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«Managing pharmaceutical regulation in Germany: overview and economic assessment Jonas Schreyögg, Klaus-Dirk Henke, Reinhard Busse1 Abstract Rising ...»

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Managing pharmaceutical regulation in Germany:

overview and economic assessment

Jonas Schreyögg, Klaus-Dirk Henke, Reinhard Busse1


Rising costs in pharmaceutical expenditure have become a major concern for policy

makers in Germany over the last years. Therefore the pharmaceutical market in

Germany has been increasingly targeted by different kinds of regulations, focussing

both on the supply and the demand side, using price, volume and spending controls.

Specific regulations include price reductions, reference pricing, pharmacy rebate for sickness funds, increasing co-payments, an “aut-idem” substitution, parallel imports, negative list, guidelines, and finally spending caps for pharmaceutical expenditure per physicians’ association. Although it is difficult to attribute certain effects to single measures, some measures like reference pricing and physician spending caps are more effective and long-lasting than others. Although highly disputed among physicians, the spending caps applied between 1993 and 2001 have limited pharmaceutical expenditure for an entire decade. However, while some measures do effectively control expenditures, their effect on allocative efficiency may be negative.

Zusammenfassung Steigende Ausgaben für Arzneimittel stellen zunehmend ein Problem für Entscheidungsträger in Politik und Selbstverwaltung dar. Daher war der Arzneimittelmarkt in den letzten Jahren Ziel verschiedener Regulierungsformen, die sowohl auf der Angebotsseite als auch auf der Nachfrageseite ansetzen und sowohl Instrumente zur Preis, Mengen als auch Ausgabenregulierung nutzen. Sie umfassen dabei insbesondere Preisrabatte, Festbeträge, Zuzahlungen, „Aut-idem“ substitution, Parallelimporte, Negativlisten, Leitlinien and Arzneimittelbudgets. Obwohl es Technical University of Berlin, Faculty of Economics and Management, Departments of Health Care Management (JS, RB) and Public Finance and Health Economics (JS, K-DH). Email: jonas.schreyoegg@tu-berlin.de, khenke@finance.ww.tu-berlin.de, rbusse@tu-berlin.de;

The authors would like to thank Mr. Tom Stargardt for excellent research assistance.

schwierig ist, bestimmte Wirkungen monokausal auf einzelne Maßnahmen zu zurückzuführen, kann festgestellt werden, dass Arzneimittelbudgets und Festpreise nachhaltiger und effektiver als andere Regulierungsformen sind. Obwohl Arzneimittelbudgets bei niedergelassenen Ärzten sehr umstritten sind, waren sie hauptverantwortlich für die Begrenzung der Arzneimittelausgaben zwischen 1993 und

2001. Daneben existieren einige Regulierungsformen die zwar die Arzneimittelausgaben wirksam senken, deren allokative Effizienz jedoch insgesamt eher negativ ist.

1. Introduction The German Social Health Insurance (SHI) system finished the year 2002 with a deficit of € 2.96 billion equal to 2.1 % of overall SHI expenditure. The situation was exacerbated by the deficits in the pension insurance and unemployment insurance schemes. Current economic and social policy debate is justifiably focused on questions concerning the total overhaul of social security in Germany (Henke 2002). In addition, the structural weaknesses of the German economy are evidenced by mass unemployment and a government debt that exceeds the criteria of the Maastricht Treaty.

In the last years the pharmaceutical market in Germany has been characterized by major growth rates of up to 8.7% in the year 2001. In the face of the miserable financial situation of the German sickness funds, regulation of the pharmaceutical market in Germany is therefore gaining in new importance in the public discussion.

This article reviews the policies both to contain costs and to improve the quality of drug therapy, i.e. to increase efficiency, over the last ten years.

2. Health Policy goals in Germany In spite of changing political coalitions policy aims have not changed significantly in recent years. The current Government consisting of social-democrats and greens is rather emphasizing the goals of equal access and quality while politics under the former conservative-liberal government rather aimed at the goal of efficiency.

The German Government currently defines its major health policy goals as follows: “It is the aim of health policy to maintain and promote the health of our citizens and to restore it when they become ill. The opportunity to live healthier, longer and more active is something which must be guaranteed to each and every citizen to the greatest possible extent.” …. “All citizens, irrespective of their financial situation, place in society, or place of residence, must have access to the resources that allow them to maintain or regain their health.” (Federal Ministry of Health and Social Security 2003).

While there is widespread consensus in German society on the goals of “quality”, “efficiency” and “access” there is a heated debate on the instruments to reach these goals. Though competition is able to contribute to efficient solutions many actors of the system raise serious concerns when competition is suggested to reach these goals. Often a major trade-off is perceived between competition and equity or quality. On the other hand we have seen the failure of governmental regulation in many fields of the health care system. Regulatory measures are rarely lead by economic evidence and are too often dominated by political interests (Sauerland 1999).

