The German pharmaceutical industry is on the brink of a significant shift, with the Medical Research Act (Medizinforschungsgesetz) being passed by the German Federal Parliament (Bundestag) on 4th July 2024. Overall, the new legislation aims to strengthen the attractiveness of Germany as a location for pharmaceutical research and development and manufacturing 1. Of particular interest are the changes to the country’s pricing and reimbursement laws, as pharmaceutical companies with a demonstrable research and development presence in Germany will be given the opportunity to negotiate confidential reimbursement prices for new drugs as well as having an increased scope for price negotiation 2. The new regulations are likely to impact the pricing strategy of pharmaceutical companies in the German market and raise important considerations for launch strategy due to the anticipated wider impact on the European pricing landscape.
In practice, what will happen?
Under the current laws in Germany, the negotiated reimbursement price for a new drug is public, offering a level of transparency not common to other EU countries 1. This means that German prices are often used as a reference: 37 countries include Germany as part of their formal or informal international reference pricing basket 3. The new legislation introduces an option for pharmaceutical companies to maintain confidentiality on the reimbursement amount 1. Crucially, only companies who can prove “relevant own projects and cooperations with public institutions in preclinical or clinical drug research in Germany” will be eligible to maintain price confidentiality, consistent with the wider aims of the Medical Research Act to encourage innovation in Germany 2.
Following the conclusion of price negotiations in the AMNOG process (the benefit assessment of reimbursable drugs), companies will have five days to request confidentiality on the reimbursed price and submit documentation to prove their eligibility. If confidentiality is agreed, companies must provide an additional 9% discount on the previously agreed price. Companies will be required to inform eligible parties, including health insurance funds and other payers, of the confidential reimbursement amount, and compensate for the difference between the public and the confidential reimbursed price 1. Furthermore, for products where the appropriate comparator therapy is patent-protected and additional benefit is not proven, is low, or cannot be quantified, guardrails from the Financial Stabilisation Act (GKV-FinStG) will be lifted if at least 5% of subjects in the clinical trials participated in Germany 2. This innovative approach to incentive research in Germany will increase the scope for qualifying companies to negotiate higher reimbursement amounts for these products.
What are the potential benefits of the new regulations?
The changes are likely to have a significant impact on the pricing strategy of pharmaceutical companies in the German market, as well as having wider implications for drug pricing in countries that currently use Germany as a reference. The introduction of confidential pricing agreements will allow for greater flexibility in pricing negotiations, as the impact of the German price on international reference pricing across the world would be reduced. From the government’s perspective, it is thought that the introduction of this legislation will result in lower prices of medicines in Germany. Manufacturers who are particularly worried about the implications of international reference pricing due to a transparent net price in Germany (and the risk of parallel exports) will be likely to benefit from the negotiation of confidential discounts. Currently, limited flexibility in reimbursement negotiations can lead companies to consider withdrawing from the German market, jeopardising patients’ access to innovative medicines 1. Furthermore, confidential pricing might also allow manufacturers to serve more markets than would be possible with transparent pricing, increasing patients’ access.
The implementation of the GKV-FinStG in November 2022, which reduced the initial free pricing period from 12 to 6 months and mandated lower annual costs for drugs with little or no proven benefit compared to their counterparts, has made Germany a less attractive market for pharmaceutical companies 2. The situation is further complicated by the lowering of the exemption threshold for orphan drugs from the G-BA benefit assessment from €50 million down to €30 million Euros. The incoming regulatory changes represent a more nuanced approach to drug pricing regulation which aim to balance innovation incentives with cost containment measures, whilst boosting patients’ access to new treatments in Germany.
What are the potential drawbacks?
There is a considerable administrative burden and cost associated with maintaining a public and a reimbursed price, as companies must not only reimburse the difference between the two prices, but also compensate the health insurance funds for additional markups and VAT, in addition to the expenditure incurred as a result of maintaining confidentiality 1, 4. Therefore, it is likely that obtaining a confidential reimbursement price will only be a financially viable option in a limited number of instances each year, namely cases where companies come out of the AMNOG assessment with an unsatisfactory price, and where international price referencing would jeopardise the availability of these products in Germany 4. However, the mandatory 9% reduction in the original reimbursement price may further put companies off opting for confidentiality in these cases. Another important consideration is the requirement for a local research and development presence in Germany as this criteria may be more difficult for smaller pharmaceutical companies to meet. This has the potential to affect the competitive landscape in the German market with larger companies dominating as they can opt for confidential pricing whilst also achieving more favourable reimbursement amounts for products with poorer clinical benefit assessment outcomes.
The initial draft of the Medical Research Act, particularly the new regulation on confidential pricing, was met with widespread criticism from several key stakeholders, including the German Federal Council (Bundesrat) and the National Association of Statutory Health Insurance Funds (GKV-SV) 5. Concerns were raised over the transparency of the pharmaceutical industry and how the lack of price transparency would hinder economic efficiency in prescribing, ultimately increasing expenditure on medicines 5. The amended Act states that whilst the reimbursement amount will remain confidential, prescribers will have access to information on the cost-effectiveness of different medicinal products in the relevant indication to ensure economic efficiency 2.
The impact of the new regulations, due to be implemented from January 2025, will be evaluated at the end of 2026 2. This evaluation will assess whether the main objectives of the regulation have been met, in reducing market withdrawals due to the impact of external reference pricing and achieving savings through the negotiation of confidential discounts. It will also identify any unintended effects, such as unexpectedly high administrative burdens or unforeseen changes in drug expenditures 1.
How might this affect the European pricing landscape?
The impact of this legislation on other European countries and international reference pricing could be significant. If other countries continue to reference Germany’s public prices, which would be higher than the confidential reimbursed prices, it could lead to price inflation across Europe; additionally, there may be a disconnect between list and net price and flatter list price corridors, as prices across different markets become more uniform 6. On the other hand, the importance of International Reference Pricing could decrease. If countries stop referencing Germany’s prices due to the lack of transparency, this could disrupt current pricing strategies and lead to increased price variability across Europe 6.
Conclusion
The new legislation in Germany represents an innovative approach to encourage local innovation whilst decreasing expenditure on medicines and increasing patient access in Germany. Due to the restrictive criteria and costs associated with maintaining a confidential reimbursement amount, it will be interesting to see how companies respond to the new regulations, and how many will opt for confidential pricing. Importantly, the impact on pricing strategies throughout Europe could be significant and it will be interesting to see how other countries respond to these changes.
References:
1) https://www.bundestag.de/dokumente/textarchiv/2024/kw23-de-medizinforschungsgesetz-1003230, Accessed July 2024.
2) https://www.bundesgesundheitsministerium.de/presse/pressemitteilungen/medizinforschungsgesetz-bundestagsbeschluss.html. Accessed July 2024.
3) Global Pricing Innovations – IRP matrix. Accessed July 2024.
4) https://skc-beratung.de/insights/blog/2024/03/draft_bill_Medical_Research_Act.php. Accessed July 2024.
5) https://www.pharmazeutische-zeitung.de/bundesrat-lehnt-vertrauliche-erstattungspreise-ab-147463. Accessed July 2024.
6) https://www.weforum.org/agenda/2019/10/transparency-drug-pricing/. Accessed July 2024.
Initiate is well-positioned to support pharmaceutical companies in navigating these changes which are due to be implemented in 2025. We offer strategic pricing consultancy, development of market access and launch strategies, stakeholder engagement, and negotiation support. Our comprehensive suite of services ensures that pharmaceutical companies can effectively adapt to legislative changes, remain competitive, and continue to deliver access to patients.
