Germany's GKV Health Insurers Finish 2008 in the Black Despite 5% Y/Y Rise in Drug Spending

GKV Surplus Lower Than Expected

Germany's public health insurance funds—collectively known as the Gesetzlichen Krankenversicherung (GKV)—defied expectations and ended 2008 with a surplus of 729 million euro (US$912.3 million), marking the fifth straight year that the system has finished in the black. Despite this, the surplus fell short of that achieved in 2007 by 1 billion euro. According to the Federal Health Ministry, the surplus was some 59.1% smaller than the 1.8 billion euro held in reserves at the end of 2007. Unconfirmed media reports last week suggested that the surplus would be closer to 1 billion euro (see Germany: 25 February 2009: Generics Trigger US$14.1 bil. in Savings for Germany's Health Insurance Funds in 2008). More than 200 health insurance funds make up the GKV, which saw a 3.8% year-on-year (y/y) rise in income to 161.7 billion euro in 2008; of this, 155.6 billion euro was sourced from salary-based subscriber contributions, which were also up 3.8% y/y. Total GKV spending, meanwhile, grew by 4.7% y/y to stand at 160.8 billion euro.

Spending on medicines purchased from pharmacies and other outlets grew by 5% y/y, and cost the GKV 29.2 billion euro. Expenditure on vaccines alone is understood to have grown by 10% y/y. If vaccines—which are more expensive than older and more traditional medicines—are excluded, drug spending growth amounted to 4.5% y/y. The ministry believes that this rate of growth is further evidence of the need for more cost-containment in drug spending, particularly via the generic rebate scheme, which industry association ProGenerika claims allowed the GKV to spend 11 billion euro less on generic drugs in 2008, compared with 2007. The AOK (Allgemeine Ortskrankenkasse), which is the largest of all the GKV funds, was the most active in terms of securing cut-price supply contracts with generic drug makers last year; it also brought in the largest surplus of any GKV fund, at 811 million euro. With the exception of treating patients overseas, all demands on the GKV budget saw growth in 2008, with a particularly strong 9.1% y/y increase in spending on sick pay.

Salary-based contributions to the GKV vary according to which fund the patient belongs to. For the GKV as a whole, the average contribution rate in 2008 was 14%, up from 13.9% in 2007. By 1 December 2008, the average GKV contribution rate had increased still further to 14.07%. A unified rate of 14.6% was introduced across all GKV funds from the beginning of 2009, although this is set to be reduced by 0.6 percentage points later this year (see Germany: 15 January 2009: GKV Contributions Lowered Under Germany's US$65.9-bil. Fiscal Stimulus Package).

Outlook and Implications

The Ministry of Health has identified several ways of reducing expenditure on medicine in 2009. The continuation and growth of the generic rebate scheme is likely to have the most tangible effect on drug makers, as it forces producers of generics and off-patent drugs to undercut each other on their product prices. Questions of long-term profitability are beginning to be asked by the industry, and a good barometer of change is the Netherlands, where the so-called preference policies system has resulted in greater generic-market penetration by volume, but dramatic reductions on affected medicines of up to 90% (see Netherlands: 23 February 2009: Health Insurers' Preference Policies Boost Netherlands Generic Market Penetration in 2008).

Another measure favoured by the German Ministry is better use of cost-benefit evaluations for new drugs. The Institute for Quality and Efficiency in Healthcare (IQWiG) is expected to finalise its revised cost-benefit appraisal system later this year, and new treatments will need to demonstrate tangible improvements in clinical benefits compared with existing drugs in order to remain reimbursed (see Germany: 23 October 2009: Few Changes in IQWiG's First Revision of Cost-Benefit Methodology). The ministry has said that evidence-based prescribing targets will be a priority for the public use of medicines this year. Elsewhere, spending on hospitals is expected to increase in the short term, under the hospital reform plan announced earlier this year (see Germany: 16 February 2009: Government Package Sees Germany's Public Hospitals Gain US$4.5 bil. in Extra Funding).