Last week, on 4 July 2024, the German Parliament (Bundestag) has passed significant changes to the country’s drug pricing and reimbursement laws. Just six months after the German Federal Health Ministry (BMG) presented a first draft bill for a “Medical Research Act” (Medizinforschungsgesetz or MFG), the German Parliament has now accepted a modified version of that bill. The Medical Research Act mainly amends (1) national laws for clinical trials with drugs and medical devices, (2) rules for ATMPs (3) drug pricing and reimbursement laws (AMNOG) and (4) initiates a re-organization of the regulatory agencies and ethics committees.
In this blog, we take a closer look at the much-discussed changes in the German drug pricing and reimbursement area. We will focus on two key elements:
- The controversial new feature of “confidential reimbursement prices”; and
- The new link between drug pricing and local clinical trials which offers pricing incentives for companies that can show that a “relevant part” of the clinical trials for a new medicine were conducted in Germany.
We had noted in an earlier blog that the German rules for pharmaceutical pricing and reimbursement are among the most complicated legal areas in the entire world of life sciences laws. With the now coming new laws, Germany adds some additional complexity to its system.
1. Background
The discussed changes to the German drug pricing and reimbursement laws are part of the German Government’s new National Pharma Strategy that aims to enhance Germany’s attractiveness as a place for pharmaceutical research, development, and manufacturing. The Government presented an underlying strategy paper in December 2023 and the Medical Research Act is the first legislative implementation step of that strategy. For an overview of this new National Pharma Strategy, we invite you to read our previous blog on this topic.
The Medical Research Act was first presented to stakeholders in late January 2024. For a comprehensive overview of this first draft, please see our earlier earlier blog. After an initial consultation, the Government revised the draft and initiated the legislative process at the end of May 2024. Overall, the Government has deployed an unusually fast pace and was successful with its plan to get the bill through Parliament before the summer break.
As noted above, the Medical Research Act introduces changes to several important German healthcare laws, the probably most controversially discussed amendments were those affecting the pricing and reimbursement for pharmaceuticals.
2. Existing German Drug Pricing and Reimbursement Procedure (Market Access)
Before discussing the specific changes to the drug pricing & reimbursement rules, we will briefly summarize the current framework for the market access and pricing/reimbursement of new medicines in Germany.
Drug pricing and reimbursement laws in Germany have undergone several reforms in the last decades. Most notably, in 2011, the so-called “AMNOG” (Arzneimittelmarktneuordnungsgesetz) reform enacted a new market access process for new drugs with a specific benefit-assessment. The AMNOG process has three steps:
- First, an early benefit assessment is performed by the Joint Federal Committee (Gemeinsamer Bundesausschuss or GBA) to assess and determine the drug’s “additional benefit” against the relevant comparator therapy. This first step is important for the entire process and the outcome of the pricing negotiations.
- Second, the pharmaceutical company negotiates the reimbursement price with the federal health insurance association (GKV-Spitzenverband) based on the outcome of the first step and especially the determined “additional benefit”. The “additional benefit” is the key criterion to negotiate the reimbursement price of the drug.
- Third, if the company and health insurance association cannot agree to a reimbursement price, they enter into an arbitration process with a statutory arbitration board.
- Legal remedies: If any party is unhappy with the arbitral award, they have the right to challenge the award before the competent courts.
Besides the AMNOG process, Germany has many other legal instruments and measures that aim to regulate the pricing and reimbursement of pharmaceuticals. For the purposes of this blog, however, we will abstain from discussing these other instruments and measures.
3. The new instrument of “Confidential Reimbursement Prices”
a) Purpose of Confidential Reimbursement Prices
One of the new features that the Medical Research Act introduces will be the option for pharmaceutical companies to keep the reimbursement prices that result from the AMNOG process confidential. This idea results from the observation that the German reimbursement prices were regularly used as reference prices in other countries so that unfavorable prices in Germany negatively impacted prices abroad. Because of this, some drug companies decided to remove drugs from the German market.
