Germany’s Model For Drug Price Regulation Could Work In The US

Donald Trump and Hillary Clinton agreed on almost nothing during the 2016 presidential campaign — but they did agree that the U.S. needs to address unaffordable prescription drug prices. And the public also supports this idea. A survey released in October 2016 showed that 64 percent of voters, including 52 percent of Republicans, believe that the federal government should place a "limit on how much pharmaceutical companies can increase prescription drug prices."

Further, 73 percent of all voters (68 percent of Republicans) concur that the federal government should be able to negotiate with drug companies to lower Medicare drug prices for seniors. While the November 8 federal election results have dampened prospects for policy change along these lines, does anyone believe that this issue now will disappear? We think not.

The German Model for Regulating Drug Prices

If political will emerges to tackle this issue, is there a realistic and politically savvy model to use? On what basis would drug purchasers and drug makers negotiate? How would the value of new prescription drugs be determined? And how would genuine scientific innovation be encouraged and rewarded, and not stymied?

We suggest that a superior model to accomplish these goals now exists and can be found in Germany's drug pricing regulatory system that has performed admirably since 2011. Called AMNOG (the Act to Reorganize Pharmaceuticals Market in the Statutory Health Insurance System or Arzneimittelmarktneuordnungsgesetz), the system has noteworthy advantages in that it:

• Rewards innovative drugs that provide genuine breakthrough clinical benefits;
• Provides immediate access to new drugs by allowing marketing, sale, and full reimbursement in the first year, during which time the drug's clinical benefits are assessed;
• Uses non-governmental, non-profit organizations for review and decision making, with the pharmaceutical manufacturers bearing much of the costs;
• Makes decisions based on clear empirical evidence of clinical benefit to patients;
• Determines prices only after—and based on—a determination of clinical benefits, and through negotiations involving drug companies and key system stakeholders, not government bureaucrats;
• Avoids controversial tools such as Quality Adjusted Life Years (QALY) that place a monetary value on each additional year of life;
• Ensures full transparency in all key processes and steps.

Historically, as with the U.S., Germany has had a reputation for high drug prices. Prior to AMNOG, drug prices in Germany were 26 percent higher than average drug prices in the European Union. Since AMNOG's 2011 launch, by August 2016, 146 new drugs have been assessed. Of the newly assessed drugs, 63 percent were determined to have an additional benefit, though half of those only for select patient groups. In 2015 alone, Germany achieved savings of $1 billion on new drug spending, with discounts averaging 21 percent in this market segment.

If the U.S. cares to examine other national models, AMNOG should top the list. Because of AMNOG, the average annual growth rate in public pharmaceuticals expenditure per capita between 2009 to 2013 in Germany was -0.7 percent, as compared with +2.7 percent in the US. In a recent international comparison of health benefits assessments of pharmaceuticals, Germany showed more rigorous appraisals of new drugs than other countries in the survey.

How the AMNOG process works

First, once a new drug has been demonstrated as safe and efficacious by the European Medicines Agency (the European Union's equivalent to the U.S. Food & Drug Administration) or by the German Federal Institute for Drugs & Medical Devices, the drug maker may introduce the product into the German market at any initial price of its choosing, fully reimbursed by all German insurance plans for the first 12 months.

Second, during those 12 months, the Federal Joint Committee (G-BA), a non-governmental body of payer, provider, and patient representatives, with authority over coverage decisions for all German payers, commissions a clinical comparative effectiveness review by a non-governmental and non-profit research body known as the Institute of Quality and Efficiency in Healthcare (IQWiG). IQWiG assembles, evaluates, and reports all evidence of a new drug's clinical effectiveness and benefits compared with standard treatment and/or existing drugs, including data on benefits for different demographic groups. Drug makers must submit all their relevant data in a "Benefit Dossier," and will face sanctions for withheld information. Results are subject to an expert hearing published and used to inform both doctors and patients.

Third, within six months of a drug's market introduction, and with IQWiG's report in hand, the G-BA determines the new drug's added benefit over existing drugs or treatments, including information on benefits and risks for specific patient subpopulations. New drugs are rates 1-6:

1. Major added benefit — sustained and substantial improvement not previously achieved by current therapies;
2. Considerable added benefit — significant improvement over current therapies;
3. Minor added benefit — moderate improvement;
4. Added benefit present but not quantifiable;
5. No added benefit proven;
6. Lower benefit than current therapies.

