There
is broad consensus that German healthcare is in a mess.
For many years now, the country’s statutory health insurance
system has been struggling with premiums that fall far
short of covering costs. Bearing in mind that 10% of
the insured (mainly pensioners) are already responsible
for 80% of the costs, further ageing
of the population means that moderate policies
will not be sufficient to redress this deficit.
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Previous reform efforts have
all failed to relieve the pressure on the system, one
of the world's most expensive. Health insurance contribution
rates have risen steadily and half-hearted interventions
have merely shifted the cost burden, leading to imbalances
in the system.
Cause for concern
Chancellor
Gerhard Schroeder’s health system modernisation
law, however, has provoked further unease in the pharma sector.
New regulations for the supply and reimbursement of medicines
in particular will have significant financial consequences
for the industry, and IMS expects them to lead to a considerable
decline in sales.
The compulsory manufacturer discount granted to statutory
health insurance providers by pharma companies has increased
from 6% in 2003 to 16%. This applies to all prescription
drugs that are not included in the reference price system.
The new discount will apply until December 2004. From January
2005, new reference prices will come into force that are
yet to be negotiated.
In addition
to a revenue loss of €1.5bn in 2004, resulting
from the discount increase, there is likely to be a weakening
in industry performance due to a fall-off in prescribing.
This is likely to happen for the following reasons:
- Fewer
patients will consult a physician due to introduction
of ‘practice
entrance fees’
- Patented
drugs with reference prices may be penalised by a ‘double’ patient
co-payment. New medicines are mostly marketed by international
companies that set price corridors
across Europe. There is a greater probability that such
products will be sold at rates above the reference price,
with patients having to bear the additional cost
- Physicians will only be allowed to prescribe non-prescription
drugs in exceptional cases
- There is never a complete transfer of sales when products
are delisted from prescription to self-medication
- Freedom from price controls in the over-the-counter sector
will increase competition between firms seeking to displace
each other
- Non-reimbursement of OTC drugs will drive small and medium-sized
firms from the market. It will also compel companies supplying
both prescription and self-medication products to take
a new strategic direction
- The self-medication sector is highly reactive to particular
economic indicators. If, as is currently the case, these
are not in place, further growth cannot be expected.
Impact on generics
Germany's
flourishing generics industry may itself be affected by
compulsory
price cuts, as a result of reference pricing
drugs with the same active ingredients as the lowest third
of the price range. Furthermore, reform of the drug price
regulation covering supply chain margins stipulates that,
in future, there should be a dispensing fee of €8.10 plus
3% of the pharmacy price for prescription drugs. This will
actually raise the cost of some generics significantly.
Despite this, IMS expects moderate growth prospects for
generics, as a result of the following:
- Continued pressure on costs from the statutory health
insurance system
- The freedom to substitute under a revised provision
of the 'aut idem' law
- A lower impact of the 16% discount on generics
- An increase in use of non-prescription drugs if patients
are more motivated to practice self-medication.
Parallel traders,
however, are unlikely to enjoy the kind of growth they
have seen in the past two years as a result of the compulsory
7% quota system imposed on pharmacists. They will feel
the effects of the price situation created by the minimum
price differential between parallel imports and original
products of 15% or €15. They will also be hit by the 16%
manufacturer’s discount. Further, original manufacturers’ efforts
to control supply in local markets may also restrict parallel
traders’ market growth.
Body blows
The major blow
for the pharmaceutical industry will be the impact of the
health system modernisation law’s pricing components.
For the first time, all drugs – including patented preparations – will
be subject to reference pricing. Prompted by the growing
significance of drug prices, this measure is likely to have
the following repercussions:
- Competitive
discounting – discounts will not be passed
on and therefore will not benefit statutory health insurance
providers
- Germany becoming a less attractive place for pharmaceutical
innovation because reference prices will be too low for
international corporations
- More industry concentration, including takeovers and
mergers, and withdrawal from the market
- Cost and staff reductions
- A moratorium
on investment in R&D and production
in Germany
- Re-evaluation and re-alignment of sales forces and sales
costs
- A reduction in marketing costs through outsourcing
- Price wars and concentration in the retail sector, including
pharmacy chains and group purchasing.
IMS forecasts
market growth in Germany of 5% for 2003. For 2004, this
forecast drops below 3% and could actually become
a decline of 1% at ex-manufacturer level (excluding the impact
of the public price level discounts). If all the possible ‘semi-ethical’ prescribed
OTC medicines are delisted, revenues could drop by 20%.
Companies and other market players are adjusting and planning
their resource allocations on the basis of a law that leaves
many questions unanswered. The impact on the German pharma
industry will vary significantly, especially as there is
no longer a single industry to speak of. The consequences
for an international research-based company, a medium-sized
phytopharmaceutical operation and a generics manufacturer
will be quite different, and each will have to plan accordingly.
Top 10 pharmaceutical products in Germany
12 months to September 2003
|
Product |
Indication |
Marketed
by |
|
Sortis (Lipitor) |
High cholesterol |
Pfizer |
|
Durogesic |
Pain |
J&J |
|
Accuchek Comfort |
Blood glucose test |
Roche |
|
Pantozol |
Ulcers/GERD |
Altana/Schwarz |
|
Norvasc |
Hypertension |
Pfizer |
|
Nexium |
Ulcers/GERD |
AstraZeneca |
|
Plavix |
Platelet antiaggregation |
Sanofi-Synthelabo/BMS |
|
Viani (Advair/Seretide) |
Asthma |
GlaxoSmithKline |
|
Vioxx |
Arthritis/pain |
Merck & Co |
|
Zocor |
High cholesterol |
Merck & Co |
Source: IMS
MIDAS
Innovation will
be a major victim and international companies are already
questioning whether Germany can remain an important
industry location; market leader Pfizer has already said
it will re-locate its R&D to the UK. Now, the only claim
Germany has to the global top 10 pharmaceutical manufacturer
rankings is its stake in Aventis - for now. From the heydays
of giants Hoechst and Bayer, only Boehringer Ingelheim can
be said to be a successful research-based German company.
There is a widespread feeling that the health system modernisation
law is unlikely to cure the disease that afflicts German
healthcare and it is likely that further government intervention
will follow within two years. Increasingly, physicians are
being made scapegoats for rising costs and are being weighed
down by bureaucracy. From an industry perspective, Germany
is likely to become a purely selling location, with all the
consequences for the economy and growth that this entails.
Elisabeth Beck is country manager, Germany, at IMS Health.
This article is adapted from one originally published in Pharmaceutical
Marketing Europe,
Winter 2003. |
