Generics in Germany: Aut idem Outrage
Executive Summary
German pharmacists must now substitute prescribed products with generic equivalents that are priced below a certain threshold. The generics industry claims that this aut idem ruling will provoke a downward price spiral that may prove fatal to many firms.
German pharmacists must now substitute prescribed products with generic equivalents that are priced below a certain threshold. The generics industry claims this aut idem ruling will provoke a downward price spiral that may prove fatal to many firms.
Generics are already well-established in Germany. They account for 44% of prescription drug sales and save the country's health insurance funds €2.4 billion ($2.34 billion) a year, according to Deutscher Generikaverband, the German association of generics firms. Compare this with France, where generics account for less than 5% of drug sales in value terms.
So in some ways Germany's new aut idem ("or the same") ruling, requiring pharmacists to replace products prescribed by a doctor with a less expensive equivalent, doesn't change much: pharmacists are clearly already dispensing generic drugs.
What's new, though, is the set price range within which any product—generic or branded—must fall in order to count as a valid substitute under the ruling. On June 12 the Krankenkassen—health insurance funds—fixed the range as the least expensive third of drugs, according to their prices at the time. If there are fewer than five versions of a particular active ingredient within the required range, the five cheapest products in the category will be eligible for aut idem substitution, as a means of encouraging competition.
Aut idem also hails another change: before the ruling came into force on July 1, pharmacists weren't allowed to override what a doctor had prescribed, whether branded or generic, except in emergencies when the specified product wasn't available, or outside normal opening hours. Now they are legally required to overwrite a doctor's prescription in some cases.
Germany's generics firms aren't as pleased as one might expect about this new generics push. Sure, they feel the generics market, which last year grew only half as fast as the market for branded products (9.2% compared with 19% for brandeds) has plenty more ground to gain, but the problem with aut idem, says the Generikaverband, is that the threshold defining the least expensive third of substitutable products will lead to a downward price spiral, made all the more aggressive since the threshold will be revised each quarter, prompting companies to continue to lower their prices in order to stay within the required band. And it won't only be generics firms battling to keep their products within the range. Any off patent and substitutable products falling within the price band may, naturally enough, be preferentially prescribed as well. This explains why Aventis SA has dropped the price of fourteen of its branded products in Germany by an average of 10%, which it estimates will lead to a €3-4 million drop in sales. (The products include diabetes drug glyburide (Euglucon), anti-diuretic furosemide (Lasix), and pain treatment metamizol (Novalgin).)
For Aventis, however—whose annual turnover in Germany is €2.7 billion—cutting prices on some of its products won't hurt too much; what's more the company hopes that a concurrent increase in volume will mean the impact on actual profits will be almost negligible.
But the smaller generics firms may be harder hit. "A lot of companies—particularly smaller firms—will not be able to compete because of the lower prices and margins," warns Andreas Strüngmann, MD, CEO of generics firm Hexal AG . Hexal itself, as Germany's second largest generics group with turnover of €476 million last year (see Exhibit 1), looks relatively safe, yet, says Strüngmann, "even the bigger generics groups will be both winners and losers from this ruling: we win on volume but lose on margins."
Hexal has invested in what it calls "innovative" products in preparation for this ruling, which was long expected. The company invests 15% of its turnover in R&D, mostly on new drug formulations, particularly implants and transdermal systems. What Strüngmann hopes is that Hexal's improved formulations will offer enough of an advantage to not be deemed "equivalent" to anything else on the market—and thus not vulnerable to aut idem. "This [investment in new formulations] will soften, but not remove, the pressure on us from aut idem," he concludes, since improvements in products not clearly differentiated from their predecessors—at least according to the government's lights—will still have to be priced within the bracket. Another way for firms to resist this pressure will be, as a group, to tacitly sustain the price bracket at acceptable levels, something Strüngmann suggests is likely (particularly if aut idem does eventually wipe out all but the larger players). But such tacit concerted actions risk attracting anti-trust regulators. In the UK, where generics are similarly widespread, the Serious Fraud Office in April accused six generics firms of collusion to maintain prices at an artificially high level. And Germany's Lindopharm GMBH recently raised the price of one of its drugs—which was available at €30—to €500 just to make the point that aut idem is open to manipulation.
