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Germany’s Pricing Revolution: Why The World Should Be Watching

Germany’s new early-benefit assessment system for all new drugs launched since Jan. 1, 2011, radically changes the status of Europe’s largest market. It was once a bastion of free (and thus relatively high) pricing, which firms used to signal their drugs’ value to other markets. Now, prices of new drugs will be negotiated between sponsors and the country’s association of statutory sick funds, on the basis of an added-benefit score determined by the G-BA, or Federal Joint Committee. Since those net prices will be made public, and many other countries reference German prices, there’s a real risk of a downward price spiral across Europe.

2011 wasn’t a good year for drug firms in Germany. Europe’s largest market had been among the last bastions of free pricing in Europe, one where companies signaled what they felt was the value of their products to other markets. That’s all changed. Now, Germany’s authorities determine that value, by subjecting all drugs introduced since January 1, 2011, to a stringent benefit test relative to existing treatments.

Manufacturers can enjoy free pricing for up to a year, until the assessment process, which begins within three months of...

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