Impact of Germany's healthcare reform on the pharmaceutical industry

• Germany's healthcare reform is having a major impact on pharmaceutical product sales – Innovative medications also effected
• Pharmaceutical manufacturers must adapt their sales and marketing activities to the new conditions

Germany's healthcare reforms pose a major challenge to the pharmaceutical industry: many medications are being put to the test. In the future, reimbursement will be based not only on therapeutic benefit, but also on value for money. According to an analysis by Roland Berger Strategy Consultants, this new regulation alone will effect the top 100 drugs, which account for 37% of total sales. Another rule stipulates that in addition to physicians, hospitals, patient and health insurance associations and regulatory authorities now have an influence on the prescription and pricing of prescription drugs. This means that drugs no longer on hospitals' lists will no longer be prescribed, which could affect up to 85% of the top 100 drugs' sales. To respond to the changes, pharmaceutical companies must rethink their marketing and sales business models. By analyzing which of the new regulations impact sales, manufacturers can focus specifically on new target groups.

"Healthcare reform has put pharmaceutical companies under pressure," says Stephan Danner, Partner at Roland Berger Strategy Consultants' Pharma & Healthcare Competence Center. The cost/benefit ratio is playing an increasingly important role in the selection and approval of drugs. As a result, pharmaceutical companies are obliged to justify high prices for niche medicines and therapies, for instance for cancer treatment. What is more, cheaper foreign providers are threatening German industry leaders. "Cost intensive innovations will only remain possible if the industry succeeds in adapting to the new requirements," says Danner.

Pharmaceutical industry has many new target groups

Prior to Germany' healthcare reform, physicians assumed responsibility for selecting drugs, but other groups and actors now have considerable influence over what gets prescribed and at what cost. Statutory health insurance providers, which previously influenced drug selection through reimbursement, now play a bigger role. Hospitals, retailers (pharmacies and wholesalers), patient and health insurance associations as well as regulatory authorities such as the Institute for Quality and Efficiency in Health Care (IQWiG) and the Federal Joint Committee are now also involved.

The IQWiG's main task is to assess whether new drugs add value compared with products already on the market. It also assesses value for money. In particular, medications used to treat diabetes or hypertension and expensive special formulas will be examined. If they are too expensive, they will no longer be reimbursed. Since the reform, large statutory health insurance providers have been signing discount agreements with pharmaceutical companies, increasingly also with foreign manufacturers.

Pharmaceutical companies must assess whether their portfolios are at risk

Pharmaceutical expert Stephan Danner explains that "pharmaceutical manufacturers must examine how healthcare reform is affecting their product portfolio." They must determine which of their products' sales could be threatened by changes in the market and which actors are especially important for their products. Once they have done this, they need to come up with customized support and marketing strategies. "The pharmaceutical industry must rethink its sales strategy while at the same time meeting the expectations and requirements of new market participants," Danner says.

In order to illustrate the impact of healthcare reform on the pharmaceutical industry, Roland Berger Strategy Consultants conducted a quantitative analysis of the prescription drug market. The results show that "Sales in most product groups, including generics and innovations, are affected by healthcare reform in some way or other," says Dr. Morris Hosseini, Project Manager at Roland Berger Strategy Consultants' Pharma & Healthcare Competence Center.

Pharmaceutical industry needs new business models

37% of the top 100 drugs' sales are affected by the new value for money assessment. Flexible price and discount agreements affect 68%, and the drug lists of hospital and health insurance providers affect up to 85% of the top 100 drugs' sales.
Set fees that are determined by the Federal Joint Committee affect drugs that make up approximately 62% of sales. The obligation to get a second opinion for new and expensive drugs (18%) and reimbursement limits (21%) could also have a significant impact on sales.

To sum up, Stephan Danner says that "pharmaceutical manufacturers must rethink their business models in the areas of key account management, market access, pricing and pharmaceutical economics. Once they have done this, they can successfully implement marketing and sales strategies that are customized to increasingly regional markets with new customer groups".