Global Insight Perspective | |
Significance | The public Procurement Chamber in Germany has suspended contracts affecting two-thirds of the 64 active ingredients covered by the AOK's latest round of cut-price supply tenders. |
Implications | The suspension is the result of a process review requested by drug makers that did not secure positions as AOK suppliers. This exclusion has the potential to see these firms lose out significantly in terms of reimbursable drug sales in Germany. |
Outlook | With hundreds of millions of euro expected to be saved through the AOK's generic rebate contracts, pressure from the Ministry of Health and the AOK to lift the suspension will be enormous, given the political repercussions caused by potential shortages of prescription drugs in pharmacies. |
Germany's Procurement Chamber has ordered the country's largest public health insurance fund, the AOK (Allgemeine Ortskrankenkasse), to suspend a significant proportion of its rebate contracts with generics suppliers, reports Pharmazeutische Zeitung. Generics industry association ProGenerika claims that up to two-thirds of the 64 active ingredients covered by the AOK's contracts have been affected by the freeze. The decision was reportedly made following a series of reviews on the bidding process for the contracts, requested by pharmaceutical companies that were not selected by the AOK to as supply partners. Further suspensions of the remaining contracts are also possible.
Under legislation in place since the start of 2008, all of Germany's public health insurance funds are meant to seek out contracts for bulk supplies of generic drugs from producers; the producers supply the treatments at discount prices in exchange for the medicines being the first choice of pharmacists to fill prescriptions. German law now stipulates that prescriptions for all reimbursable drugs with generic equivalents must be filled generically unless a patient's doctor specifically requests otherwise. To date, the AOK has been the most active of all the health insurers in taking up the practice, and because of its large remit—some 24 million people are insured through various branches of the AOK—drug companies are keen to secure their place as supply partners in order to benefit from guaranteed sales in a challenging market environment. Those that do not make it onto the list of contracted suppliers stand to lose out significantly in terms of reimbursed drug sales.
Earlier this year, the AOK began a Europe-wide search for supply partners under its newest round of tenders for generic rebate contracts (see Germany: 12 August 2008: AOK Casts Net Wide in Search for New Generic Rebate Partners). By early December, it emerged that players such as the European division of Dr Reddy's (India), Stada (Germany), KSK (Germany), and Teva (Israel) had all secured sizeable contracts with the insurance fund (see Germany: 11 December 2008: Teva Wins 20% of AOK Tenders and Germany: 3 December 2008: Ratiopharm Misses Out as AOK Signs Bulk Generic Supply Contracts for 2009).
Outlook and Implications
The main concern now, from the AOK's point of view, is the potential for serious delays in supplying essential medicines to pharmacies. The insurer's new round of contracts are due to take effect from 1 March 2009, and though the currently imposed suspensions are meant to be temporary in nature, any modifications to practice or paperwork requested by the Procurement Chamber might prove difficult for participating generics companies to implement before the deadline. The AOK has previously been accused by the Federal Cartel Office of acting in breach of German law on public tenders, but has also received support in several regional courts, and continues to maintain the line that since it is not a public company, it is exempt from national tender regulations (see Germany: 22 November 2007: Court Ruling Backs AOK's Controversial Drug-Price Rebate Scheme for 2008/09).
The latest setback to befall the generic rebate scheme appears to be motivated by concern from generics companies excluded from the AOK contracts. They are understandably fearful of heavy losses at a time of wider economic uncertainty. Yet with hundreds of millions of euro in public health expenditure expected to be saved through the AOK's generic rebate contracts alone, pressure to lift the suspension from both the Ministry of Health and the AOK itself will be enormous, particularly given the damaging political repercussions of potential prescription-drug shortages in German pharmacies. This clearly will not solve the problem of exclusion for non-participating drug makers, who now face a much more time-consuming effort in securing contracts with a host of smaller public health insurance funds. These firms are more likely to look outside of Germany to supplant their income by creating a sales presence in new markets using strategic investment and acquisitions.