Germany Mulls Limiting Prices Drug Firms Can Charge to Health System

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An X-ray assistant lies in a CT scanner for demonstration purposes in the emergency room of the University Hospital in Jena, Germany, on Jan. 20, 2016. Germany enjoys one of the world’s most generous universal health-insurance systems. It is among only a few in the world that provide members with unrestricted access to the best and newest drugs on the market, regardless of cost. ENLARGE
An X-ray assistant lies in a CT scanner for demonstration purposes in the emergency room of the University Hospital in Jena, Germany, on Jan. 20, 2016. Germany enjoys one of the world’s most generous universal health-insurance systems. It is among only a few in the world that provide members with unrestricted access to the best and newest drugs on the market, regardless of cost. Photo: European Pressphoto Agency

BERLIN—The German government is considering limiting the price that drug companies can charge the country’s health care system for their latest medicines—a move that would curtail a lucrative, one-year amnesty from the country’s otherwise strict price controls.

Germany enjoys one of the world’s most generous universal health-insurance systems. Used by nine out of 10 Germans, it is among only a few in the world that provide members with unrestricted access to the best and newest drugs on the market, regardless of cost.

It funds this by collecting what is effectively a payroll tax, based on an individual’s earnings, which is then used to reimburse state health insurers. Those insurers negotiate discounts with pharmaceutical firms, using the German market’s heft—it is the world’s fourth-largest drugs market by revenue—as leverage.

But the government has long allowed those insurers to pay full price for the newest drugs on the market, up to a year from the time they win regulatory approval. The loophole was meant to encourage pharmaceutical firms to make those new drugs available fast in the country.

For the pharmaceuticals industry, the one-year window allows companies to boost profit on those new drugs before price controls set in. It also helps build early doctor usage in a big, developed-world market. That is often important for the commercial success of new drugs.

But now, the system is straining under the weight of Germany’s rapidly aging society, and what German officials say is an accelerated increase in the price of new active compounds.

Total expenditure in Germany’s statutory health sector rose 19.7% to €202.07 billion ($228.4 billion) in 2015 from 2011. Prescription-drug spending alone rose 27.1% over the past five years.

“We have the cost situation under control in the near-term,” said Jürgen Wasem, head of an arbitration body between health care insurers and pharmaceutical companies. But rising drug prices and Germany’s aging society means “the system in its current form is unsustainable in the long-run,” he said.

Last week, following consultations with pharmaceutical companies, the health ministry said it would draw up plans by the summer to limit prices for new drugs. The current proposal would still allow companies to charge full-price for new drugs. But it would require insurers to start negotiating discounts once a drug surpassed sales of about €250 million.

The pharmaceuticals industry is up in arms. “This would be a penalty tax for innovation and the completely wrong signal for Germany as a health care location,” said Hagen Pfundner, chief executive of the Association of Research-based Pharmaceutical Companies, a lobby group in Berlin.

The potential cost to the global pharmaceutical industry would be relatively small, amounting to hundreds of millions of dollars in lost revenue, rather than billions of dollars, said Jason Ward, an analyst at Decision Resources Group, a health care research firm.

But Germany’s one-year pricing free-for-all for new drugs makes it an especially attractive market for new drugs. In many other state-funded health care systems, such as the U.K. and Norway, the governments set price limits for treatments and subject newly introduced drugs to a tough cost-benefit analysis—weighing up a new drug’s likely impact on patient survival and quality of life against the cost. That could limit a drug’s rollout in some of these markets.

“Patient access to our innovative drugs has been very good in Germany,” said a spokeswoman for Swiss drugs giant Roche AG RHHBY -0.55 % . “One of the reasons for this is the existing framework of free pricing of innovative medicines.”

Andrea Thomas at andrea.thomas@wsj.com



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