Germany has long been the only country in Europe that allows pharmaceutica l producers to determine freely their prices for new, supposedly innovative products. As a consequence, prices for these products are higher than in most other countries, except the United States, though there are some exceptions made for generic medicines and those used to treat specific diseases (e.g., under the Festbetragsregelung).

This self-determination is coming to an end however. A new law, the Arzneimittelmarktneuordnungsgesetz (AMNOG), which will come into effect on 1 January 2011, obliges the regulatory authority, the Gemeinsamer Bundesausschuss (GBA), to publish within three months of a new drug entering the German market a report on the additional benefit of the new product as compared to other products already available. This report will be based on documents that pharmaceutical companies will have to submit to the GBA. Pharmaceutical companies will be obliged to submit and make available to the public all documents (such as clinical trial protocols and results, and any related documents) in connection with a new or altered product. This therefore includes not only the documents supporting the claimed benefits of the new product, but also study results or other documents that demonstrate a claimed additional benefit is dubious or even non-existent.

On the basis of these widely published documents , the public ( including administrators of statutory health funds) will have the opportunity to comment on the GBA’s preliminary decision within three months of that decision being published.

After the three months have expired, the GBA will publish a final decision on the additional benefit of the new product. If the product has not been found to have any additional benefit, the exception for firmly determined caps for certain products under the Festbetragsregelung will apply. If the GBA finds that it does provide additional benefit, the Association of German Statutory Health Funds (the Association) will have six months to negotiate the final price for the new product with the producer. If the Association and the pharmaceutical company do not come to an agreement, they are obliged to go to arbitration, which will determine the final price.

Given that this new system of negotiation of prices, which is beyond European public procurement law and must take place within a fixed, short period of time, marks a change of paradigm for the German pharmaceuticals market, it can be assumed that shortly after AMNOG has entered into effect a large proportion of negotiations will have to be resolved by the arbitral body. Developing the jurisdiction of the arbitrators so that pharmaceutical companies and the Association of Statutory Health Funds will be able to rely on their decisions is likely to be a slow process.

It is still largely unclear how those new rules will be implemented in practice. In particular, the short time periods applicable are striking and it remains to be seen how the GBA, with its current limited staff capacities, will be able to cope with its new challenges. However, after some time, one should expect to see a real change in the German pharmaceutical market. This will likely be to the detriment of producers of items that are actually not innovative, but will benefit the producers of genuinely innovative products. That is, at least in comparison with the potential alternatives, such as pure price regulation by authorities.

Whi le still limiting pharmaceut ical companies’ ability to determine prices of their new products freely, the AMNOG reinforces the application of German ant it rust law and European Publ ic Procurement Law for agreements between statutory health funds and pharmaceutical companies. Although for some time German antitrust law was considered inapplicable to such agreements, its applicability was reinforced in 2007 with the caveat that antitrust law—to the extent applicable—was largely to be applied by social security courts, which have a tendency to decide in favour of statutory health funds. Now, the AMNOG regulates that antitrust law shall again be applied by the antitrust chambers of ordinary courts. This will no doubt lead to a growing importance of antitrust law for agreements between large statutory health funds and smaller pharmaceutical companies.

What is also striking is that the price resulting from negotiations or an arbitrator’s decision will also apply to the approximately 12 per cent of the country that is privately insured. This is a major new development, one that private insurers will no doubt welcome. It marks a fundamental step toward overcoming the immense price differences currently existing between prices applicable to statutory health funds on one side and private payers/insurers on the other. In this respect the AMNOG marks another milestone. However, this milestone was supposed to be linked to another reform, which would have led to payers of higher taxes (who are often privately insured) contributing disproportionately to the financing of the statutory health fund system. The reform of the f inancing structures of the statutory health fund system was, however, largely blocked by a regional party in the German Government, as well as by the representation of state governments in the Upper Chamber of German Parliament.

Thus, while the new government has been fairly unsuccessful in reforming the financial basis of the statutory health fund system, it has successfully introduced landmark reforms to pharmaceutical pricing for statutory health funds and private insurances, as well as with respect to the importance of antitrust law. As a happy side effect, it appears to have achieved some of the reforms it was prevented from achieving earlier in the year.