Generics Provide Savings of 7.9 bil. Euro for Germany's Health Insurance Funds in 2009

A report published by Germany's generics industry association ProGenerica, based on IMS Health data, suggests that Germany's public health insurance funds (Gesetzlichen Krankenkassen, GKV) managed to generate savings of 7.9 billion euro (US$10.7 billion) thanks to increased generics consumption in 2009. In theory, says the report, generics could have triggered as much as 9.8 billion euro in savings if a 100% generic substitution rate had been achieved.

Contraction in Prices and Generics Prescribing Unlock Key Savings

According to ProGenerica, savings were mainly driven by higher price discrepancies between generic medicines and off-patent products; and by the success of cost-containment measures aimed at encouraging generic substitution. In 2009, generics accounted for 62% of all GKV prescriptions in the country, up from 61% in 2008. Meanwhile, generics products accounted for 81% of GKV generic and off-patent prescriptions, up from 78% the year before which means the substitution rate increased to 81% in 2009.

Cost-containment measures—including pricing pressure on generics and substitution of off-patent drugs—have recently been reinforced by the widespread use of mandatory rebate schemes among GKV funds in Germany. However, the effects of the generic rebate system were not included in the 7.9-billion-euro savings estimate. The rebate scheme allows healthcare insurers to seal exclusive supply contracts with generic drug makers which will offer the lowest prices on targeted products. In December 2009, nearly 96.4% of discounted contracts targeted generic products with, according to ProGenerica, 1.3% and 0.7% of contracts respectively targeting off-patent drugs and patented drugs.

GKV Spending on Pharmaceuticals Reaches 28.6 bil. Euro

In 2009, German public health insurance funds spent a total of 28.6 billion euro on pharmaceuticals, up 4.8% year-on-year. Increased consumption of generic medicines, up 5.3% y/y, did not offset additional spending induced by patented drugs, up 10% y/y to 16,741 billion. Pricing pressure on generics had a positive impact on the GKV budget as the discrepancy between prices of generics and off-patent brand-name treatments has, on average, increased. According to ProGenerika, the average retail price of one pack of generic drugs was equal to 19.12 euro in December 2009, while one pack of off-patent brand-name treatment was charged at 37.81 euro, thus almost twice as high as generic products. The same month, the retail price of one pack of patented drug was on average 110.92 euro.

Outlook and Implications

The unofficial reports come as the GKV indicated, after results from the first nine months of the year, that total spending of 167.3 billion euro will result in a deficit of 4 billion euro in 2009. Prospects are not better for the year ahead with a deficit estimated to reach 4 billion euro despite a 3.9-billion-euro tax subsidy granted by the German Government to help the GKV offset growing spending (see Germany: 10 December 2009: German Health Insurance Funds Face 4-bil.-Euro Deficit in 2010, Contributions to Rise).

Galloping healthcare expenditures and contraction of revenues have forced some health insurance funds to increase healthcare contributions in 2010. The announced 8-euro increase in healthcare contributions had more impact than one could imagine. A national debate—involving the government, pharmaceutical companies, pharmacists' associations and insurance funds—was organised at the beginning of 2010 with the clear objective to determine how to slash growing drug spending in the country. The new cost-containment measures in question will be unveiled in coming weeks by Germany's Health Minister Philippe Rösler (FDP).

In 2010, savings achieved through generic rebate contracts should represent a welcome relief for GKV funds. Even though the exact amount of savings are undisclosed, it is estimated that discounted contracts on generics should reduce state pharmaceutical expenditure by 1 billion euro (US$1.43 billion) per year (see Germany: 23 December 2009: German Pharmacists' Union Hails "Success Story" of Rebate Contracts, Saving US$1.43 bil. per Year). However, rebate contracts and generic substitution have so fair failed to counterbalance increased spending on new vaccines and other innovative medicines in the country where a profound reform is needed to keep finance under control (see Germany: 22 February 2010: Concerns Raised over Sharp Increase in Flu Vaccine Prices in Germany). The latter could see Germany amend the system of free pricing, which is increasingly perceived as a barrier to cutting drug expenditures on medicines.