Germany’s hospital system is reported to be of high quality but is also very expensive by international standards. Hospitals and healthcare payers such as health insurances are exposed to increasing economic constraints. One particular point of criticism is, for example, the current system of Diagnosis Related Group (DRG)-based fees.

Patient treatments are compensated based on the DRGs which effectively leads to a lump-sum payment system per diagnosis (with certain exemptions). This system has pros and cons. As a downside, it is reported to create incentives for over-treatments to generate DRG-based fees per patient.

At the same time, many hospitals in Germany are at risk of closure and insolvency due to financial challenges. The German federal states have thus asked the federal government for financial support to finance the restructuring of the hospital system and prevent hospitals from bankruptcy.

German federal and state governments have been discussing an intended hospital reform for months. Provided that no additional money flows into the healthcare system, the principle for this reform is “outpatient care before inpatient care”. The financial volume incentive shall therefore be minimised and a concentration on larger hospitals and medical institutions shall optimise or at least improve the current structures and quality of medical care in Germany. This shall also be accompanied by a reduction of the general number of hospitals in Germany.

On 10 July 2023, the key objectives of the envisaged hospital reform plans (Eckpunktepapier: Krankenhausreform) have been agreed on: (1) Ensuring security of supply (in particular public responsibility for ensuring the provision of healthcare, so-called “Daseinsvorsorge”), (2) securing and increasing the quality of treatment, and (3) reducing bureaucracy. Particularly, this is to be reflected in the following key measures:

  • The current remuneration system with DRG-based fees shall be discontinued. This essentially means that hospitals will be guaranteed a continued existence, even if they offer comparatively few treatments. It is no longer quantity but quality that is to govern the provision of care. The idea behind the reform is that patients can rely on this concept to ensure that their treatment is really necessary and performed properly.
  • In the future, hospitals shall receive a large share of the remuneration for the provision of staff, technology, emergency rooms and other services. Instead of the DRG-based fees there shall be budgets for the provision of services (Vorhaltepauschale).
  • Financing by the health insurance funds shall be based on precisely defined groups that narrow down the spectrum of services (“service groups”) – for example, “cardiology” instead of broad terms such as “internal medicine”. The service groups shall ensure uniform quality standards, for example in terms of equipment, staff and treatment experience. Every treatment must be unambiguously assigned to a service group on the basis of the billing data record. At the same time, service groups shall be used as a criterion for granting an advance payment.
  • Until the service groups and quality criteria have been defined, the shares of the remuneration for services shall initially be set at 60% of the DRG-based fees in the transitional phase, including the costs for hospital staff at the bedside. The remaining 40% will continue to be financed by DRG-based fees.

Given the broad scope of this reform, it will most likely also have an impact on the pharmaceutical and medical device industries, as well as other life sciences companies, including laboratory, diagnostics and digital health companies. Obviously, the products of all of these life sciences companies are used for hospital treatments. Some of the products are even used exclusively for inpatient treatment of patients in hospitals (e.g., implants, large diagnostic devices and many medicines).

Hence, if the hospital remuneration per patient treatment is reduced or the compensation system is modified, this will accordingly also affect the life sciences companies that sell the underlying medicines or medical devices to hospitals for these inpatient treatments. At this stage, it is not entirely clear how the remuneration and compensation systems will change and how these changes will impact certain treatments or products. Under the current DRG-based remuneration system, the costs of most products used for the treatment of a patient are compensated with the DRG-based fee. Insofar, it will be interesting to see how the future hospital remuneration system will handle this specific point and whether hospitals will experience more or less pressure with regard to the costs of products used in inpatient treatment. The publicly available key elements paper (Eckpunktepapier) is yet silent on this point.

Overall, life sciences companies should closely monitor these developments in Germany.

The key elements paper (Eckpunktepapier) on the hospital reform is the foundation for the draft law on which a joint working group of federal and state governments is currently working. The draft law is expected to be presented at the beginning of autumn 2023. The entire new law is expected to come into force on 1 January 2024.

The Life Sciences Team of Covington & Burling LLP in Frankfurt (Germany) will monitor the next steps and report about further developments.

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Photo of Dr. Dr. Adem Koyuncu Dr. Dr. Adem Koyuncu

Adem Koyuncu is double qualified as a lawyer and medical doctor and a partner in our Brussels and Frankfurt office. He is a chair of the firm’s “Food, Drug & Device” practice group and also a member of our Compliance practice. Adem is…

Adem Koyuncu is double qualified as a lawyer and medical doctor and a partner in our Brussels and Frankfurt office. He is a chair of the firm’s “Food, Drug & Device” practice group and also a member of our Compliance practice. Adem is recognized as a “leading lawyer for pharma and medical devices law” (JUVE 2021).

Adem helps clients on a wide range of EU and German law issues, including regulatory, compliance, privacy and liability matters. He also provides strategic advice. He knows the life sciences sector also from his earlier work in the pharmaceutical industry and as a medical doctor. He represents clients before courts and authorities and assists them in contract negotiations, investigations and transactions. For years, Adem is listed in various lawyer rankings.

See some Accolades from Clients and Surveys:

  • “He is one of the most detail-oriented and client-focused partners I have ever encountered.” (Client, Chambers 2021)
  • „Great professional and human competence, good team player.“ (Client/Adverse Party, JUVE 2022)
  • “I find him to be one of the most pragmatic regulatory lawyers. He was a doctor before a lawyer, has been in-house, worked on lots of stuff that I have to handle in-house, which helps when getting advice. He is really good at saying it’s a complex situation and your best option is to do this.” (Chambers 2022)
  • “He always comes through with extremely helpful advice. He brings a unique understanding and experience to his practice as both a lawyer and medical doctor.” (Chambers 2021)
  • “Adem Koyuncu is not only a lawyer but also a doctor and has worked in industry. He knows the perspectives that also move in-house lawyers.” (Legal 500 2022)
  • “He is very sharp and quick, while at the same time having a good sense of humor and nerves of steel. Very pleasant to work with.” (Legal 500 2022)
  • He is described as “versatile competent, reliable and high quality” (JUVE 2021) and “incredibly fast.” (JUVE 2018)
  • Provides advice at “an outstanding level.” (Legal 500 2015)
  • “Very strong negotiation skills.” (JUVE 2011)
  • Clients appreciate his “very broad knowledge and long-standing expertise” (JUVE 2021/22) and that “he is approachable, knowledgeable and really easy to talk to over the various issues. He is calm and has seen most problems before.” (Chambers 2020)
  • Peer lawyers described him as “highly competent” and a “very good and pleasant lawyer” (JUVE 2014) and as “the off-label-guru, substantively very good, creative.“ (JUVE 2022)

Adem is the author of numerous publications (e.g., in leading books on pharma law, product liability and clinical trials) and frequent speaker at different events. As such, he will soon speak at following events:

  • “Medical Device Liability and Risk Transfer 2.0 | A liability issue for the Management?!,” BVMed, Webinar (3/24/2023)
  • “Data Protection Requirements and Open Issues in the Pharma Sector – Status quo,” Speech at conference, 26. Marburger Gespräche zum Pharmarecht, Marburg (3/16/2023)
  • “Vendor Oversight & Vendor (Quality) Management in the Pharma Industry,” FORUM-Institut, Online Seminar (4/19/2023)