Bloomberg reports that Germany will soon levy over $2bn worth of price cuts on drug makers launching new products. Germany is the world’s third biggest pharma market after the US and Japan, it points out. “The law, backed by the lower house today, gives companies a one-year window to negotiate prices with insurers after introducing new drugs…If no agreement is reached, the Health Ministry would set a maximum price, and the drugs would undergo a cost-benefit analysis by a semi-state agency,” it says. You can read the story here.
Germany’s move is just the latest attempt by governments in Europe to control spiralling drug costs. UK is attempting a new ‘value-based pricing’ system “in which fees are negotiated with companies on the basis of a scientific assessment of the drug’s clinical value”, reports Nature. Italy recently cut prices of generic drugs.
In India, price control has been a fact of life for the pharma industry. Over time the number of drugs under control has been pared. As a result only 74 drugs are under control and the rest are free. However, the government has the right to intervene and fix prices of ‘out-of-control’ products if they escalate beyond a point (more than 10 per cent a year).
The drug industry has from time to time proposed a move towards price monitoring rather than controls but that has not gained traction yet. It also believes that the ‘cost-plus ‘ mechanism that is used to control prices (where government fixes a margin over the costs incurred to produce a drug) is flawed.
However, over time the industry has learned to live with the system, even beat it. Some companies have circumvented drug price rules within the limits of the law and sometimes outside it spawing a spate of lawsuits between the government and companies that have dragged on for years. In the meantime, the government’s price control system has worked inconsistently – medicines for cancer and rare diseases are still prohibitively expensive. And since most are imported, it is difficult to ascertain their production costs and fix prices. In recent months, there has been talk of the government regulating prices of cancer drugs.
Germany’s move to control drug prices weakens the industry’s case against controls further. It is also a move that should be watched carefully by the Indian government which is now trying to figure out how to negotiate the prices of patented products that will have no generic competition; a 2005 law allows patents on drug products instead of just the process of making them. As European countries experiment with different methods, there’s lots for India to learn and choose from.