By Ludwig Burger and Thorsten Severin
FRANKFURT/BERLIN (Reuters) - Germany's plan to publish price discounts agreed with drugmakers poses a risk to profits in the industry, which fears the information could be used to drive down prices elsewhere.
Germany, Europe's biggest market for medicines, is already one of the toughest for pharmaceutical companies, in part because statutory health insurers club together to increase their bargaining power in price negotiations with the industry.
Now, in its latest drive to curb rising healthcare costs, Berlin has drafted new rules that will blow the lid on the previously confidential discounts the insurers win. Discounts vary widely, but can be around 20 percent off drugmakers' list prices.
The aim of the new law, which could come into force as soon as April, is to stop wholesalers and pharmacies from basing their margins on list prices rather than the discounted prices.
But the pharma industry fears publishing the discounts could trigger price falls elsewhere as dozens of healthcare agencies in Europe and as far as Japan use German prices as references for their own. Countries which have so far used list prices in Germany could switch to discounted prices as the new standard.
That would pile extra pain onto an industry already under pressure to provide keen value to Europe's socialized healthcare systems in the wake of the region's debt crisis. Britain, for example, struck a tough deal with drugmakers in November to hold flat the amount its state health service spends on branded medicine for the next two years.
"Right now, the negotiated (discounted) price is not readily available information. I think pharma companies have a point in demanding that it stays that way," said Ulrich Huwald, a sector analyst at brokerage M. M. Warburg. "They have a right to confidentiality and more disclosure would hurt their business."
Some executives believe the risk to drugmakers is such they may increasingly skip Germany when bringing new drugs to market rather than letting the German price become the norm elsewhere.
"There could be an increasing number of opt-out decisions," said Hagen Pfundner, the chairman of Germany's pharma lobby VFA and head of Swiss drugmaker Roche's German unit.
But drugmakers will be reluctant to miss out on the world's third-largest pharma market which, according to healthcare information firm IMS Health, was worth $42 billion in 2012.
Uncertainty over pricing in Germany led Deutsche Bank analysts to describe the country as the "wild card" in the European pharma landscape in its 2014 outlook for industry.
The German pharma market underwent a sea change three years ago when Berlin allowed statutory medical insurers working through the Federal Joint Committee, or G-BA, to pool their bargaining power in price talks with the drugs industry.
Statutory insurers pay medical bills for about nine out of 10 Germans and the private insurers who cover the rest use the same prices.
The insurers follow the lead of the Institute for Quality and Efficiency in Health Care (IQWiG), an advisory panel of medical experts, which assesses the "additional benefit" of new drugs over existing ones.
Like Britain's National Institute for Health and Clinical Excellence (NICE), Germany's IQWiG presents an additional hurdle for drugmakers whose products have already been licensed by European regulators.
IQWiG has a history of discounting statistical evidence previously acknowledged by the EU regulator. It even spurned several newly approved drugs as no better than established therapies available as cheap generics, prompting the insurance body to offer sharply lower prices.
As a result of the tough stance, drugmakers have over the past three years kept a total of six new drugs off the German market, which is home to pharma majors such as Bayer, Boehringer Ingelheim and Merck KGaA.
These drugs include potential blockbusters such as AstraZeneca's new diabetes treatment dapagliflozin, branded as Forxiga, which is expected to gross more than $1 billion globally by 2019.
Eli Lilly and Boehringer also declined to launch another diabetes drug, Trajenta, because of low prices.
The pharma industry believes German patients could miss out on many more new medicines if companies face the risk of low prices in Germany becoming the benchmark across the world.
However, IQWiG and the German government believe they are simply ensuring they get the best value for money.
Chancellor Angela Merkel's government coalition partner, the Social Democrats, has also said it would be unfair to poorer European neighbors such as Greece if their health authorities' based drug reimbursement on "artificially inflated prices".
The government argues as well that foreign authorities already have means to find out negotiated price discounts.
"I don't fully understand what the fuss is about," said Jens Spahn, the speaker for health affairs in the parliamentary group of Chancellor Merkel's conservatives.
But the pharma industry fears putting discounted prices on public display in Germany could be all it takes to upset a system of cross-border price referencing that has so far been based on list prices.
($1 = 0.7317 euros)
(Additional reporting by Ben Hirschler in London and Frank Siebelt in Frankfurt; Editing by Mark Potter)