Germany: The Impact of Cost Containment Reform on Biopharma

In response to a looming deficit of EUR 17 billion, Germany’s new Financial Stabilization of Statutory Health Insurance System Act (GKV-Finanzstabilisierungsgesetz, or GKV-FinStG) is aimed at containing costs in the country’s health insurance system by distributing the financial burden amongst all healthcare stakeholders, yet biopharma companies stand to be hit the hardest by the new reform.

Germany is one of Europe’s most attractive pharma markets and is often a first-to-launch destination for innovative therapies in the EU. Moreover, the country is a top healthcare spender – the biggest in the EU. Germany’s healthcare model is also often looked to as a positive example, covering about 90 percent of the country’s some 70 million citizens under its statutory health insurance (GKV) in combination with private health insurance systems (PKV).

Healthcare Expenditure

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Private and Statutory Health Insurances by Members

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However, the GKV, having weathered the pandemic and currently faced with an energy crisis and rampant inflation, is looking at an expected deficit of EUR 17 billion in 2023. The new GKV-FinStG bill, adopted by the Bundestag in October, intends to distribute the system’s financial burden across the entire healthcare ecosystem, including health insurance, healthcare professionals, hospitals, pharmacies and the pharmaceutical industry, according to health minister Karl Lauterbach, without reducing patient benefits.

The biopharma industry agreed on the idea of reform and when the initial draft of the bill was revealed, the president of the VFA, Germany’s association for research-based pharmaceutical companies, Han Steutel said: “There is an enormous need for reform in the healthcare system.” Yet the industry is far than satisfied with the outcome and the VFA later issued a statement confirming that with the new bill “pharmaceutical innovation and investments in Germany will be put at risk.”

Radical measures

Echoing the Inflation Reduction Act (IRA) in the US, whose effects on the pharma industry were recently analysed by PharmaBoardroom contributor David H. Crean, several of the new guidelines set forth in the GKV-FinStG will have a direct impact on pharma industry revenues. One such measure is the reduction of the free pricing period for new medications. In the new bill the reimbursement price for new medicines will apply seven months after market entry, which reduces the period where companies are able to set their price for a new drug from 12 to 6 months.

Another big item in the new bill is its impact on AMNOG, the German HTA procedure for medicinal products, giving the GKV increased power in rebate negotiations with the mandatory manufacturer rebate on patent-protected drugs rising from 7 percent to 12 percent for 2023. In addition, according to the new bill’s introductory statement, the German government expects future price negotiations will also take into account price-volume components.

Furthermore, a new 20 percent discount will be brought into the AMNOG rebate negotiation for brand-brand combination products (except for combination therapy), products that are not currently subject to price cuts unless their labels are updated. In addition, the sales threshold for orphan drugs to become subject to standard AMNOG evaluation will be reduced from EUR 50 million to EUR 30 million per year.

Impact beyond revenues

Apart from the projected decrease in price margins for drug sales and the impact on net-to-gross profits, many say the changes introduced by the new bill will lead to a curb in future R&D investments particularly for small biotech companies like mRNA pioneers BioNTech and CureVac. This tendency may in turn reinforce the already-existing pull of the US for European biotech companies.

The new bill also challenges the industry’s relationship with the powers that be and demonstrates that, like in the US, industry associations and traditional lobbying tactics may not be as effective as they once were. VFA’s Steutel derided the fact that industry was not taken into account in the creation of the bill. “|Reform] requires constructive collaboration among all stakeholders. This is no way to deal with each other.” Some say it is time to re-examine how the biopharma industry engages with government stakeholders.

Side effects of the bill may be felt elsewhere as Germany is often the standard by which other EU and even non-EU nations like Canada, South Korea, and Japan create their reference pricing.