European Court of Justice Floors Germany’s Fixed Prescription Prices Policy
The European Court of Justice recently ruled that fixed prices for prescription drugs in Germany is “an unjustified restriction of the free movement of goods”. That means the German drug market has to allow foreign mail-order pharmacies to negotiate prices or rebates for their prescription drug products. Naturally, this development unleashed a storm of protest amongst German mail-order pharmacies, and especially rural area pharmacies, as they are still bound to the fixed pricing rules within Germany. The “Apothekerverbände” (Federal Union of German Associations of Pharmacists) argues that the European Court of Justice is interfering with legislation of the German authorities. But what could be the ultimate consequences for German patients, pharma companies, and pharmacies?
So far, drug manufacturers were allowed to set any price for their newly launched prescription drugs in the German market for up to a year from the time they won regulatory approval. Meanwhile, German insurance companies negotiate a discounted fixed price with the pharma companies for after the one-year time period. These strict rules, alongside retail and wholesale margins, protect small pharmacies from being pushed out of the market by bigger competitors, which is especially important in rural areas.
On the other hand, chronically ill patients that need constant treatment can suffer financially. German patients covered by the “gesetzliche Krankenversicherung” (national health insurance) have to pay a certain amount of drug costs from their own pockets every time they file a prescription, which is particularly burdensome for chronically ill patients. For prescription drugs that cost over €5 per pack this amount is composed of 10% of the drug price (however always a minimum of €5 and a maximum of €10) plus the difference between the “Festpreis” (maximum fixed price insurance companies pay for a prescription drug) and the company’s drug price, if there is any. Due to these significant ongoing costs, the German Parkinson Association cooperated with a Netherlands-based mail-order pharmacy to deliver prescription drugs to Germany at a discounted price.
The German Federal Ministry of Health argues that the EU-wide fixed pricing law prevented drugs from getting too expensive, and therefore patient’s contributions to health insurance remain affordable. In the near future, the German government will have to find a solution to create equal conditions for competition in the drug market. So far two ideas have been floating around for how that could be achieved: 1) elimination of fixed pricing for prescription drugs in Germany altogether, or 2) a general prohibition on mail-order business for prescription drugs. As prohibition of a mail-order business seems like a step back in today’s online shopping evolution I think the authorities will opt for idea number 1. However, until the written judgement on this matter is published, the German government has some time to think about their plan B to further ensure wide-ranging, local supply of prescription drugs and care.
But how could drug price reductions affect German pharmacies in reality? The amount of revenue created for a pharmacy per drug sold if the patient is insured by the national health insurance can be easily calculated. We start off with 3% of the price the pharmacy pays to the pharma company, which means rebates that pharmacists negotiate with the seller increases revenue. To that amount the fixed “Apothekenhonorar” (pharmacy royalties) of € 8.35 will be added, which is a sum the pharmacy gets for every sale unrelated to a drug’s price. Lastly, € 1.77, the so called “Apothekenabschlag” (a partial compensation payment) will be deducted and paid to the insurance companies. This calculation shows that actually only the first part of the calculation, the 3% is dependent on the drug price, the rest is constant. Consequently, quantity of drugs sold influences revenue of a pharmacy the most, especially regarding cheaper, small molecule agents. The real danger for German pharmacies is therefore the loss of many customers to foreign mail-pharmacies, a development that will likely take years to have a full impact.