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What the U.S. can learn from Germany on drug prices

An illustration of a hammer cracking a concrete pill.
Illustration: Sarah Grillo / Axios

Germany — the European country whose health care system is most similar to the U.S. system — seems to have found a way to regulate prescription drug prices without curbing its citizens' access to new, effective medicines.

Why it matters: While German-style drug pricing would be highly disruptive to the U.S. health system, the country's use of private insurers and its resistance to outright price-setting provides an illuminating case study.

How it works: The German system, unlike the U.S., tries to determine which drugs offer the most clinical benefit, and to pay them accordingly.

  • Most Germans get their health coverage from private nonprofit insurers called "sickness funds," as the LA Times' Noam Levey reported last month in a deep dive into the German system.
  • The sickness funds must cover a new drug at its list price for its first year on the market, as the drug's effectiveness is being assessed.
  • After that, an independent agency will issue a report on how well that drug works compared to what's already on the market. The U.S., in contrast, measures only whether a drug works — yes or no.
  • If the drug manufacturer can't prove that the drug is better than existing therapies, its price can't be any higher than the comparable drugs.
  • If the drug is better, then the manufacturer negotiates a price with the sickness funds, which negotiate collectively to maximize their leverage. If they can't agree on a price, the negotiation goes to arbitration.

Although many new drugs have exited the German market since this system was implemented, the vast majority of them were found to have no benefit above comparable drugs already on the market, according to a recent study in Health Affairs.

  • "It does not appear to be the case that the introduction of a benefit assessment (and subsequent price negotiations) led to decreased access to the types of novel therapies that provide important clinical value," the paper's authors write.

What they're saying: The U.S. may be able to learn from Germany's decisions to postpone price regulation until after a drug's effectiveness has been evaluated and to base price negotiations on evidence, said lead author of the study, Ariel Stern of Harvard Business School.

Yes, but: "All of this hinges on having a trustworthy, adequately funded, independent body that can carry out the benefit assessment early in a new drug’s time on the market," Stern said.

  • And German insurers' collective negotiations are "quite different from the US, where drug price negotiations with manufacturers are fragmented, and often intermediated by pharmacy benefit managers," she added.