Is Germany’s Drug Pricing Strategy An Option for the US?

July 09, 2020 - The German Pharmaceutical Market Restructuring Act (AMNOG) is an example of how a drug pricing strategy can be designed to better align prices with clinical benefit and is an approach the US can take to address the high prices of prescription drugs, a Health Affairs study found.

Using data on fifty-seven anti-cancer drugs launched in Germany from 2002 to 2017, researchers found that introducing price negotiation through AMNOG led to a 24.5 percent decrease in negotiated prices relative to launch prices.

Additionally, there was no evidence that manufacturers responded by setting higher launch prices.

The average incremental treatment costs per overall or progression-free survival life-month gained at launch were $16,041 in the period before AMNOG and $15,263 in the AMNOG period, which decreased to $11,476 after price negotiation.

The average difference between annual incremental treatment costs at launch versus after negotiation was $14,242.

This shows a relative decrease in incremental treatment costs over the period of benefit assessment and negotiation of 24.5 percent.

“During the AMNOG period, there was a significant association between overall or progression-free survival and incremental treatment costs after price negotiation, suggesting that the process was successful in linking prices to clinical benefit in a way not previously observed,” researchers said.

The 2011 launch of the drug pricing reform in Germany was in response to the rising pharmaceutical spending. It intended to align prices and reimbursements more closely with expected treatment benefits and ensure access to care for all patients.

In the US, cancer drug prices are set by pharmaceutical manufacturers and are not negotiated by the government in connection with a product’s clinical benefit.

Drug spending worldwide has increased dramatically in recent years, with total expenditures projected to reach $1.4 trillion worldwide by the end of 2020, researchers said.

Specifically, pharmaceutical spending has almost doubled, from $665 in 2002 to $1,220 in 2016. The increase was mainly driven by higher prices rather than by increased prescribing rates.

Before the pandemic, one in three Americans did not take their medications as prescribed because of high costs, but during a global pandemic, forgoing a medication due to cost is even riskier, according to a recent report.

Most recently, pharmaceutical companies significantly increased drug prices for 245 drugs between January 20 and June 20, with more than 75 percent of the drugs directly pertaining to the COVID-19 pandemic.

Researchers believe that companies are increasing their prices in anticipation of the expected increase in demand if specific drugs show promise in trials.

But currently, US policy makers are discussing a number of ways to reform US drug pricing.

“Germany’s AMNOG experience suggests a model for what might happen if policy makers are successful in introducing a drug price negotiation system in which prices are more closely linked to clinical benefit,” researchers stated.

“This study also shows that negotiation can lead to further reductions in cancer drug prices and that these reductions appear to have offset time trends in drug price increases not correlated with clinical benefit.”

Under AMNOG, the manufacturer sets prices during a drug’s first year on the market

During this time, additional therapeutic benefits are assessed by a nonprofit, nongovernmental research body, the Institute for Quality and Efficiency in Health Care, and by a regulatory agency, the Federal Joint Committee, the highest decision-making body of the German health care system’s joint self-government of professionals, hospitals, and insurers, researchers stated.

Prices are then negotiated between manufacturers depending on clinical evidence and standard of care guidelines.

Researchers noted that although no evidence of how AMNOG’s introduction has affected the initial price-setting behavior of manufacturers, a specific concern is that the AMNOG process might incentivize manufacturers to increase launch prices to offset anticipated future discounts from price negotiations.