Hey there! In this post, I have summarised everything you need to know about pricing in Germany so you can quickly get up to speed on the intricacies of the German pricing system. Here, you can learn about:
When you are ready to dive in even deeper, I have also suggested some further reading.
And if you can’t get enough of pricing in Germany, this is only the first article in a 3-part series on pricing in Germany. Next week’s post will focus on different types of prices, discounts and who is paying what. Stay tuned!
1) How are drug prices set in Germany?
Currently, in Germany, free pricing applies in the first 6 months. This means, at the time of launch in the German market, pharmaceutical companies 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.
Products with an additional benefit
If the G-BA found an additional benefit for the product, price negotiations between the pharmaceutical company and the GKV-SV, i.e., representatives of the SHI funds, will commence. These price negotiations are confidential. If both parties cannot agree on a price, an arbitration board will make a final decision on the price.
The main factors considered in these price negotiations are:
- Annual costs of the appropriate comparator therapies
- Additional benefit level determined by the G-BA
- Prices of comparable pharmaceuticals within the same authorized indication(s)
- European prices in the reference countries
- Number of patients in the target indication
Since price negotiations are completed after about 12 months only (15 months with arbitration), the final reimbursement price is not known yet at the time of 7 months after the launch of the product. Therefore, this delay is accounted for by applying the determined reimbursement price retroactively from month 7 onwards and the price difference will have to be refunded by the manufacturer.
Products without an additional benefit
If the G-BA concludes “No additional benefit (proven)” and the product falls into a reference price group, then -instead of negotiation – the reference pricing system determines the reimbursement price.
If this drug cannot be assigned to a reference price group, the reimbursement price will still be negotiated. In this case, the negotiated price will be set such that the annual therapy costs are not higher than those for the appropriate comparative therapy.
2) What is the arbitration board?
If the manufacturer and GKV-SV can not agree on a reimbursement price within 6 months after the G-BA resolution was published, then an arbitration board will set the final price. This board has to follow the same legal and framework requirements as the negotiating parties, i.e. § 130b SGB V and Chapter 5 of Rules of Procedure (German: “Verfahrensordnung”).
There are 7 members on the arbitration board:
- an impartial chairman,
- two additional impartial members and
- two representatives from each of the negotiating parties.
The three independent members are selected by the GKV-SV and umbrella organizations of pharmaceutical companies. If there is no agreement on these three members, the BMG picks the independent members. Additionally, the BMG also has the right to take part in the meeting of the arbitration board. In addition, the association of the private health insurance funds (PKV-SV) has the opportunity to comment before the arbitration board makes a decision.
Patient organizations, on the other hand, can join the meeting as advisors only.
The final decision is based on a majority vote.
3) How does reference pricing in Germany work?
For products with “No additional benefit (proven)” that fall into a reference price group, the reference pricing system dictates the reimbursement price. The reference price dictates the maximum price that SHI funds will pay for drugs within a reference price group.
The G-BA determines the reference price group that a product falls in. Then, the manufacturer of such a drug should reduce the price down to the reference group price. If, however, the manufacturer does not reduce the price, then
- either patients have to cover the price difference themselves, or
- alternatively, physicians could prescribe a different drug within the same reference group or another drug covered by SHI funds.
Be careful to not confuse reference groups with active ingredient groups of biologicals / biosimilars. Although products are grouped within one reference price group, this does NOT mean patients can be freely switched between them. Only a physician, in consultation with the patient, can decide whether the product can be changed. An automatic substitution at the pharmacy, such as for aut idem products, is not allowed.
Rules for building reference price groups
- The groups only include the names of active ingredients, not branded products.
- Products can only be classed into a reference price group when medically needed alternatives are available.
- Patent-protected drugs with a novel mode of action or which offer a significant therapeutic improvement can not be classed into a reference price group.
- There are different levels for these groups. These are drugs with:
- the same active ingredients (level 1),
- pharmacologically and therapeutically comparable active ingredients, especially with chemically related substances (level 2) and
- a therapeutically comparable effect, especially combinations (level 3).
Process of reference pricing in Germany
- The GKV-SV can propose active ingredients for classification into reference price groups.
- Then, the G-BA considers these and determines groups of active ingredients for whom the GKV-SV can set reference prices.
- Next, it determines the required mean daily or individual doses or other suitable comparative values, which are used later for the calculation of the reference prices.
- Lastly, the GKV-SV decides on the reference prices. Every 14 days, the GKV-SV publishes overviews of all reference group prices and any price differences that patients would need to pay themselves. You can find these lists on the DIMDI website. However, there currently is no document that summarises all reference price groups.
Since reference price groups must reflect the current medical knowledge, the GKV-SV checks these at regular intervals. In addition, the G-BA is regularly updating the comparative values used for the calculations of the price based on the most recently available annual data. After these updates, the GKV-SV adjusts the reference price.
4) Possible changes to pricing in Germany in 2022
Reimbursement drug prices applicable from day of launch in Germany
The new German health minister, Prof. Dr. Karl Lauterbach, previously proposed that the final negotiated reimbursement price should be applied retroactively from the day of launch. However, the new government has not implemented this yet. It’s possible that the parties will agree on a compromise of a retroactive start from month 7 onwards instead.