In Germany’s statutory health insurance (SHI) system, sickness funds and providers of health care have been required to pursue the goal of cost containment. This is operationalised as maintaining stability in the average SHI contribution rate which can only be achieved if the rate of increase of expenditure is not greater than that of contributory income (i.e. mainly wages and pensions up to certain threshold as well as unemployment benefits). In the ambulatory and hospital care sectors, the expenditure side has generally been quite well controlled through fixed budgets. Regarding the pharmaceutical market with its particularities, a wider array of cost containment measures was applied. Some policies were successful, some not – some measures were sustainable while other did not last for long time.

Compared to cost containment, issues of quality have generally received less attention.

However, in 2001 the “Advisory Council of the Concerted Action in Health Care” published an extensive work on quality in health care especially regarding over-, underand misuse (Advisory Council of the Concerted Action in Health Care 2001).

Subsequently, the Government submitted a draft law suggesting the introduction of a ‘German Centre for Quality in Medicine’ similar to the National Institute of Clinical Excellence (NICE) in the UK. Regarding the pharmaceutical market this new centre would have been assigned to evaluate and classify new pharmaceuticals according to their degree of innovation and effectiveness. If the effectiveness is equal to products already on the market, the new product would have been immediately classified into the reference price system, i.e. a patent would have no longer secured a reference-price free marketing period (Busse/Wörz 2003). Although the introduction of this centre has passed legislation with the Social Health Insurance Modernisation Act and is to be introduced in 2004 it does not act as a “forth hurdle”. It rather has the task to issue guidelines and increase transparency regarding reimbursement decisions.

3. Decision making process The status quo of regulation of pharmaceutical markets in Germany is characterized by several deficiencies. This is not at least the result of contradictory interests of the stakeholders in the health care system. Usually more than 70 interest groups voice their positions in parliamentary hearings on health care reform acts. It can be ruled out from the start that all stakeholders share the same objectives and that a health care reform or cost-containment policy can be based on one consistent approach. The system is determined by a diversity of interests and claims. Politicians, health care providers, industries, payers and experts are ultimately concerned with their own influence, social recognition, research funds and research projects (Henke 2001). They are all stakeholders in a complex system of (self-)governance.

Decisions on health care provision in Germany are generally not only determined by governmental institutions but also by self governmental institutions like the physicians’ associations. The pharmaceutical market is thus partly under direct governmental supervision and partly regulated by self-governing and self-regulating institutions (see below).

The legislation process itself is also quite complicated, as most of the bills concerning the regulation of the pharmaceutical market require the formal approval of the Federal Assembly (“Bundestag”) and the Federal Council (“Bundesrat”). The Federal Assembly consists of about 600 members being elected every four years. It is responsible for the election of the German chancellor thus exerting influence on governmental politics and passing federal laws. Depending on their population size the governments of each of the 16 German states are sending 3 – 6 members into the Federal Council, which has to approve bills passed by the Assembly. In about half the cases the Assembly may overrule a negative vote by the Council. The requirement for being passed by both chambers applies especially to bills that are of vital interest to the federal states, such as those regarding financial affairs or their administrative powers. Passing laws that need the approval of both chambers is often difficult since the political majority in each chamber is typically held by opposing parties or coalitions. Therefore decisions can be delayed due to reconciliation or just for tactical reasons.

Self-governmental institutions of health care provision have the right to express their position regarding law proposals in special committees. This can either be seen as a form of corporatism in decision-making or the enforcement of private interests. The Federal Association of SHI-accredited Physicians, associations of the pharmaceutical industry, hospital groups, the pharmacists’ associations, sickness fund boards and other interest groups all participate in the political decision-making process on behalf of their members. As a matter of fact, particularly the pharmaceutical industry is highly organised with several associations. Its associations are either influencing politicians and bureaucrats by passing them papers or trying to influence the public by press releases and other activities. Sometimes lobbying groups are even able to block an executed law from being implemented. For example the so called positive list, a catalogue of all drugs to be reimbursed by the sickness funds, was twice – in 1995 and in 2003 – not implemented for this reason.

It also has to be mentioned that the jurisdiction in Germany plays a more important role in the decision making process than in many other European countries. In the past German courts often blocked the execution of different health care acts in order to protect the principle of self-governance and at the same time to ensure accordance with European cartel law as described below. Furthermore, so-called “social courts” frequently intervened to safeguard an equitable provision of health care services. For example they judged that drugs for the treatment of erectile dysfunction have to be reimbursed by the sickness funds and cannot be excluded from reimbursement (unless the law is changed).

Drug licensing and supervision is being done by the Paul-Ehrlich-Institute (blood, blood products, sera and vaccines) and the Federal Institute for Pharmaceuticals and Medical Devices (BfArM) (all other drugs), which are the official national licensing bodies for pharmaceuticals and at the same time supervising the safety of pharmaceuticals and medical devices (Busse 2000).

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