IHS Global Insight Perspective | |
Significance | A state court review has found that Germany's largest public health insurer, the AOK, has not breached federal law on awarding supply contracts. |
Implications | The review is the first of a series of cases brought against the AOK by generics companies that say they were unfairly excluded from the chance to sign a supply deal with the insurer. The AOK needs to win the remaining cases in order to start reimbursing cut-price generic drugs by 1 March. |
Outlook | Given the importance of generic rebates to Germany's health cost-cutting strategy, and the danger of a supply shortage if the contracts remain frozen, courts should rule in favour of the AOK. This will leave generic drug makers with little option but to seek contracts with smaller funds, and to slash their prices further in the hopes of securing an eventual deal with the AOK. |
Germany's largest public health insurance fund, the Allgemeine Ortskrankenkassen (AOK) has triumphed in an initial legal battle with an unnamed drug maker that claimed the insurer had unfairly excluded it from a lucrative supply scheme for cut-price generic medicines. According to Reuters, the firm in question had accused the AOK of infringing the rights of small and medium-sized enterprises to receive such contracts under state law.
The case, held at the State Social Court in Baden-Württemberg, is the first of what is anticipated to be a series of court battles fought by the AOK as it seeks to defend the generic drug-supply contracts it signed last year, which are due to take effect from 1 March 2009. In December, Germany's Procurement Chamber ordered the AOK to suspend two-thirds of its 2009 supply contracts—which cover some 64 active ingredients, and are collectively valued at 2.3 billion euro (US$3 billion)—after producers that failed to be selected by the insurer demanded an official review into the AOK's selection process (see Germany: 17 December 2008: Court Orders AOK to Suspend Two-Thirds of Generic Rebate Contracts).
Under legislation in place since the start of 2008, Germany's public health-insurance funds are meant to seek out supply contracts from generics producers that agree to sell their treatments at reduced prices in exchange for the guarantee of preferential status at the pharmacy level when prescriptions are being filled. As the largest of Germany's public health-insurance funds, covering over 24 million people, the AOK is seen as the most lucrative insurer with which to sign such a contract. The policy was meant to promote more pricing competition among generics players, in order to help reduce public expenditure on medicines, yet while companies have been battling to undercut each other's prices, newly approved vaccines and other innovative treatments on the market have negated the overall savings effect (see Germany: 13 March 2008: January Spending on Vaccines More Than Doubles in Germany).
The country's generics industry association, ProGenerika, is backing the firms seeking a review of the AOK's tender procedure, and has warned the insurer not to presume that this legal victory necessarily implies that all 64 of its supply contracts will be granted freedom to proceed from 1 March. According to ProGenerika, whereas the case reviewed by the State Social Court in Baden-Württemberg revolved around laws on tender procedures, many others made allegations of cartel-forming behaviour on the part of the AOK.
Outlook and Implications
ProGenerika is correct that the outcome of the first AOK case will not necessarily reflect similar verdicts on forthcoming cases that argue that different laws have been breached. However, the AOK has already won similar cases in the past, and has the advantage of being able to say that it is merely following a federal policy on cut-price generic supply contracts. If the AOK loses more than a handful of cases against it, the Ministry of Health will need to revisit the generic-rebate policy, and seek to close any anti-competitive loopholes. In the meantime, only one of the 64 active ingredients reimbursed by the AOK is now guaranteed to be supplied at discounted prices from 1 March, leaving the insurer with just weeks to settle its outstanding cases. Given the importance of the scheme to the Ministry's strategy of reducing health expenditure, as well as the danger of a supply shortage if the contracts remain frozen and no new ones are signed to replace them, state courts may well rule in favour of the insurance fund. This will leave generic drug-makers with little option but to seek contracts with smaller funds, and to consider slashing their prices still further in order to be considered by the AOK at a future date.