Fair European maximum price
In addition, the International Association of Mutual Benefit Societies has developed a framework to calculate a fair European maximum price for a new drug. This price applies across the 27 EU countries and would replace the current price negotiations between the manufacturers and the GKV-SV. The EU has already discussed the calculation model, but there are no concrete plans yet for its introduction.
The key aims of deriving a fair European price are to:
- avoid disparities in the price and therefore access across the globe, and particularly EU countries
- make innovative medicines affordable
- make price-setting transparent and predictable
- allow flexibility in the price.
The AIM argues that a lower price for innovative medicines means that more health systems and/ or patients could afford them. Thus, a reduced price would not affect the revenues of the pharmaceutical industry overall.
The model takes the following factors taken into account to derive the price:
- R&D costs,
- target population,
- production and overhead costs,
- costs of sales and medical information
- allowance for profit
- and the therapeutic value offered by the drug.
1) R&D costs
It is quite difficult to allocate and document the R&D costs in Europe for one specific product if a manufacturer develops several products and has multiple sites across the globe. Therefore, the AIM uses a lump sum of €250 million as R&D costs for one new drug.
Manufacturers can ask for an increase in that amount up to €2.5 billion based on fully transparent documentation of their real costs. However, the method for reporting these costs has to still be developed. It would need to account for expenses that are not paid for by the manufacturers, such as publicly funded research, tax savings and opportunity costs. This is further complicated by allocating costs for active ingredients that ultimately failed, as well as the value of buyouts.
In the next step, the model attributes a proportion of the overall R&D costs to the EU countries. To this end, the AIM proposes to use 42% of the overall R&D costs as the proportion for Europe since the European population represents 42% of the whole target population for innovative drugs.
2) Target population
Based on the theoretical prevalence of the indication, the fair price model calculates R&D costs for treating one single patient. Again, manufacturers can ask for a change in the size of the target population with the right documentation. For a high prevalence disease, the R&D costs per patient range from €20 to €1,200. For an ultra-rare disease, on the other hand, the amount is up to €1 million.
The model uses the lower end of the target population. This results in a higher fair European price as the price ceiling for setting the individual prices per country.
The price calculation model then narrows the target population to the treated population. The treatment rate will differ between diseases.
Unless horizon scanning indicates anything different, the market share for each new drug is 1/3.
In the next step, yearly R&D costs per patient are calculated. For chronic disease and life-long treatment, the framework assumes a maximum duration of 10 years.
3) Production and overhead costs
Production and overhead costs are based on the complexity of producing the product and the treatment duration in months. The AIM proposed the following simple framework:
| Composition of the drug | Cost applied per month of treatment |
|---|---|
| Chemical | €50 |
| Chemical, orphan drug | €250 |
| Biological | €150 |
| Biological, orphan drug | €750 |
| Gene therapy | Real production costs |
Furthermore, the model might limit the costs for products targeting high prevalence diseases to a lower amount if this was more realistic.
4) Costs of sales and medical information
These costs are set as a flat value of 20% of the R&D costs. The AIM proposes to reduce these gradually.
5) Basic profit
The model allows for a basic profit of 8% of the total costs.
6) Therapeutic value links to innovation bonus
The calculation model allows for a significant innovation bonus of 5% to 40% for products that offer an added therapeutic value. The manufacturer can propose an HTA to demonstrate this therapeutic value. The value needs to be an “added” value, i.e. offering more value than a comparator already on the market.
The AIM suggests the following, rather crude, criteria to apply the innovation bonus:
| Attributes of product | Innovation bonus |
|---|---|
| Indicated for – life-threatening disease or – chronically debilitating disease or – rare disease + | 5% + |
| Has no alternative + | 5% + |
| Is curative | 30% |
| if not curative | |
| PFS gain vs comparator of – ≥ 6 months or – ≥50% more than comparator | 5% |
| OS gain vs comparator of 1 – 6 months | 5% |
| OS gain vs comparator of > 6 months | 10% |
| Major HRQL improvement | 10% |
| For oncology products, ASCO Value framework or ESMO-MCBS can be used |
The innovation bonus is specific to an indication and therefore can differ for one product launched in different indications.
Overall price
This calculated price does not have to reflect the final price in each EU country but rather represents the maximum price. Each country will need to negotiate a price according to the standards of living. The higher ceiling price based on the lower end of population numbers allows for more negotiation room for the countries. Since this will result in different prices across countries, there will be a need to prevent parallel trade and resulting shortages.
In addition to the calculated price, the AIM also proposes to add a cap for the European price at the price in comparable health systems, i.e. Canada, Australia and New Zealand, unless manufacturers are able to show that this would not cover their costs.
Lastly, the AIM also sees the possibility of reducing the price, once the R&D costs have been fully covered.
Given that the only drivers of the price are basically a flat lump sum of R&D costs and the size of the target population, the only difference between products in the same indication is the innovation bonus based on the therapeutic value. Therefore, the first product to market in a new indication with no treatment options likely achieves the highest price following a high innovation bonus.
Price for new indications
One product will have just one price. Therefore, when a manufacturer launches a drug in a new indication, a new price across all indications will be calculated. To this end, the framework increases the R&D costs used for the first by 10%. The target population will be the sum of both indications. The model allows for different innovation bonuses for the different indications.
The price will not be re-calculated for a launch in the fourth and subsequent indications.
Example calculation for a Hepatitis C drug
Further reading related to pricing in Germany
- Reimbursement price and discounts – Drug prices 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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