Hi again, and welcome to the second article in the 3-part series on drug prices in Germany. In this week’s post, I am discussing the different types of prices, price discounts and rebates, and who is paying what.
This time, you can learn about:
Again, I have also suggested some further reading, if you want to dive deeper.
And the pricing series does not stop yet. Next week, I introduce you to the Lauer Taxe and what you can find there.
Different definitions of drug prices in Germany
Before we get into the details, it is important to understand the different definitions of prices. Thus, I have summarised the different types of prices in the following table:
| Price (English) | German terminology | Meaning |
|---|---|---|
| Ex-manufacturer price | Preis des pharmazeutischen Unternehmers (PpU) | = Manufacturer’s list price |
| Manufacturer sales price | Herstellerabgabepreis (APU/HAP) | = Price that manufacturer receives for the product In the first 6 months after launch, this matches the “PpU”, afterwards, it matches the “Erstattungsbetrag” |
| Reimbursement price | Erstattungsbetrag | = Maximum price reimbursed by SHI funds, before discounts |
| Pharmacy purchase price | Apotheken-Einkaufspreis | = Price that the pharmacy has to pay for the drug = Wholesaler sales price |
| Pharmacy sales price | Apotheken-Verkaufspreis | = Price that the pharmacy receives for selling the drug |
Price discounts and rebates applied to drug prices in Germany
Last week, I had introduced the pricing system used to determine the reimbursement price for products with and without an additional benefit.
Here is a short summary: At the time of launch in the German market, manufacturers are free to set the price for their product with a new chemical entity (NCE). This price is then valid for the first 6 months from the day of launch. It is published in the Lauer Taxe as the ex-manufacturer price, i.e. the “Preis des pharmazeutischen Unternehmers (PpU)”.
After these 6 months, the reimbursement price that was negotiated, set through reference pricing or determined by the arbitration board applies. The Lauer Taxe includes this reimbursement price as “Erstattungsbetrag”.
This reimbursement price is the highest price that the SHI funds would pay, but often further discounts are applied to derive the final, real-world price paid by wholesalers, pharmacies, patients and SHI funds in Germany.
Mandatory discounts benefitting SHI funds
Mandatory discounts given by manufacturers (German: “Herstellerabschlag”)
Outside of reference price groups, manufacturers have to grant SHI funds a mandatory discount on their ex-manufacturer price. These discounts are dictated by § 130a SGB V. They differ depending on the type of product:
- With patent protection: 7% (12% in 2023)
- Without patent protection: 6%
- Within a reference price group, priced below reference price: no discount
Mandatory discount for generics
In addition, there is a mandatory discount of 10% for generics and their reference drugs. These discounts are additive, so a generic drug (which will have no patent protection) requires a discount of 16% (=6% + 10%).
However, if the price of the generic is at least 30% below the reference price, the product is exempt from the mandatory 10% discount for generics.
Mandatory discounts given by pharmacies (German: “Apothekenabschlag”)
Pharmacies have to grant the SHI funds a mandatory discount of €2.00 per product for so-called “finished drugs” (German: “Fertigarzneimittel”), i.e. those that can be sold as they come and don’t need to be prepared by a pharmacist.
The discount for products within reference price groups is based on the reference price. If the ex-manufacturer price lies below the reference price, the discount is based on the lower price.
Additional discounts for individual SHI funds
In an additional step, the individual SHI funds can negotiate further discounts on the price directly with the manufacturers, according to § 130c SGB V. These contracts can be national or regional. These discounts can be in the form of staggered price-volume agreements, maximum annual sale volumes, or pay-for-performance agreements. Bigger SHI funds have greater negotiation power and therefore might achieve higher discounts. These contracts are confidential.
The discounts can also be passed through to the insured patients and thus may result in patients not having to cover co-payments.
Hospital contracts
Furthermore, hospitals are negotiating drug prices directly with the manufacturers. The reimbursement price set in the negotiations with the GKV-SV reflects the maximum price for these contracts. Again, bigger hospitals are more influential in negotiations and may achieve higher discounts compared with smaller ones. These hospital contracts are also confidential, and the amount of discount is not publicly known.
So who is paying what?
Wholesalers
Wholesalers are buying the product from the manufacturer. They pay the manufacturer sales price. Then, they sell the product again to the pharmacies.
To cover their costs, the wholesalers add a surcharge (German: “Zuschlag”) to their purchase price for finished drugs. The government sets the amount of the surcharge. Currently, the cap for the surcharge is a maximum of 3.15% of the manufacturer sales price per package (maximum of €37.80). On top of this, wholesalers add a fixed fee of €0.70 to the surcharge to remunerate the procurement, storage and distribution of the products.