The German health ministry, however, doesn't appear too bothered about how firms compete on price—and who survives. It is not the ministry's problem, nor is it under their control, they say. "Some firms will make it, others won't, aut idem or no aut idem," declares a ministry spokesman. Lower drug prices are, of course, just what the cost-conscious health ministry wants. Aut idem could save the Krankenkassen €220 million each year, according to health minister Ulla Schmidt. The Generikaverband argues aut idem won't merely hurt its member companies, however. It will, it claims, hurt patient compliance. Although aut idem sets out in principle that substituted products have the same dose, formulation, and, where applicable, the same number of pills per pack, precise details of what can or can't be substituted remain "a grey area," according to Strüngmann.
In the US and UK, generics are mostly manufactured in the same color and shape as their branded equivalents. That's not the case in Germany, where branded generics (whereby generics firms stamp their own identity—brand, color or whatever—on a particular product) have until now taken a large share of the market. Aut idem will likely shift the emphasis in Germany away from branded generics towards commodity generics, but meantime the problem remains: "If a patient gets a yellow pill one month and a red one the next, it will lead to confusion and lack of compliance," argues the Generikaverband. Moreover, some pills are manufactured to be easily cut in half by the patient, and doctors often prescribe with this capability in mind. Substituted versions might be difficult to halve, making dosing more complicated.
Liability issues are also undefined—if a doctor doesn't know which actual product his patients receive it's unclear who is liable for any adverse side effects. Neurologists and psychiatrists in particular warn that for some patients, such as those suffering from epilepsy, the therapeutic window is so small that switching medication through aut idem could have disastrous effects.
Yet notwithstanding this rather vocal reaction from generics firms and physicians, aut idem will, initially at least, operate only with very tightly defined boundaries. The Krakenkassen have published a list of 200 or so active ingredients and product details of those drugs which can be substituted, providing details of each formulation, with dosage data, pack size and price. (See http://www.bkk.de/service/aut_idem/download/aut_idem.pdf). Any product substituted must also be approved for the same indication as the original. The list is set to grow, since about five times as many generic products are prescribed in Germany already, according to the Generikaverband. Further specifications will follow on which products can or can't be substituted, and under what conditions.
In the interim, those doctors who still aren't happy do have a way out. To prevent pharmacists from applying aut idem, they simply have to stamp "no substitution" on their prescription—and under current rules can do so as often as they like. According to the online physicians' magazine Artzte Zeitung, physicians have ordered several thousand stamps made specifically for this purpose from their local unions. The Artzte Zeitung reports that a number of doctors are simply resorting to stamping each and every prescription they issue, to avoid angry phone calls from patients who didn't get what they expected from the pharmacist.
Given that physicians have this power of veto anyway, the Generikaverband suggests it should be the doctors, not pharmacists, who are responsible for making the substitution, where possible, with a product from the lower price tier. This way, they say, "the doctor knows exactly which medicine the patient has received, thus making the liability issue more transparent, too".
But the health ministry is impassive on this point as well. Passing the substitution buck to doctors simply can't happen, they say. Doctors are autonomous; they prescribe what they like, claims a ministry spokesman; there is no way of interfering with that. Yet it's difficult to see how that logic holds if one is instead interfering with what pharmacists actually put in patients' hands.
Besides, doctors already face budgetary restrictions on what they can prescribe each year and can be fined for failing to respect these (which is one of the reasons generics use is so widespread in Germany to begin with). These restrictions are loosely reflected in reimbursement laws: prior to July 1st, drugs in Germany were reimbursed in full only if priced below a specified upper limit; if not, patients had to make up the difference. Following the introduction of aut idem, those drugs in the published list of substitutable products will be reimbursed according to the average of the five cheapest versions available, pushing reimbursement costs down.
Despite the industry's—and many physicians'—concerns, Germany looks stuck with aut idem. Change is possible, however, points out Dietmar Buchberger, MD, Generikaverband's director of safety and regulatory affairs. The country could vote in a new government this autumn that could discontinue the ruling. Or aut idem could cause so many small generics firms go out of business, that the competition which keeps prices down would disappear—at which point the government would decide that aut idem is counterproductive after all.
by Melanie Senior