healthcare market

Insurers Call for Brake on Drug Costs

The high price of drugs is challenging insurers.
  • Why it matters

    Why it matters

    The prices charged by drug makers are rising and insurers say they can’t afford to cover the medicines’ costs and that more regulation is needed.

  • Facts


    • AOK is an association of health insurers and covers 24 million people, one third of the German population.
    • Health insurance is compulsory in Germany and for the majority, the costs are shared between employers and employees.
    • The cost of medicines is rising as drug makers set the price for a year after approval; usually a lower price is then negotiated after an assessment.
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A report on the costs of medicine in Germany has led health insurers to threaten that if drug costs remain high, rationing may be necessary.

This is a question that politicians may soon be forced to consider, according to Martin Litsch, chief executive of public health insurer AOK.

“It’s the last thing we as health insurance companies want,” Mr. Litsch said. “But if the prices for patent-protected medications continue to rise so drastically, we’ll be pushing the boundaries of affordability.”

Health insurance is mandatory in Germany; costs are shared between employee and employer. Private health insurance is also available, used by 11 percent of people. As costs of healthcare rise, public health insurance schemes have rolled back some of the services they provide.

Mr. Litsch’s statement came in response to an annual report by a scientific institute of insurance funds and pharmacologist Ulrich Schwabe from the University of Heidelberg.

“We have rarely a boom like last year,” Mr. Schwabe said. In 2014, spending on medicines rose by over 10 percent and by a further 5.8 percent in the first half of this year.

Furthermore, 46 new drugs were approved last year, the highest number since the regulations for approval were set in 1976, according to clinical oncologist and chairman of the Drug Commission of the German Medical Association, Dr. Wolf-Dieter Ludwig.

New drugs are an important source of income for the pharmaceutical industry as manufacturers can set their own prices for a year after a drug is approved. They then negotiate with health insurers to set usually a lower price for the medicine based on an assessment of its benefits.

The pharmaceutical industry, long in crisis due to the high costs of developing new medicines, argues that this dry spell has ended thanks to innovation.

According to Mr. Ludwig, though, most drugs show little improvement on their predecessors –what is innovative is merely the price. One example is Gelead’s Solvaldi, used to treat Hepatitis C. Each therapy course costs €62,000, or $69,300 per course of therapy.


Although doctors prescribed 7.8 percent fewer patent-protected pills last year, spending rose by 15.1 percent in 2014.

Other medicines remain expensive, such as Biogen’s Tecfidera, which fell through the cracks in the assessment process. The drug treats multiple sclerosis and surpassed all other MS drugs in 2014, despite its high price. It drove up heath insurers’ spending on MS by 163 percent in 2014 over the previous year.

The benefit testing process carried out by insurers hadn’t shown additional benefits compared to similar therapies, so in May the company had to negotiate a 42 percent price reduction with the public insurers. If that had been the price in 2014, insurers would only have had to pay €140 million instead of €240 million for their MS patients.

Karl Lauterbach, health expert for the Social Democratic Party (SPD), is critical of the process, saying, “Producers take whatever price they can from the market.”

Mr. Ludwig likewise argued that the benefit and affordability of drugs don’t play a sufficient role in how the price is set.

Both also say the pharma industry uses accelerated approval procedures to push questionable drugs onto the market.

One such high speed process applies to orphan drugs which are registered to treat rare diseases – for these, the additional benefits are considered proven because of the rarity of the illnesses they treat.

The industry also benefits from conditional approvals whereby medicines are allowed on the market with the promise that studies on their effectiveness and reliability will come later, though in reality, these often fail to materialize.

For insurers, these trends could spell disaster. Although doctors prescribed 7.8 percent fewer patent-protected pills last year, spending rose by 15.1 percent in 2014. Only a portion of that was returned from the manufacturer discount that had been reduced from 16 to 6 percent.

Health insurer Mr. Litsch said he would favor regulatory intervention such as spending limits or compulsory discounts before “unfair price policies” drive up people’s insurance contributions, or drugs have to be rationed.


Peter Thelen writes about social security systems, the job market and labor topics. To contact the author:

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