Orphan drug companies will be particularly affected
On 8 July 2022, the German Health Ministry has officially shared the second edition of a new bill referred to as the Act for Financial Stability of the Public Health Insurance (GKV-Finanzstabilisierungsgesetz, “GKV-FinStG“). The bill is still subject to discussions with stakeholders and several rounds of congress hearings. If ultimately implemented, which is a likely scenario, pharma companies will face several painful cutbacks on the statutory reimbursement of prescription-only (“Rx“) medicinal products. The dawning global economic crises, foreshadowing diminished funding available to the German statutory health insurance (SHI) funds, may accelerate the momentum for signing the bill into law.
Pharmaceutical companies should brace themselves for yet more pressure on revenues, and wherever possible take proactive actions to get adequately prepared.
- EUR 1 billion “solidarity charge” imposed on pharmaceutical companies selling patent-protected or orphan drugs
Pharmaceutical companies that have been commercializing, in 2021 or earlier, Rx drugs subject to patent protection or approved as an orphan medicinal product, will be charged an annual “solidarity” levy of EUR 1 billion in the aggregate. The amounts will be payable in 2023 and 2024, respectively. The federal lead organization of the German SHI funds (“GKV-Spitzenverband“) will be tasked with calculating the share of the EUR 1 billion to be borne by each affected pharma company, proportionally based on its draws from SHI budget. Pharma companies may apply for exemptions if they demonstrate that the payment obligation causes them an unreasonable hardship or burden.
It is still unclear what substantive reasons may underpin the unreasonable hardship or burden exemption. Arguably, small and medium enterprises may be in a better position to invoke this exemption. Orphan drug companies may already now start preparing a financial impact analysis including scenarios where due to the foreseeably small patient population in conjunction with considerably high R&D costs to be recouped, the solidarity charge may likely put sustained supply of the orphan drug at risk, and accordingly deprive patients of non-substitutable therapeutic options.
- Freeze on reimbursable retail prices extend
Based on a statutory prize freeze (price moratorium), pharma companies have already for 13 years been prevented from increasing prices for reimbursable prescription-only drugs which are not subject to fixed prices. Only inflation adjustments may be claimed retroactively. The prize freeze essentially applies to drugs with legacy active substances which have remained stand-alone in a specific indication and therefore had escaped fixed reimbursement prices imposed on groups of active substances that have the same of comparable indications in common. Pharma industry associations have been pushing for selective exemptions from the prize freeze, e.g., for new and therapeutically relevant indications approved for affected drugs. The outcome of lobbying efforts will have to be awaited.
- Increased pressure on reimbursement prices for drugs with new active substances
negotiated with regulators within the “AMNOG” framework of HTA (health technology assessment)
Since 2011, the established AMNOG process compels companies launching patent-protected drugs with new active substances to demonstrate upon market launch a scientifically proven additional therapeutic benefit relative to established therapies. Depending on the allocated additional benefit score determined by the competent federal regulator, the level of the reimbursement price is negotiated (or in the absence of agreement between the company and the payer association, unilaterally determined by an arbitration board). Until now, during the first
post-launch year, the pharma companies have been allowed to freely set their price charged, which have been fully reimbursed, before the (reduced) AMNOG-guided prices kick in at the start of the second post-launch year.
1. Shortening of free price setting period from one year to six months
As a centerpiece of the planned GKV-FinStG law, the one-year period of free price-setting and warranted reimbursement is to be shorted to six months. This means, for instance, if the company charges a price of 100 in the first post-launch year, and during the following year AMNOG introduces a compulsory reimbursement price of only 40, the company will have to compensate the health insurance for 6 months’ worth of 60% of the cost which the health insurers had reimbursed in excess of the AMNOG price (i.e., not only the company’s sales price, but also the statutory markup of the distribution chain). “Smart” setting of initial prices, determined by a number of factors, will even become more challenging.
2. Further restrictions for determining the allocated HTA reimbursement price
Other AMNOG-related measures proposed by the GKV-FinStG aim to lower the reimbursement price to be negotiated or determined, thus representing further hurdles to accomplishing profitability. These measures include:
- A tiered system of “guardrails” that links reimbursement price limits to the level of demonstrated additional benefit of the new drug over the drug used as comparator in the HTA process. In particular, new drugs with are found to provide no additional benefit over the comparator drug are penalized by a reimbursement price that results in annual therapy costs of 10% less than the annual therapy cost of the most economical non-generic standard therapy.
- Where the most economical non-generic standard therapy serving as price ceiling reference was itself not AMNOG-assessed, such price ceiling is reduced by 15%.
- New drugs with allegedly uneconomical package sizes or for dosages causing a discarding of non-administered excess quantities of drug substance will be subject to further price markdowns.
Existing drugs with a negotiated reimbursement price are not grandfathered. Rather, each party to a reimbursement price agreement will have a special termination right in the first three months after GKV-FinStG takes effect, triggering a re-negotiation of the reimbursement price under the new rules.
3. AMNOG exemption for approved orphan drugs cut back, only available if annual revenues stay below EUR 20 million
So far companies launching orphan drugs with new active substances approved pursuant to EU Regulation 141/2000 have been exempted from the compulsory AMNOG price adjustment, and left free to set reimbursement prices, provided annual revenue realized with the German SHIs fell below EUR 50 million. The new law aims to reduce this threshold to only EUR 20 million.
- Compulsory rebate imposed on co-medications prescribed as combination therapies
Another new mechanism aims to realize savings on branded drugs which are not subject to the HTA benefit assessment and price regulation, but approved as co-medications to new drugs that undergo AMNOG assessment. Such second drugs prescribed and administered in combination with AMNOG-regulated drugs are supposed to be hit with a compulsory rebate (payable by the company marketing the co-medication) in the amount of 20% of the reduced AMNOG reimbursement price granted for the main drug. The extent of a retroactive effect of this instrument are not yet known. Companies marketing combination therapy drugs may already now closely follow relevant AMNOG assessments and price fixing of combination partner drugs, and examine the marketing approval status related to combination therapies. This might be a preparatory effort conducive to any available legal complaints against the compulsory 20% discount, once imposed.
What happens next
The draft GKV-FinStG bill may still be modified as a result of the current discussions and the subsequent parliamentary process. Nevertheless, it is likely that many if not all price-reduction measures will ultimately remain in the bill and eventually become law.
Pharmaceutical companies should therefore analyze the impact of these measures on their product launch, pricing, commercialization and life cycle strategies in the German market as well as the potential implications for other markets where the German reimbursement price may serve as reference price. Companies with high R&D cost should prepare a financial impact analysis of the “solidarity charge” to eventually explore the prospects of applying for an exemption of the solidarity charge. Furthermore, pharmaceutical companies commercializing orphan drugs should begin preparing for the AMNOG HTA process if annual revenues of the orphan drug exceed EUR 20 million.
If you have questions about the new bill, or interest in submitting comments, please contact any of those attorneys listed on this alert or your usual Baker McKenzie contact.