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This article provides an overview of potential tools being explored in Germany by Health Insurance Funds to better control drug prices and healthcare spend, offering insight into which measure may be implemented.
In 2011, Germany introduced a novel price regulation mechanism referred to as the AMNOG process with the intention to stop unregulated pricing by providing a two-step procedure: an evidence assessment and subsequent price negotiation. The AMNOG process is not intended to restrict prescriber volume, but to ensure appropriate drug pricing for products entering Germany. While the prices negotiated at the national level are public, any of the 100+ German public health insurance funds may negotiate additional, confidential discounts with manufacturers.
Per design, the AMNOG process differs in its fundamental approach from many other countries in that it does not incorporate non-randomized studies, economic modeling, or additional pharmacoeconomic considerations. Nevertheless, the strict evaluation could not prevent a general trend of price increases for new medicines in Germany. Individual health insurance funds in Germany, as well as their umbrella association are therefore calling for a reorganization of drug regulation and are pursuing efforts via legislation through the new German government’s coalition agreement for future policy changes. This article identifies twenty-one proposed measures recently brought forward by German Health Insurance Funds and provides insight into seven considered to have the greatest relevance and/or potential for implementation.
In 2020, the Association Internationale de la Mutualité (AIM), an international umbrella organization for health insurers, presented a new pricing model for “fair and transparent prices” of new drugs to the European Parliament. The objective was to improve upon the current German price-setting model to also include expected sales volume, cost of research and development, production, sales and medical information, and corresponding profit margins for pharmaceutical manufacturers. In concept, this model breaks away from the strong focus on “additional benefit” and referencing the prices of comparable products and encourages a broader perspective to incorporate other financial considerations. Currently, this new pricing model has been made publicly available online and is becoming more frequently referenced by the insurance funds in product negotiations.
The pharmaceutical industry has discussed, globally, a cost-based pricing approach for many years; however, German Health Insurance Funds are furthering the discussion nationally. Specifically, this measure would require that manufacturers disclose a product’s research and development costs, production costs, any received subsidies, and profit forecasts. The intent of this measure is to better align drug pricing to the total cost incurred by the manufacturer by integrating cost-based considerations into the German price-setting process.
Overall, the aim of both cost disclosures and profit forecasts is positioned as creating greater transparency throughout the evaluation and negotiation processes. In theory, closer alignment to the overall production cost is hypothesized to generate costs savings via lower prices. However, there is criticism around the effort in that many factors go into drug discovery, thus limiting overall transparency potential.
As part of the AMNOG process, following free drug pricing during the first year, the current collation agreement states that the negotiated reimbursement amount will apply on the 13th month. However, German Health Insurance funds are calling for a retroactive price adjustment starting on the 7th month (following completion of the Benefit Assessment), based on the negotiated reimbursement amount. Furthermore, numerous health insurers have called for an even earlier period of validity, including a full retroactive price adjustment back to the original market entry date. However, relative to the annual total drug spend in Germany of ~50 billion euros, such measures may not provide significant savings to drive broad support.
Price-setting negotiation with the G-BA currently permits free drug pricing for 12 months and involves up to four rounds of negotiation. To arrive at a negotiated reimbursement amount earlier, German Health Insurance Funds are proposing to shorten the unregulated pricing period. Specifically, the proposed measure calls for a reduction in the number of negotiation rounds from four to two, with the potential to add an additional round ad-hoc. If enacted, the result of this measure would allow the reimbursement amount to be set as early as three months post-benefit assessment, as opposed to the standard 6 months.
To mitigate the financial impact of products deemed likely to incur a relatively high cost during the first year on market, Germany is considering establishing an “interim price” for the period after market entry in place of the current free pricing approach. This measure would essentially replace the “free pricing” mechanism. Furthermore, the interim price could even be combined with a retroactive price adjustment once the negotiated reimbursement price is set.
While simple in theory, potential hurdles to implementation include structuring the payment model and the perceived challenging nature of defining appropriate interim prices given the nuances across therapeutic area, products, unmet need, etc. While no method to determine the interim price has been formally published, a potential approach would align the price with the costs of other products (i.e., other orphan-designated drugs), adjusted to the expected target population size.
Drugs with an “orphan” designation are subject to special regulation in Germany, which includes automatically being granted a “non-quantifiable additional benefit” by law regardless of evidence. Referencing increased prices and spend on orphan drugs, German Health Insurance Funds and professional societies are collectively calling for the discontinuation of automatically awarding a “non-quantifiable additional benefit” for orphan drugs. Instead, the Health Insurance Funds are requesting orphan drugs to be required to go through the standard Benefit Assessment.
In partial response, German legislation has already enacted an annual sales threshold of 50 million euros for orphan drugs, above which a full evaluation must take place. If further measures, such as fully removing the automatic additional benefit classification were to be implemented, orphan drugs would then undergo the standard benefit assessment. This change would mean that the G-BA would determine an appropriate comparator therapy, as well as set specific price comparators. Additionally, it would provide the opportunity for additional scrutiny around trial design and evidentiary requirements. Overall, this would place greater emphasis on optimizing clinical trial design around German requirements and limit price premium potential only to therapies successfully demonstrating an additional benefit within the parameters of the current benefit assessment structure. Furthermore, this would place greater emphasis on manufacturers to align their trial designs beyond FDA requirements to achieve regulatory approval in the US.
The legal foundations for performance-based reimbursements have already been created in Germany by legislators. For example, “risk pools” have been re-introduced to allow for reimbursement of expenses incurred by German Health Insurance Funds to cover individual drug expenses surpassing 100,000 euros. However, the structure of these “risk pools” have drawn criticism and hailed a primary obstacle for future utilization of pay-for-performance mechanism. Specifically, the underlying structure of the prospective installment payment models (risk pools) are financially unattractive compared to the traditional one-time reimbursement. With the “risk pool” approach, Health Insurance Funds must absorb the risk pool deductible of 100,000 euros for each individual installment.
In addition to the criticism around the risk pool component of innovative contracting in Germany, most Health Insurance Funds cite the complexity of administering, monitoring and tracking such agreements as obstacles to broad utilization. Finally, German payers are not able to collect and store patient data for longer than 5-years, which further impedes contract potential.
It is unlikely that German legislators will adopt any approach or attitude that new medicines can fundamentally be restricted. Still, there is mounting pressure from German Health Insurance Funds to uphold strict evidentiary requirements and incorporate financial considerations into product evaluations. Therefore, manufacturers will likely have the option to choose between either a negotiated downward price adjustment, or additional evidence generation to get closer to their desired prices.
A draft bill of the Federal Ministry of Health on March 4, 2022 advanced several of the suggestions covered in this article. However, the bill was criticized as too drastic and was therefore withdrawn at short notice.
In the near term, the government will likely continue to utilize familiar approaches, including extension of the current price moratorium. Between the ongoing consensus-building processes of the new government, the introduction of a new EU HTA, and Germany’s desire to attract pharmaceutical manufacturers, no immediate drastic paradigm shifts are expected. However, it will be important to monitor proposed German legislation in an effort to prepare for anticipated eventual changes to the German AMNOG process.
Eva Susanne Dietrich, Professor at the University of Bonn, and David Bower, principal at Clarion, and Head of Market Access & Pricing