Germany's stance on pricing threatens drug firm profits

Tue Feb 18, 2014 2:05am EST
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By Ludwig Burger and Thorsten Severin

FRANKFURT/BERLIN (Reuters) - Germany's plan to publish price discounts agreed with drugmakers poses a risk to profits in the industry, which fears the information could be used to drive down prices elsewhere.

Germany, Europe's biggest market for medicines, is already one of the toughest for pharmaceutical companies, in part because statutory health insurers club together to increase their bargaining power in price negotiations with the industry.

Now, in its latest drive to curb rising healthcare costs, Berlin has drafted new rules that will blow the lid on the previously confidential discounts the insurers win. Discounts vary widely, but can be around 20 percent off drugmakers' list prices.

The aim of the new law, which could come into force as soon as April, is to stop wholesalers and pharmacies from basing their margins on list prices rather than the discounted prices.

But the pharma industry fears publishing the discounts could trigger price falls elsewhere as dozens of healthcare agencies in Europe and as far as Japan use German prices as references for their own. Countries which have so far used list prices in Germany could switch to discounted prices as the new standard.

That would pile extra pain onto an industry already under pressure to provide keen value to Europe's socialized healthcare systems in the wake of the region's debt crisis. Britain, for example, struck a tough deal with drugmakers in November to hold flat the amount its state health service spends on branded medicine for the next two years.

"Right now, the negotiated (discounted) price is not readily available information. I think pharma companies have a point in demanding that it stays that way," said Ulrich Huwald, a sector analyst at brokerage M. M. Warburg. "They have a right to confidentiality and more disclosure would hurt their business."

Some executives believe the risk to drugmakers is such they may increasingly skip Germany when bringing new drugs to market rather than letting the German price become the norm elsewhere.   Continued...

A man walks past a pharmacy in Berlin, March 17, 2010. REUTERS/Fabrizio Bensch