German-style reference pricing for drugs - the need is urgent to give a free choice of insurance to all Germans

Doctors, dentists, pharmacists and other health care workers in Germany have been strongly protesting against the new cost containment health care reform. "This reform will simply lead the healthcare system into the cul-de-sac of centralized bureaucracy", according to their last joint statement during the national strike on December, 4, 2006.

"The main effects of reference pricing are very similar: it ends up with a bureaucratization of the use of medication for German patients while they remain trapped to in, and contributing to, a mandatory health insurance system", declares Valentin Petkantchin, the author of a new study of the issue.

The new study from the Institut économique Molinari and the Centre for the New Europe concludes that current reference pricing policy – along with possible savings through compulsory sickness funds in the use of pharmaceuticals – may thus present several possible drawbacks for patients and insured people.

The reference pricing (RP) policy for drugs is a cost containment measure used by public authorities. Its principle is simple: drugs which are judged to be interchangeable are classified in therapeutic classes, and a reimbursement ceiling is set up for the whole class, generally equivalent to the lowest or the median price in the group.

It is thus possible to create classes with only bioequivalent drugs, as is the case in many countries. But German RP, put in place for the first time back in 1989, goes beyond that by putting also non-bioequivalent drugs - that is, different active molecules - in the same class. Since new legislation enacted in 2004, it can also cover patented drugs.

Drawbacks of Reference Pricing
By limiting reimbursement without giving the insured the option of opting out, RP ends up providing them with limited coverage for certain drugs. It relies also on the use of a bureaucratic classification of drugs that are considered substitutable even if patients and physicians may not see it in the same light.

German-style RP has by the way an indirect effect on pharmaceutical innovation by discriminating against new medicines, which are among the most expensive in their respective classes. This ultimately decreases the returns from investment in R&D and the incentives to invest in developing future drugs. In the context of compulsory health insurance, such measures may indeed easily run against the preferences of the patient and the insured that are waiting and willing to pay for more new innovative treatments.

In such a context it is of utmost importance to have free competition in health insurance which is the only possible guarantee that an RP system will be used advisedly, without running counter to patients’ interests.

"It is worrying to see that freedom of choice for the insured and free competition among insurers does not exist in Germany, where the RP system is mandatory for about two out of three Germans", says Valentin Petkantchin.

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For further reading, see this related CNE publication:
The Fantasy of Reference Pricing and the Promise of Choice in BC's Pharmacare