Germany's Bundesrat Rejects Attempts to Limit Rebate Contracts on Generics

The plenum of the Federal Council (Bundesrat) of Germany on 30 March rejected a recommendation by its Economic Committee to introduce a two-year discount grace period for off-patent medicines, reports the national specialised paper Deutsche Apotheker Zeitung. The proposal consisted of prohibiting the signing of discounted agreements during a two-year period following patent expiration.

Birgit Fischer, head of the Association of Research-Based Pharmaceutical Companies (VFA), said in a statement that sick funds sign rebate contracts in the interest of insured people, although manufacturers do so to capture market share. In her view, "it would be absurd to prevent this rational economic behaviour" as efficiency is achieved through competition, not through "prohibition and protective walls". In a press release issued before the 30 March session, Uwe Deh, Executive Director of the AOK, one of the largest statutory health insurance funds in Germany, asked members of the Bundesrat to reject the proposal, accusing major generic drug makers of lobbying the political community. The decision to grant a two-year discount grace period would be nothing more than "a licence to print money" for leading generic drug firms, said Deh. In response to the AOK's attack, Germany's generic association, Pro Generika, reacted through its CEO Bork Bretthauer, saying that discount agreement policies targeting a short-term effect tend to hinder generic competition.

Outlook and Implications

The passing of such law would have been a small revolution in the large German generics market. In light of the EUR1.6-billion (USD2.1-billion) savings achieved last year thanks to discount contracts and in anticipation of the series of major patent expiries that will occur in 2012–13, it is understandable that the generics industry is pushing for a two-year discount grace period, during which they would have been able to capture as much revenue as possible. Germany's rebate scheme allowed sick funds to save EUR1.6 billion during 2011 in a generic market that was worth EUR4.2 billion. The AOK, which is the most virulent defender of rebate contracts among sick funds in Germany, recently launched a new wave of discounted agreements. The AOK's rebates are expected to trigger global savings of up to EUR1 billion during 2012.

The generic market in Germany is known to be a difficult market by generic makers worldwide. The Bundesrat's refusal to limit the extent of rebate contracts and the strong reactions that have preceded and followed suggest that pressure on generic drug makers will not cool down in the short-to-medium term in the country. IHS Global Insight expects higher savings for the statutory health insurance going forward, with 2012 savings that could attain the EUR1.6–1.8 billion range.