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Will the structure and ambiguity of Germany's new medicines pricing system bring a halt to new drug launches in Europe's largest market?
Reforms to the federal drug reimbursement system introduced last year are accentuating the importance that Germany plays in Big Pharma's new product pricing strategies, with a number of prominent players, including Eli Lilly and Boehringer Ingelheim, questioning the rationale for introducing new medicines in Germany due to the uncertainty of the new process and the adverse impact of low administered prices on listing decisions taken by other countries. Such concerns make a launch in Germany a risky proposition, write Pharm Exec Editorial Advisory Board member Ed Schoonveld and Johann Meyer-Christian—and a far cry from the days when Germany led Europe as a reliable source of high margins and steady revenue growth.
Getty Images / Ralf Hiemisch
The reform program—Arzneimittelmarktneuordnungsgesetz, or AMNOG for short—was approved on November 12, 2010. It marked the end of free pricing of new pharmaceuticals in Germany. Pushed through at very short notice, the legislation was designed principally to cut costs to the drugs bill, for an estimated €2 billion ($2.78 billion) in annual savings. The sick funds and legislators have every reason to be happy, as AMNOG has generated more than €1 billion ($1.4 billion) in savings through compulsory rebates in its first four months. Those savings occurred before negotiations on prices for new drugs had even started.
The law has left industry reeling, with companies now waiting for clarifying case studies that will determine how far German prices drop in line with other EU countries, a trend that could force companies with global pricing exposure to withhold launching new drugs in Germany. Six cases are now under review through the new system, but results are unlikely to be known until sometime in 2012. Hence, the bad news is that the ambiguous nature of the new legislation appears to complicate planning both for the short- and long-term success of drug company investments. The 'good' news is it seems to be fertile ground for revenue-seeking lawyers involved in litigation and administrators handling all the extra bureaucracy involved in implementing the program.
AMNOG pricing process
Under AMNOG, the Federal Joint Committee (Gemeinsamer Bundesausschuss/G-BA), with the help of the Institute for Quality and Efficiency in Health Care (IQWiG), will analyze whether a new drug offers additional benefits in comparison with an "appropriate and established therapy." A drug's level of innovation will be rated in a similar way to the better-known French ASMR system. Price premiums over standard of care need to be justified in line with their innovativeness rating, although the mechanism through which this is happening is only defined as "negotiation." For drugs that are deemed less innovative, prices will be tightly linked to existing treatment options.
The AMNOG process and its various decision steps are illustrated in the graphic on page 36. For any new drug launched after Jan. 1 and for subsequent new indications, a pharmaceutical company needs to submit a dossier to the G-BA, which then conducts a benefit assessment. If the G-BA concludes that the drug does not offer an additional benefit, it will be transferred into a reference pricing cluster that includes low price generics or, if no reference group exists, subjected to reimbursement negotiations. In the reimbursement negotiations the price for the drug will not be allowed to exceed the costs of "comparable" drugs, including generic equivalents.
If the G-BA decides that the drug offers an additional benefit, the manufacturer will be allowed to sell the product at a freely set price for one year, commencing from market launch. At the same time, price negotiations for the future Statutory Health Insurance (SHI) reimbursement price will take place. If no agreement on the SHI reimbursement price can be reached, a central arbitration board will decide the price. Every party is allowed to appeal the decision and ask for a formal cost effectiveness analysis. In this case the G-BA would ask IQWiG to perform the analysis, which could take up to three years—a long time to wait.
AMNOG apparently requires evidence of a new drug's cost-effectiveness to secure a reasonable price at launch. Absent this, a company cannot be confident that the process will yield an acceptable price. However, EMA rules for approval of market authorization are not compatible with real-life performance tests of drugs that must demonstrate real value. Interestingly, France seems to be moving towards implementation of cost-effectiveness reviews at a later stage of a drug's life cycle. This seems much more reasonable, as a company has a chance to prove a drug's value in a naturalistic treatment setting. The biggest problem for industry in this context is that payers insist on setting price first, rather than deciding whether they will fund it, as price has international implications. In any other industry, customers simply do not buy a product they don't like; they don't insist on a lower price.
AMNOG seems to be focused on forcing companies to negotiate rebates as a means of net price reduction. Currently, mostly for generics, rebates are directly deducted at the pharmacy where the patient gets his or her drugs. The pharmacy claims the rebate back from the manufacturer and only gets the retail price minus the mandated drug company rebate from the sick fund. There is no indication that rebates will be handled differently with AMNOG rebates but nobody seems to really know.
