Whining on the Rhine: Pharmas React to Germany's Prescription Drug Reform

As many know, Germany's healthcare reform has been in the works for years and for as many years Germany's pharmaceutical industry (that includes many global companies) has been fighting the changes as unfair. The Wall Street Journal reported this week ("German Curbs on Drug Costs Rile Big Brands" -Monday May 2, 2005), on the affect of German health care reforms on the pharmaceutical industry, specifically the reference pricing on drugs recently instituted to cull costs. The drug formulary and reimbursement plan will favor drugs that are available as generics or in cheaper dispensing forms.

"The ministry decided last year it would no longer cover the higher prices of branded drugs that it deemed to have the same medical efficacy as available generics. So the commision drew up a list of drugs that it won't pay full price to cover."

The reform was undertaken for good reason. Germany was spending almost as much per capital on healthcare as the United States, yet with higher unemployment rates and inefficiency. The goal of the reforms is to reduce by 23 billion the annual 142 billion Euros spent on statutory health funds. The healthcare system, largely funded by the state, is bloated and corrupt. Health fraud and corruption among doctors, insurance funds and drug companies was costing the country up to 1 billion euros per year. The Financial Times reported about the widespread fraud in a July 13, 2003 article in Comments and Analysis ("Fraud is a very serious problem - and one that is getting worse all the time': German Health Care Reform"). Hundreds of doctors, as well as insurers and equipment companies were involved in multi-million Euro schemes. The pharamaceutical companies, the article notes, were not above the fray:

"...four large drug retailers and 250 specialist doctors, mostly radiologists and urologists, are under investigation over kickback payments"

..And another investigation revealed:

"Some 1,600 doctors and 270 sales representatives of a German branch of the former SmithKline Beecham are under investigation in a bribes scandal...The company is accused of paying doctors across Germany up to Euros 25,000 each, often as gifts or holidays - including trips to the 1998 football World Cup in France - in exchange for using its drugs"

Although the pharmaceuticals interests are clearly to maintain market share of their name brand drugs, the pharma industry has couched their fears differently at different times. Bernd Wegener, chairman of the BPI association of pharmaceutical companies, as quoted by Hugh Williamson of the Financial Times May 15, 2003 ("Drug Industry Attacks German Health Care Reforms"), said that the reforms were "a severe blow for patients" because they would push up the cost of many drugs.

The response has been sometimes been dramatic, sometimes over the top, sometimes babbling. One title in MMW -Fortschritte der Medizin (Germany, Nov. 2001) noted in a crypically translated title: "Drug manufacturer on the savings package of Ulla Schmidt [Health Minister]: Grip in the moth box of planned economics"

The pharmaceutical companies have naturally been actively lobbying against the reform measures with direct appeals to the Chancellor, lawsuits that challenge the changes, and direct campaign efforts by the pharmaceutical industry to politicians, patients and physicians. Philip Burchard, the head of AstraZeneca PLC's business in Germany, quoted by WSJ spoke ominously of the affects on the pharmaceuticals:

"It's actually a pretty disastrous thing for us...In a way, it's like losing your patents because your forced to reduce your price."

Or being exposed to open market competition.

The costs savings at stake for the German government are significant. Lipitor (Pfizer) is one of the drugs that is targeted, as the generic Simvastatin, introduced in 2003 is being favored by the German government as a cheaper cholesterol reducing drug. The patients are responding by increasingly choosing generics over brand name pharmaceuticals for cost reasons.

"German patients who used to get Lipitor free of charge at their local pharmacy now must pay almost $65 out of pocket for a three-month supply. Simvastatin, the generic that the commission says is comparable to Lipitor, is almost free to patients"

Despite all the howls from the pharmaceutical companies, they continue the post record sales profits year after year. Lipitor is one of many drugs with generic equivalents that the German government wants to save money on. Despite the threats from generics though, year after year Lipitor has led pharmaceutical sales both overall and in it's class. Last year (2004) Lipitor topped previous years with record revenues of 10.9 billion.

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