Hence, to avoid such market withdrawals from Germany and effectively, to impede international reference pricing, the Government was willing to offer the companies the option to keep the reimbursement price confidential. Consequently, the confidential reimbursement price would not be listed in public sources and not even be disclosed to pharmacies. In conclusion, this approach permits pharmaceutical companies to have two different prices for their product: the “public” price on the product package and the “real price” that was agreed in the AMNOG process but is kept confidential.
b) Practical Implementation and Process
While under the first draft of the Medical Research Act, there was a rather low threshold to request such confidentiality, the final version of the Medical Research Act has raised the bar and added new qualifiers. As such, to achieve confidentiality (1) the drug company needs to demonstrate local R&D activities in Germany; and (2) has to pay a 9% discount on the agreed AMNOG reimbursement price (i.e., this refers to the company’s sales price and not the final pharmacy-sales price).
Insofar, the confidentiality has an own price tag: 9% of the company’s sales price for the drug.
From a practical perspective, the now agreed rules set forth following (standard) requirements and process for setting “confidential reimbursement prices”:
- The drug must have gone through the AMNOG process with a finally determined reimbursement price.
- Within five (5) days after the price is determined, the pharmaceutical company can send a request for confidentiality to the federal health insurance association (GKV-Spitzenverband).
This request must contain documentation that proves that the company has:
– A pharmaceutical research department in Germany,
– Own projects and collaborations with public institutions in preclinical or clinical pharmaceutical research in Germany. - Within seven (7) days of receipt, the GKV-Spitzenverband decides whether “sufficient“ proof has been provided.
🡲 If this is confirmed, the reimbursement price stays confidential until the expiry of the product’s regulatory data exclusivity period.
🡲 If the proof is deemed “not sufficient”, the matter is referred to the arbitration board of the AMNOG system that has to assess the provided documentation and make a final decision. - The final version of the Medical Research Act is silent on the question whether and which legal remedies are available to pharmaceutical companies and possibly the GKV-Spitzenverband depending on the decision of the arbitration board. We expect that in any event the pharmaceutical companies will be entitled to appeal in court negative decisions of the arbitration board.
The law also offers an alternative timeline for the submission of the required proof. Instead of the five days mentioned above, the MFG also allows the pharmaceutical company to submit the proof already much earlier and way before the reimbursement price is determined. As such, the company can submit the proof within six months after placing the drug on the market. This alternative timeline aims to give companies more flexibility in their planning, as this option would allow them to get certainty (before the reimbursement is determined) whether they are eligible for the “confidentiality” mechanism. Hence, they could consider this outcome in their negotiations of the reimbursement price.
c) “Sunset Clause“ for availability of the Confidentiality Option
The new rules for confidential reimbursement prices shall apply as from 1 January 2025.
With respect to their validity, the lawmaker has set forth a “sunset clause” for the confidentiality option. Hereunder, the confidentiality option only applies to drugs whose AMNOG reimbursement pricing procedure is concluded until 30 June 2028. This time limitation was implemented because of the novelty of this instrument and to allow an evaluation of its effects on the German healthcare system.
d) Compensation Obligation of Companies that opt for Confidentiality
To effectively still apply the “real price”, the final Medical Research Act maintained a reimbursement system that was already present in the initial draft laws: Companies that opt for confidentiality will have an obligation to reimburse the health insurance funds and other payors the overpaid difference between the “public” and the “real price” (i.e., the company’s sales price). On top of this reimbursement, the company also has to reimburse the health insurances the overpaid portions of the mandatory surcharges for pharmacies and wholesalers and VAT.
This means, that the final price companies have to pay for the “confidentiality” of their reimbursement prices will be even higher than the above mentioned “price tag” of 9% of the company’s sales price.
e) Disclosure claims by third parties leading to Incomplete Confidentiality
Despite the articulated aim to secure confidentiality, in practice the confidentiality will be incomplete. This is because of the fact that the MFG grants certain players and companies in healthcare system a right to get access to the confidential price of the drug. These players include certain healthcare institutions, importers and legal entities that purchase the drug. Further, generic drug manufacturers may request information about the “real” reimbursement price when the product’s regulatory data exclusivity expires within 12 months or less.