Pharmacy
Likewise, pharmacies are paying the pharmacy purchase price to buy the product from wholesalers and then sell it again for the pharmacy sales price.
The pharmacy sales price is higher than the pharmacy purchase price. The difference or surcharge covers the service provided by the pharmacy. Again, the amount of it is determined by the government. The pharmacy surcharge differs between finished drugs and those that need to be prepared and dispensed by the pharmacies:
Finished drugs
Currently, pharmacies are allowed to add 3% of the purchase price. Furthermore, they then add a fixed fee of €8.35 per package. On top of this, there is a fee of €0.21 to support their provision of emergency services plus €0.20 to finance additional pharmaceutical services (since 15 Dec 2021).
Dispended drugs
The surcharge for dispensed drugs has three parts: The pharmacies add 90% of the pharmacy purchase price, a dispensing surcharge fee of €3.50 to €8.00, and again the fixed fee of €8.35 per package. The dispensing surcharge fee depends on the amount and type of substances within the dispensed drug.
Lastly, VAT of 19% applies to pharmacy drugs.
Since all the surcharge components are dictated by the law, the pharmacy sales price of a prescription drug is the same across all pharmacies in Germany.
Patients
The treating physician can prescribe a drug for a patient. The patient then takes this prescription to the pharmacy to receive the drug. While the SHI funds cover the majority of the costs, the patient still has to pay a co-payment of 10% of the pharmacy sales price, at least €5, to a maximum of €10 or the total sales price.
Exception:
Products in a reference price group that are priced at least 30% below the reference price can be exempt from the patient co-payment.
SHI funds
The SHI funds cover the pharmacy sales price MINUS
- the patient co-payment
- the mandatory discounts given by the manufacturer and the pharmacies (see above)
- any additional optional discounts through individual contracts.
These prices are capped for products outside of reference price groups (German: “Preismoratorium”). That means that SHI funds will not pay more even if manufacturers increase their prices. This price moratorium is currently in place until the end of 2022, but the new coalition government proposed to extend it further.
Example calculation of the final drug prices in Germany
Let’s bring this all to life by going through an example calculation of the prices for both a finished and a dispensed drug.
| Finished drug, with patent protection | Dispensed drug | |
|---|---|---|
| Manufacturer sales price (= Ex-manufacturer price or reimbursement price) | €50.00 | |
| + wholesaler surcharge (3.15% plus €0.70) | + €2.28 | |
| = Pharmacy purchase price | = €52.28 | €5.00 |
| + pharmacy surcharge (3% plus €8.35 for finished drugs; 90% plus €8.35 for dispensed drugs) | + €9.92 | + €12.85 |
| + fee for the provision of emergency services | + €0.21 | |
| + fee to finance additional pharmaceutical services | + €0.20 | |
| + dispensing surcharge fee (€3.50 to €8.00) | + €6.00 | |
| = Net pharmacy sales price | = €62.61 | = €23.85 |
| + 19% VAT | + €11.90 | + €4.53 |
| = Pharmacy sales price | = €74.51 | = €28.38 |
| – Patient co-payment (10%) | – €7.45 | – €5.00 |
| – Mandatory pharmacy discount (€1.77; €2.00 from 2023) | – €2.00 | – €2.00 |
| – Mandatory manufacturer discount (7% of manufacturer sales price; 12% in 2023) | – €3.50 | |
| = Price paid by SHI funds (additional discounts are possible) | = €61.56 | = €21.38 |
References:
- https://www.bundesgesundheitsministerium.de/arzneimittelpreise.html
- https://www.abda.de/apotheke-in-deutschland/preise-und-honorare/beispielrechnung/
- https://www.gesetze-im-internet.de/ampreisv/BJNR021470980.html
What does the manufacturer get in the end?
In summary, after all these surcharges, discounts and rebates, how much of the price is actually received by the manufacturer in the end?
The manufacturer will receive
- the manufacturer sales price, which matches the ex-manufacturer price for the first 6 months and then the reimbursement price thereafter
- minus the mandatory manufacturer discount
- minus any additional discounts agreed with individual SHI funds or hospitals.
Therefore, the manufacturer receives 93% of the manufacturer sale price for a product with patent protection, before any optional agreements.
Further reading related to drug prices in Germany
- The four most important things to know about pricing in Germany
- Pricing of generics
- The biggest SHI fund, the AOK, proposes an end to free pricing in Germany
- New government coalition plans AMNOG, pricing and other reforms
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