In an earlier blog, we wrote that the German regulation of pharmaceutical pricing and reimbursement is one of the most complicated legal areas in the entire world of life sciences laws. With the new draft “Medical Research Act” (Medizinforschungsgesetz or MFG) that came out in January 2024, the German government plans to add some additional nuances to this system.
Earlier this week, we had discussed the Medical Research Act in a separate blog where we discussed the proposed amendments for clinical trials in Germany. In this blog, we will focus on the proposed changes in the area of drug pricing and reimbursement.
1. The Medical Research Act and the German Market Access System
The Medical Research Act is part of Germany’s new National Pharma Strategy which aims to make Germany more attractive for pharmaceutical R&D and manufacturing. This new Pharma Strategy was announced on 13 December 2023 by the German government in a Strategy Paper. It proposes a number of measures to boost the German pharmaceutical sector (see our blog on the Pharma Strategy). On 26 January 2024, the draft Medical Research Act was distributed to stakeholders.
The Medical Research Act is a draft bill that includes legislative changes in several areas. These changes target following main areas:
- The national laws and procedures on clinical trials with pharmaceuticals, medical devices and in-vitro diagnostics;
- The German drug pricing & reimbursement (market access) laws;
- The structure and competencies of regulatory agencies and ethics committees.
On the German market access system: The German drug pricing and reimbursement rules have been subject to literally numerous reforms over the past few decades. In 2011, a new system has been introduced for new drugs that is meanwhile well-known under the acronym: AMNOG (Arzneimittelmarktneuordnungsgesetz). The AMNOG system has two main steps: (1) an early benefit assessment of new drugs against a comparator treatment and (2) a subsequent negotiation of the reimbursement price based on the outcome of the early benefit assessment.
2. Proposed Changes to the Drug Pricing and Reimbursement Laws
Under the current laws, the negotiated reimbursement price for a new drug becomes public (through certain notification requirements). This can and is used by other countries as a reference when they determine drug prices. Further, the current German laws require that the AMNOG price negotiations take into account the price of the respective drug in certain other countries. Now, the Medical Research Act aims to restrict these possibilities for international reference pricing – in both directions.
The key proposals for the drug pricing and market access area include following measures:
a) Confidentiality of Reimbursement Prices for new Drugs
The new law introduces the option for pharmaceutical companies to agree on confidentiality of the reimbursement amounts for their new drug. This can be subject of the AMNOG negotiations with the federal health insurance association (GKV-Spitzenverband). The confidentiality would apply until the expiry of the product’s regulatory data exclusivity. Consequently, the agreed reimbursement price would not be listed in public sources and not even be told to pharmacies. The product would be sold with the (higher) price that the company determines and not with the agreed reimbursement price.
Hence, the new law would allow pharma companies to have two prices: the “public” price on the product package and the “real price” that was agreed in the AMNOG process. In return, the companies will be required to reimburse the health insurance funds and other payors the overpaid difference between the “public” and the “real price”. To enable healthcare insurances a control mechanism for this compensation claim, the pharma companies need to notify the “real price” to a limited group of stakeholders.
The option to keep the reimbursement amount confidential has long been a request of pharmaceutical companies as the German prices are often used as a reference price in other countries. Several companies who came out of the AMNOG process with a low reimbursement price withdrew their products from the German market in order to avoid a subsequent price erosion in other countries. Insofar, the Medical Research Act aims to avoid such scenarios.
However, based on the proposed laws and procedures in the Medical Research Act, we doubt whether the “real” reimbursement amount can really be kept confidential. As such, the law introduces an information claim against the health insurance association for customers that purchased such drugs so that these customers could get access to the “real” (confidential) price.
Overall, the new rules would also lead to more bureaucracy, complexity and costs in a system that is already extremely bureaucratic and complicated.
b) Drug Prices in other European countries shall no longer influence the German reimbursement prices
Related with the option for confidentiality of the German reimbursement price, the Medical Research Act also proposes that in the future the price of such products in other European countries shall no longer be considered in the German price negotiations. Under the existing laws, the sales prices in other European countries are taken into account in the reimbursement price negotiations (subject to some additional requirements). Under the new laws, this existing requirement for an “inbound” international reference pricing will be removed from the German AMNOG drug pricing laws.
c) Restricting the substitution of “confidential price drugs” by cheaper import drugs
The Medical Research Act also proposes that pharmacies shall no longer substitute medicines that have a confidential reimbursement price with cheaper (parallel) import drugs. To save costs, the existing German laws stipulate that in certain cases pharmacies must dispense identical but cheaper imported drugs instead of the more expensive locally launched drug. Since confidential reimbursement amounts remain unknown to pharmacies, they cannot determine the price difference against import drugs. Hence, the substitution obligation will be lifted for drugs with confidential reimbursement amounts.
3. International Consequences of the Reform
Over the last decade many pharmaceutical companies with innovative drugs chose Germany as their first launch country in the EU. One reason is that the timelines of the AMNOG process are strictly regulated and offer predictability. Germany is also still a high-price country for new drugs and offers an initial free pricing period of 6 months (until recently, 12 months).
For companies operating in Germany, the above outlined changes to the pricing and reimbursement laws can have a positive impact. The Medical Research Act notes that the confidentiality option has been requested by the pharmaceutical industry for a while. In fact, this could be an interesting new instrument, especially for companies whose products come out of the AMNOG process with an unsatisfactorily low price.
Overall, it is an important point in the Medical Research Act that the law aims to restrict the (inbound and outbound) international reference pricing. Therefore, these changes would not only affect Germany but also the drug pricing situation in other countries.
Having said this, we again underscore that the way the Medical Research Act envisages to implement the proposed confidentiality of the reimbursement price is very complicated and has a number of loopholes.
4. Next Steps of the Reform
The Medical Research Act is currently out for public consultation. On 20 February 2024, already next week, there will be a hearing about this draft with stakeholders. All interest groups can submit comments until 22 February 2024. It is a bit unusual that the hearing takes place before the stakeholder comments are collected. This is an indication that the German government is determined to implement the new law quickly to execute on the new Pharma Strategy. The above described changes are scheduled to take effect on 1 January 2025.
It remains to be seen whether all proposed amendments that we have discussed in this blog will be implemented as set forth in the current version of the draft bill. Usually, there will be changes in the course of the legislative deliberations – and we expect that there will be changes to these proposed rules, too. Therefore, affected companies and stakeholders should closely monitor the legislative process and consider submitting comments.
The Life Sciences Team of Covington & Burling LLP in Frankfurt (Germany) will keep you posted about the next developments.