4. Drug Pricing linked to local clinical trials in Germany
Additionally, and separate from the confidential reimbursement price option, the Medical Research Act introduces a new legal tool that creates a link between drug pricing and local clinical trial activities. In fact, another new provision sets forth drug pricing incentives for pharmaceutical companies that can demonstrate that a “relevant part” of the clinical trials for their new medicine were conducted in Germany.
Drugs for which a relevant portion of clinical trials were conducted in Germany will be given more leeway in reimbursement negotiations. Hence, the question is: when is a “relevant part” of the study conducted in Germany? Pursuant to the law, at least five (5) percent of all participants in the clinical trial must be enrolled in German clinical trial sites.
If the pharmaceutical company can prove that at least 5% of the clinical trial participants for the new product were enrolled in Germany, that product’s pricing will benefit from a newly introduced legal relaxation of certain pricing guardrails. In fact, in that case, some of the so-called “pricing guardrails” will not apply for the determination of the reimbursement price of that product. We refrain from further elaborations on these aspects as the respective German rules and the mechanics of the pricing procedures are very complicated so that this would go beyond the scope of this blog.
Overall, the direction is clear: Drug pricing in Germany is becoming more intertwined with local clinical trials and R&D infrastructures and activities in Germany.
5. Further Comments and Next Steps
As to next steps and timing: Before the Medical Research Act comes into force, the Parliament-approved bill still needs to pass the German Federal Council (Bundesrat). We expect that the Medical Research Act will pass the Bundesrat after the summer break and will be promulgated in the fourth quarter of 2024. Then, the different sections of the Medical Research Act will come into force at different times. The here outlined provisions on the “confidential reimbursement price” and the new link between drug pricing and local clinical trials will apply as from 1 January 2025.
The final version of the Medical Research Act brought a set of last-minute changes and additions, especially in the area of drug pricing and reimbursement. Clearly, the German Government wants to link drug prices with the requirement for local clinical trials and R&D infrastructures established in Germany. Simultaneously, the new laws reduce the burden for clinical trials with pharmaceuticals, medical devices and IVDs and speed up local approval processes for new studies. We have extensively discussed the planned changes for clinical trials and refer to our respective previous blog.
The “confidential reimbursement prices” as they are now stipulated do not only come with a high entry barrier (local R&D activities and infrastructures) but also at a high price (9% additional markdown). Initially, the confidentiality idea was intended to reduce the number of drugs that get withdrawn from the German market due to unfavorable reimbursement prices. Now, under the final provisions, it is difficult to imagine that companies will choose an additional markdown of 9% on an already unfavorable price over a withdrawal from Germany. In their decision making companies will also consider that the Medical Research Act introduces a low-threshold right to information about the “real” reimbursement price. Therefore, maintaining the confidentiality – despite its high price – appears rather difficult.
In comparison, the newly adopted local research incentives are a much more appealing approach to both bring research and development to Germany and retaining drugs in the German market. The removal of some of the restraining “pricing guardrails” can relieve individual drugs from otherwise obligatory two-digit markdowns. With a clear understanding of how to take advantages of such incentives, pharma companies are likely to organize their R&D activities accordingly.
With the Medical Research Act set to take effect, it will be important for pharmaceutical companies to review the new rules and their implications for their businesses and R&D activities. The new rules may especially become relevant for the planning of clinical trials for new products if these are supposed to be launched in Germany. In the future, pharmaceutical companies will need to consider the new pricing and reimbursement rules already when planning clinical trials and determining clinical trial countries and selecting trial sites.
Finally, it will be interesting to see whether the German Government will extend the new concepts for linking pricing with local clinical research activities to medical devices and IVDs. This appears as a possible scenario moving forward but will (also) depend on the evaluation of the now approved legal instruments.
The Life Sciences Team of Covington & Burling LLP in Frankfurt (Germany) will continue monitoring the developments in this area and is well positioned to assist clients in navigating through the various ongoing and upcoming legislative projects.
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