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Besides posing limits on pricing for new drugs, AMNOG also introduces many other discounts on existing drugs at manufacturer and wholesaler level. So what about parallel trade? That still exists and will seemingly be in competition with rebated drugs. Pharmacists will likely decide on their choice on the basis of administrative hassle and margin. Kohlpharma, one of the largest German parallel trade wholesalers, just sued the AOK Sachsen-Anhalt as they think it is illegal to favor rebate-contracted pharmaceuticals if there are cheaper parallel trade alternatives.
Exceptions to the price approval process can be granted for orphan drugs and drugs that are expected to only reach very limited sales revenues. Orphan drugs will automatically be rated as drugs with an additional benefit when they receive marketing authorization, as the G-BA assumes on the basis of the orphan drug status that there are no alternative treatment options. This exception only endures as long as the drug does not exceed a turnover of €50 million ($69.4 million) within 12 months. Low-volume drugs with a projected annual turnover of less than €1 million ($1.4 million) can also qualify for a waiver. After G-BA approval of a waiver, the manufacturer is authorized to set price freely as long as the annual limit is not exceeded.
BI and Lilly's Trajenta battle
Depending on the perspective, opinions on AMNOG differ markedly. Dr. Rainer Hess, chairman of the G-BA, said it will be a learning process; the head of IQWiG, Jürgen Windeler, declared the reform was long overdue. This is not surprising since it provides IQWiG with a clear role after a long period of ambivalence. Dr. Christoph Mayr, board member of the HIV working committee, notes that new substances will have a hard time receiving a high additional benefit rating; other HIV specialists have stated AMNOG will have blind spots, as studies used by the G-BA to assess additional benefit would not cover all patient groups such as minors or older people.
Meanwhile, the drug industry is struggling to understand AMNOG's impact on the German market. "Even though there are numerous workshops, seminars, etc., about this topic, it seems that nobody really knows what the actual results of AMNOG will be," says Anja Prause, Global Pricing Manager at Bayer Healthcare Pharmaceuticals. On the implications for drug development she thinks it will be made more complicated "as it is unclear if a product can achieve an appropriate price and reimbursement level to recoup development cost in such a strategic market as Germany."
John Lechleiter, CEO of Lilly, argues that it may make more sense to not launch in Germany rather than to accept a "slap in the face rejection over unreasonable demands of evidence at launch that can only practically be gathered during more extensive product use." The recent joint decision by Boehringer Ingelheim and Lilly not to launch the diabetes drug Trajenta in Germany due to their dissatisfaction with the review process underscores that Lechleiter is serious about his concerns.
Dr. Hagen Pfundner of Roche Germany points out the inappropriateness of the monopoly negotiating power of the sick funds. Providing necessary healthcare to a population under adverse economic conditions is no easy task. Governments need to balance the need for public healthcare with their ability to fund this in consideration of many priorities. Unfortunately, many governments choose to use their single-buyer "monopsony" buying power to dictate terms of the purchase. This becomes particularly painful when the rules of the game are unclear and frequently changing. It is also focused primarily on the short-term budget cycle rather than on support for innovativon or health costs overall.
Given the large degree of uncertainty with regard to getting a feasible price in Germany, the consensus within industry is it will not be able to plan effectively for a German launch under AMNOG. Companies have to deal with an already fragmented environment, between national and regional market access requirements in various large markets around the world. Uncertainty in one or more of these markets creates an even more daunting task, particularly since development decisions typically have to be made three to five years before launch.
If companies have a muddied view of payer requirements, their propositions are likely to be off target—and all stakeholders pay the price for that in some way or other. Given the timing of development decisions that impact the ability to negotiate price, it will take about five years before AMNOG will see dossier submissions that have taken the new requirements into consideration (that is, if companies decide to base their decisions on specific German requirements rather than that of all other, and many larger, countries). And it is fair to say that the German government will probably have changed its system again by then. It is true, however, that as G-BA expands its review process, which now is likely to include the 27 new drugs approved by the EMA so far this year, precedents will be set that in an informal way—over time—will help fix the parameters for engagement.
Ed Schoonveld is Principal and Market Access & Pricing Practice Leader at ZS Associates in New York, and the author of "The Price of Global Health" (Gower Publishing, 2011). He can be reached at Ed.Schoonveld@zsassociates.com
Johann Meyer-Christian is a Consultant at ZS Associates in Zurich