A drug can receive differential rankings for varied patient subpopulations. In addition, the quality of the studies and data on which the classification is based is specified in three categories:

1. Proof of benefit
2. Indication of benefit
3. Hint of benefit

The combination of benefit ratings and quality categories summarizes the extent and probability of additional benefits of drugs in patient groups.

Fourth, if the G-BA accepts the IQWiG recommendation and the new drug is ranked in any of categories 1-2-3, then the newly established clinical value rating sets the basis for negotiations between the drug maker and the National Association of Statutory Health Insurances, the organization of all public insurance providers in Germany. If parties cannot reach agreement, the matter is submitted to an arbitration panel for a decision based on other international prices.

Fifth, if a drug offers no additional value over a previously available drug, ranked in categories 4-5-6, then payers will reimburse only at prices currently paid for the older existing drugs or therapies. Drug companies can choose to sell their product at higher prices, though patients who want the newer and lower ranked drug must pay the difference out of their own pockets. Importantly, if a drug company charged an excessive rate for a lower ranked drug in the first year of availability, the extra revenues must be returned to payers. A drug company can opt for their drug to not be assessed, in which case the drug's price is set through the German reference pricing system. Under the reference pricing system, a drug's price is based on the price of other drugs in that therapeutic class, including lower priced generic alternatives.

Results and Implications for the United States

As mentioned, in 2015 alone, Germany achieved savings of $1 billion on new drugs, with discounts averaging 21 percent in this pharmaceutical market segment. This savings estimate does not include a calculation for drugs that were placed in categories 4-6, so full savings would be significantly larger. Rather than stifling innovation, in AMNOG's first four and one half years, 124 new products had completed assessments and launches, and only 13 were withdrawn from consideration.

Though some American policymakers suggest that the U.S. has little to learn from other nations, Germany may be an exception. Unlike single payer systems in Canada and the United Kingdom, Germany has a private multi-payer system where more than 90 percent of the insurance market is managed by non-profit "sickness funds." Public anger led to AMNOG's establishment as drug prices began to skyrocket in the last decade, reaching a growth rate of over 6 percent by 2009. Growth rates in the U.S. were 12.2 percent in 2014 and 8.1 percent in 2015.

In the U.S., the Patient Centered Outcomes Research Institute (PCORI), established under the Affordable Care Act, was created to commission clinical-effectiveness research to provide evidence to support patient-centered care, evaluating drugs and medical therapies. Like PCORI, IQWiG in its early days chose research targets on its own initiative. Under AMNOG, IQWiG now systematically reports on all new drugs and also may assess the effectiveness of older ones, including medical devices, plus surgical and screening procedures. PCORI may be well positioned to review manufacturers' comparative-effectiveness documents as IQWiG now does.

In the U.S. pharmaceutical industry and elsewhere, a growing movement among some drug makers proposes payment based on the "value" of their products rather than on arbitrary price setting. This new "pay-for-value" movement, of course, now extends far beyond the pharmaceutical sector through initiatives such as accountable care organizations, bundled payments, and hospital readmission penalties set in motion by the Affordable Care Act. AMNOG represents a scientific and evidence-based way to pay for drugs based on their value.

For sure, the AMNOG system faces challenges, as any new and complex policy would. At times, the G-BA has chosen comparator drugs about which manufacturers disagree, that have resulted in negative benefit ratings. Parties have disagreed about appropriate end points that manufacturers must include in disclosed studies, especially in domains such as oncology where surrogate endpoints may not reflect ultimate clinical outcomes. However, the G-BA works extensively with manufacturers up front during the assessment process to communicate their choice of comparators and endpoints, allowing manufacturers a hearing or appeals process in which they disagree or develop new data.

Germany's AMNOG system is value and evidence-based, transparent, non-governmental, publicly managed, and innovation embracing. If the U.S. wants to create an evidence and value-based system to pay for prescription drugs, we could not start at a better place than emulating the AMNOG model.

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