliament - drug firms are unlikely to resist the pressure to sit down with insurers. "Of course they will negotiate," opines Peter Behner, VP at Booz & Co. in Berlin.
That's because the alternative is even worse: government-imposed price-ceilings. These would impact drug prices not only in Germany, but also more broadly across Europe given that Germany serves as a reference price market in several other countries. Negotiating with insurers may offer the industry a little squeeze-room, for instance, to provide or fund supplementary services in the place of more drastic up-front price cuts.
What's more, such a system would mean that companies with well-differentiated drugs serving patients with few alternatives are likely to command high prices; it's those with more mainstream products that will suffer. From that point of view, in terms of favoring drugs with clear health-economic benefits, "I think Roesler is right," says Behner.
He's not alone. Novo Nordisk's CEO Germany, Willi Schnorpfeil, declared in a mid-2009 interview that he would like to see a de-regulated market in Germany with price negotiations between drug firms and payers permitted from day one, as soon as a drug is authorized. Such a system - replacing the current set-up of free upfront 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 for drug firms too, he argued.
Schnorpfeil's comments reflected wider industry uncertainty over what future regulatory hurdles, such as cost-benefit assessments or fixed price ceilings, may be imposed. Now that the trade-off appears clear - negotiate with insurers, or else you'll face fixed prices.
Reaching agreement with insurers also will, Roesler explains, exempt drug firms from an assessment by IQWiG, Germany's cost-benefit watchdog. Although IQWiG for now only recommends to the G-BA (Gemeinsamer Bundesausschuss, the association of doctors, dentists, insurers, and hospitals responsible for reimbursement decisions) whether a drug should be reimbursed or not, it is working on a more refined cost-benefit analysis process.
Roesler is more than likely to soon announce plans for IQWiG too, having called the agency "indispensable" in an interview with national newspaper the Frankfurter Allgemeine Zeitung. The agency's head, Peter Sawicki, is to step down in August 2010, allegedly under questionable circumstances. That's good news in a sense, since his sometimes controversial decisions - including that long-acting insulins Lantus and Levemir offer no benefit over old-style human insulin - earned him few friends in industry. But few believe that IQWiG will lose its teeth as a result, although those teeth never have been as sharp as those of the UK's National Institute of Clinical Excellence (NICE), which has a more-or-less fixed cost-threshold above which it will not recommend that drugs are reimbursed.
Not that drug firms will escape proving their drug's benefit even if they do reach a deal with insurers: another element of Roesler's current plans will require drug firms to submit, in parallel with a new drug application, a study which "scientifically demonstrates" the product's additional benefit to patients, the minister said in an interview in Das Bild. They also must outline specifically which patient groups the product will serve, and show which comparator drugs, if any, already are available.
None of the components of Roesler's plan will come as much surprise in today's era of government spending cuts and continued targeting of drug manufacturers, even though the man himself has until now been quiet since taking his post late last year after Germany's autumn general election, "using the time to formulate his agenda," according to one informed observer.
But although hardly good news for innovators, Roesler's plans do provide an opportunity - very possibly the last - for firms to avoid long-term, government-imposed price cuts.
Separately, Germany's state insurers collectively reported a €1.1 billion surplus in 2009, according to the health ministry, despite the economic crisis. These better-than-expected figures (although hiding widely-varying results for individual insurers) are unlikely to sit well with either industry or the public. Many individuals either are subject already to fixed-fee contributions, or soon will be, allegedly because of the insurers' dire finances.
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- Melanie Senior (3 m.senior@elsevier.com)
