Cutting Drug Prices—German Style

What is AMNOG?

It’s regulations crafted in response to Germany’s historical high drug prices. It was very similar to the United States; Germany’s drug prices were historically, on average, 26% above the rest of Europe’s.

Germany passed legislation in 2011 with the intention of improving the value of pharmaceutical spending. They were facing a lot of pressures similar to many other countries—healthcare costs that were increasing, in particular pharmaceuticals.

How does the AMNOG system work?

All new drugs in Germany have to go through an assessment process to determine how their benefit compares to the other drugs on the market. The thing that is groundbreaking about AMNOG is it requires first an assessment of the clinical benefit of new drugs and then a determination of what that means in terms of prices and reimbursement.

When a new drug hits the market, it can be introduced at any price and is reimbursed by all insurance plans at that rate for the first year. During that time, the Institute of Quality and Efficiency in Healthcare (IQWiG), compiles data and analyzes dossiers created by the drug manufacturers.

Once IQWiG has assessed the dossier, it makes a recommendation to the private Federal Joint Committee (made of payer, provider and patient representatives). IQWiG makes a recommendation on whether the drug is therapeutically superior to what’s already on the market. If it isn’t, it goes into the country’s reference pricing system to be reimbursed like other generics in its class. If it does get a superiority ranking, that information is used to negotiate between drug makers and an organization representing Germany’s insurance providers. The agreed-upon price is what payers pay for the new drug.

Since the new system began, how many drugs have gained the superior ranking?

About 63% were determined to have additional benefits (to those already on the market) between 2011 and 2016. But that means more than a third of drugs didn’t.

There are a variety of reasons why an additional benefit is not always proven. Sometimes there is not enough data, and the drug industry has the option of resubmitting down the road. Sometimes there is just not enough benefit. There are a number of reasons, but a meaningful number of new drugs have been deemed not to be therapeutically superior.

Is that an indication of what would happen in the United States under a similar system?

There are a lot of innovative drugs here. But there is absolutely good reason to believe a number of the new drugs in the United States aren’t cost effective. And what I mean by that is the prices they set aren’t worth the additional benefit those drugs offer over others on the market.

It’s complicated, and this is where the science needs to come in and do rigorous evaluations that the current system in the United States doesn’t have. We need to have a systematic approach to looking at these new drugs and what their benefits are relative to their new price across different patient populations.

What kind of undertaking was it to create the AMNOG program?

Legislation started around the turn of the century in Germany, and there were a few waves aimed at pharmaceutical cost control that ultimately led to AMNOG. For certain aspects of it, the building blocks were there before. They had a system of referenced pricing for some drugs, and IQWiG was already there.

The big move that made this possible is the legislation that put the cost of compiling these dossiers on the manufacturers. It’s the drug companies that have to submit these dossiers and conduct these studies and gather data on whether new drugs are therapeutically superior. To evaluate every new drug is very challenging from a resource perspective. Putting that task on the industry in Germany is what allowed it to go into effect right away.

If we were going to have something similar, we would have to think about where those resources would come from. Right now, the FDA approval process focuses on safety and a drug’s effect compared to placebos. Comparing them to the next best drugs is a whole different study.

How has AMNOG affected the price of new drugs?

In 2015, Germany saw savings of $1 billion in new drug spending. There is an average of a 21% discount off the price of new drugs.

Under AMNOG, if insurers don’t agree with the price and rebate of manufacturers, there is an arbitration panel that can set that price. It’s typically a cap compared to what the price is in a basket of European countries. They have a nuclear option when there is disagreement on pricing, but it rarely gets to that point.

Legally, manufacturers can set whatever price they want. If they want to bypass AMNOG, technically they can set the price above other referenced prices. But then the patient has to pay the difference, and historically where drug companies have done this, there is a complete collapse in market share because patients aren’t willing to pay the difference.

We often hear this kind of system would stifle innovation. Have you seen that in Germany?

Pharmaceutical companies pour a lot of money into all of their drugs, and they don’t always know ahead of time which will be superior. They are in a race with other pharmaceutical companies to come out as quickly as possible. They could come out with a drug and two months later another comes out and they don’t get a superiority designation. They argued that would stifle innovation. Whether it actually does, we haven’t seen any clear evidence. From its launch in 2011 to August of 2016, 146 new drugs were assessed.

The whole notion of innovation and incentives for them and what drives that becomes an international discussion. There is some fear our system would be such a large part of the pharmaceutical market that it could be the straw that breaks the camel’s back if we implemented something like AMNOG.

But some think it would be a good thing and encourage companies to invest specifically in the really innovative drugs we want rather than investing in some that aren’t as innovative. That it would force them to allocate their resources more efficiently.

What did the German pharmaceutical industry think about the program initially?

The pharmaceutical industry feels compiling these dossiers is very burdensome, and they really fought against this in Germany.

But Germany had some strong-willed politicians who really pushed this legislation through. The tide had shifted there. The situation was different there than it is in the United States now. Lots of states have proposed legislation, and a small number are doing things. But federally, the political will is a different issue when it comes to lobbying and the pharmaceutical industry.

How did they go about choosing the committee to evaluate the drugs? Did they have a lot of buy-in from different areas of the industry?

Germany has something called corporatism, where they have associations that represent hospitals, physicians, insurers and patients. They have a lot of experience coming to the table together and working things out in a consensual process.

Any other differences in our system that might make implementation here challenging?

Structurally, the German system is very similar to ours. IQWiG and the joint committee are private institutions. That’s similar to what the United States would do.

With the price negotiations between the manufacturers and insurers, it’s pretty similar to our price negotiation and rebates. But the drug prices of superior drugs aren’t linked to their efficacy. It is based on complicated market factors.

We also don’t have reference pricing. In the 30% of cases where drugs aren’t deemed superior, they get classified with others in their therapeutic class. If they aren’t deemed superior here, how would you get those prices? Saying they have to be the same as others in their class would be a big political change here.

Something like AMNOG would be possible in the United States. We would just have to look at things differently on reimbursement and pricing to reflect the nature of our healthcare system.

It wouldn’t be difficult to sit down and come up with a beautiful piece of policy that could accomplish these goals and adapt AMNOG to the United States in a way that is fitting for us. I have yet to see any real piece of legislation in Congress that has a realistic sense of passing. I’ve been tracking this lately, and I haven’t seen anything big on a federal level that is meaningful and close.