Germany’s Approach to Prescription Drug Pricing Leigh Purvis, Director, Health Services Research AARP Public Policy Institute

What does the German health care system look like? Unlike many EU counterparts, has private multi-payer system. Health insurance is mandatory and is provided through either nonprofit, semi-private plans (“sickness funds”) or substitutive fully private plans. The Federal Joint Committee—a non-governmental body of payer, private, and patient representatives—has authority over coverage decisions for all German payers.  To the extent possible, coverage decisions are based on evidence from health technology assessments and comparative-effectiveness reviews.

How does Germany cover prescription drugs? Germany has historically prioritized patient choice and availability. Similar to the US, drug manufacturers were once free to set any price knowing that the health insurance funds would immediately have to reimburse them. Concerned by price and spending trends, policymakers developed a plan to help reduce both while also supporting continued innovation and patient access. The 2010 Pharmaceutical Market Restructuring Act, or AMNOG, established a process to assess the added benefit of new drugs through the use of comparative effectiveness research.

How does the AMNOG process work? Once a drug has been determined safe and effective, the drug maker can introduce its product at the price of its choosing and is fully reimbursed for 12 months. During those 12 months, the Federal Joint Committee commissions a clinical comparative effectiveness review by the non-governmental Institute for Quality and Efficiency in Health Care (IQWiG). IQWiG evaluates all evidence of a new drug’s clinical effectiveness and benefits compared with standard treatment and/or existing drugs. Drug makers must submit all of the relevant data in a standardized dossier format and face sanctions for withheld information. Three to six months after IQWiG submits its findings, the Federal Joint Committee must issue a decision.

Notable exceptions to the AMNOG process Orphan drug manufacturers must submit a dossier but the new drug is automatically considered to have added value. Note: if total sales exceed €50 million per year, then a complete dossier must be submitted within 12 months. Vaccine reimbursement is simply tied to vaccine prices in comparable European countries. Excludes generics and hospital-only drugs.

How are new drugs rated? Evaluates whether the new drug adds a patient-relevant benefit such as an improvement of health status, shortening of disease duration, extension of life expectancy, reduction of side effects, or improvement in quality of life. Possible benefit ratings: Major added benefit – sustained and substantial improvement; Considerable added benefit – significant improvement; Minor added benefit – moderate improvement; Added benefit present but not quantifiable; No added benefit proven; Lower benefit than current therapies. The quality of the studies and data is also rated: Proof of benefit Indication of benefit Hint of benefit

What happens after a new drug rating is final? If a new drug’s rating is 1-2-3, the drug maker can begin negotiating with the organization representing all public insurance providers in Germany. Level of added benefit serves as the basis for negotiation. Ensures that all health insurance funds will pay the same price for the drug. If a new drug’s rating is 4-5-6, then payers will reimburse only at prices currently paid for the older existing drugs or therapies. In rare cases where an agreement on price cannot be reached within 6 months of the Federal Joint Committee decision, the matter is submitted to an arbitration panel.

What does arbitration look like? Board includes impartial Chairman and two other impartial panel members, in addition to two members appointed by insurers and the drug company. Members are appointed for 4 years. Decision made by simple majority vote and Chairman vote is decisive in the case of a tie. Reimbursement price decision is binding, although either party can challenge it and apply to have a comprehensive cost-benefit analysis conducted by IQWiG. Can revisit an agreement or arbitration decision on the basis of new scientific findings after one year.

What other options are on the table for drug companies? Drug companies can choose not to have their drug assessed and have their price set through the German reference pricing system. Prices are based on the prices of other drugs in that therapeutic class (including generics). Drug companies can also choose not to offer their drug in Germany.

How has the AMNOG process worked so far? Research indicates that the prices of drugs with no added benefit are not higher than the prices of existing products, and drugs with added benefit are coming to market with a price premium. Arbitration decisions often lead to substantially lower prices than what manufacturers originally demand. Savings in the billions on new drugs with added benefit; additional savings from new drugs with no added benefit. Has not stifled access: more than 300 new drugs were assessed between January 2011 and May 2018. < 30 new drugs pulled from the market after evaluation and/or price decision.

Some takeaways to consider German system provides an evidence-based way to reward innovative drugs that provide genuine clinical benefits. Provides immediate access to new drugs. Determines final prices only after a determination of clinical benefits, and through negotiations involving drug companies and stakeholders. Arbitration is used as a last resort and the entire process offers multiple opportunities for drug makers to weigh in. Products that are ultimately removed from the market seem to reflect more on innovation shortfall than process.

Leigh Purvis Director, Health Services Research lpurvis@aarp Leigh Purvis Director, Health Services Research lpurvis@aarp.org AARP Public Policy Institute www.aarp.org/ppi Twitter:@leighdrugwonk www.Facebook.com/AARPpolicy Blog: www.aarp.org/policyblog