Fixed prices for prescription medicines are an important part of the framework of pharmaceutical pricing and reimbursement regulation in Germany. Prices for prescription medicines are formed on the basis of the ex-manufacturer price plus wholesaler and pharmacy mark-ups and VAT. Per the relevant regulations, prices of prescription drugs should be the same in all pharmacies. The legislative intention behind this is to ensure nationwide access to medicines, irrespective of the location. If a pharmacy in a big city charges the same for a prescription drug as one in a rural area there is no incentive for rural residents to buy their medicines from urban pharmacies.
ECJ ruling puts fixed-pricing system under spotlight
In order to maintain these fixed prices, Germany’s medicines law includes regulations outlawing discounts on prescription medicines. This ban is also extended to operators of mail-order pharmacies operating in other European Union member states.
But in October 2016, the European Court of Justice (ECJ) ruled that the German law could not apply to EU-based mail order pharmacies outside of Germany. Since then, Germany has deliberated on how to protect the fixed-priced system to be compliant with EU law, or whether to abandon it.
In March, this deliberation came to a head. The European Commission issued a reasoned opinion calling for the German authorities to scrap the regulations that ban mail-order pharmacies in other EU countries from offering discounts on prescription-only drugs in Germany. The Commission stated that the ban violated the EU’s principle of the free movement of goods. Facing the threat of being taken to the ECJ Germany’s Federal Ministry of Health devised a legal amendment they hoped would resolve the issue – the Act on the Strengthening of Local Pharmacies (Gesetz zur Stärkung der Vor-Ort-Apotheken; VOASG).
German health minister opposes own coalition government’s stance
Before outlining the solutions offered in this draft act it should be pointed out that the current grand ruling coalition government Germany included (as part of its coalition agreement formalized in March 2018) a measure intended to resolve the current impasse. Namely, it is foreseen in the coalition agreement that the mail-order (internet) sale of prescription medicines would be banned. This would – it is widely argued – remove any conflict with EU law. Such a ban has wide support in Germany, particularly among pharmacists and crucially within the dominant grouping in the governing coalition, the Union parties (CDU/CSU). Federal state governments have come out in favor of a ban, too. However, it is opposed by influential members of the junior coalition partner, the Social Democratic Party of Germany (SPD), on the grounds that poorer patients can benefit from discounts. In addition, it is opposed by the health minister, Jens Spahn (himself a member of the CDU).
Health minister Spahn seeks to maintain fixed prices – but only for GKV
Spahn proposes maintaining fixed prices for prescription drugs, and also continuing to allow their sale by mail-order pharmacies, based on what he calls the “solidarity principle”. Medicines, and particularly prescription medicines, are different from most other types of goods and cannot be viewed exclusively through the prism of the free movement of goods. The draft VOASG foresees that the text in the medicines law banning non-German EU-based mail order pharmacies from offering discounts on prescription drugs to German clients would be removed – thus complying with the wishes of the European Commission. However, the ban would still apply because of an addition to book five of the German social code. This addition states that only pharmacies that are legally-bound by the framework agreement between their representative association and the statutory health insurance (GKV) funds can dispense prescribed medicines reimbursed by GKV funds. These pharmacies are legally obliged to observe the fixed margins set out in the medicines law.
This is a somewhat messy solution because it means that the ban on discounts would only apply to the GKV sector. Although this represents around 85% of the German population, the idea that privately-insured people will be able to obtain discounted medicines supplied by non-German online pharmacies in other EU countries certainly does not sit well with many.
European Commission holds all the cards
The draft VOASG was approved by the government in July but has yet to undergo its first reading in the Bundestag. As of late October, the Federal Ministry of Health was still waiting for the final verdict of the European Commission concerning its compliance with EU regulations. If the Commission rejects the proposals, then Spahn is back to square one.
Many commentators believe the European Commission will not accept the “solidarity principle” argument in favor of upholding fixed prices in the GKV sector. It is expected that the Commission will reject the solutions proposed on the same grounds as the ECJ verdict in 2016 – namely that mail-order / online pharmacies based in other EU member states are not a sufficient threat to bricks-and-mortar pharmacies to justify such an intervention.
Just how much of a threat these pharmacies are to traditional pharmacies is not a simple question to answer. Looking at data on sales of prescription-only medicines by online / mail-order pharmacies, both German and non-German, in the years since the ECJ verdict there has hardly been any noticeable impact on sales either by volume or value. Data from the Federal Union of German Associations of Pharmacists (ABDA) shows that in 2017 these sales grew 1.1% year-on-year (y/y) by volume, to 8 million packages, and 4.0% y/y by value, to EUR305 million, while in 2018, their sales fell by 0.8% y/y in volume terms and fell by 1.6% y/y in value terms. While online pharmacies based in other EU countries are experiencing double-digit growth in their sale of prescription-only drugs in Germany this still accounts for a very small proportion of the overall market.
German pharmacists see themselves as an essential part of the wider healthcare system and consider the fixed-pricing regulations as an essential guarantee for across-the-board accessible pharmaceutical provision. Spahn has sought to placate them with additional remuneration promises but they are sure to oppose any bid to alter the outright ban on discounts in the law on medicines. His proposed solution is a halfway house and is likely not to please either side sufficiently. For the pharmaceutical industry the undermining of the fixed-pricing regulations for prescription medicines represents a threat and an opportunity. If the regulations are undermined, in the medium- to longer-term, it is likely to lead to downward price pressure in Germany. Larger manufacturers may be able to benefit from this as a means to ensure market share. This is likely to be accompanied by some negatives such as the closure of smaller rural pharmacies which will not be able to compete on price with online rivals. It is difficult to see how German lawmakers could, 15 years after allowing the online sale of prescription drugs, turn around now and ban this practice. If it is to continue the ECJ’s 2016 ruling would imply that the European Commission will also take the view that the “solidarity principle” is not sufficiently threatened by non-German online pharmacies offering discounts to German clients.