Germany's Decision Rule for Setting Ceiling Prices of Drugs

By Gandjour, Afschin | Applied Health Economics and Health Policy, March 2011 | Go to article overview

Germany's Decision Rule for Setting Ceiling Prices of Drugs


Gandjour, Afschin, Applied Health Economics and Health Policy


Several countries have been using pharmacoeconomics as part of their formal decision-making process for the pricing or reimbursement of drugs.[1] Australia was the first jurisdiction to adopt such a policy, in 1993, and was quickly followed by New Zealand and several Canadian provinces.[1] In addition, several European countries now request economic submissions for some, or all, new drugs.[1]

In Germany, drug makers have a year from the introduction of a new drug to negotiate a price with health insurers. If a price cannot be agreed upon, the Institute for Quality and Efficiency in Health Care (Institut für Qualität und Wirtschaftlichkeit im Gesundheitswesen; IQWiG) makes a recommendation for a ceiling price based on an evaluation of the relationship between costs and effectiveness.[2] If the price of a drug is above the ceiling price, patients need to pay the difference out of pocket. Comparators of the drug do not need to be drugs, but can be any health intervention. To recommend ceiling prices, IQWiG uses a decision rule1 (henceforth called 'proportional' rule), which comes in three variants. In the base case, the incremental cost-effectiveness ratio (ICER) of a new drug compared with the next effective intervention should not be higher than that of the next effective intervention compared with its next effective intervention (IQWiG,[2] p. viii). That is, incremental costs (compared with the comparator's comparator) should increase, at most, proportionally to incremental effects.

Thus, if we place the various alternatives on a cost-effectiveness plane (figure 1a and 1b), and draw an 'efficiency frontier' along non-dominated alternatives (A and B in the figure), the threshold ICER and thus the ceiling price C" is determined by an extension of the last segment of the efficiency frontier (from A to B). Stricter variations of the base-case rule (leading to lower ceiling prices) exist and derive threshold cost effectiveness from either (i) the ICER of the currently most effective intervention 'B' compared with no intervention (henceforth called 'no intervention' rule and leading to C') [IQWiG,[2] p. ix] or (ii) the average ICER of all non-dominated alternatives (IQWiG,[2] p. ix).

Fig. 1 Decision rules for setting ceiling prices of drugs. A, B and X are cost and effect pairs of existing interventions and C, C' and C" are cost and effect pairs of the new drug. (a) Institute for Quality and Efficiency in Health Care (IQWiG) decision rule with costs on the x-axis and effects on the y-axis as proposed by IQWiG.[2] (b) IQWiG decision rule with effects on the x-axis and costs on the y-axis in line with international convention. (c) Absolute decision rule. The slope of C vs B corresponds to the absolute cost-effectiveness threshold and is independent of the cost effectiveness of B vs no intervention or B vs A. (d) Semi-absolute decision rule. Cost effectiveness of C vs B depends on the incremental costs and effects of B vs no intervention. [Figure omitted.]

As IQWiG's rule does not start from a fixed budget, each therapeutic area is assessed separately; this means that no direct comparisons between therapeutic areas are performed. Table I compares Germany's proportional decision rule for drug pricing with decision rules in Australia, England and New Zealand.

Table I. Decision rules for drug pricing/reimbursement in Australia, England, Germany and New Zealand. Note that all four countries also consider criteria other than cost effectiveness for pricing/reimbursement[3] [Table omitted.]

While IQWiG's decision rule has received a lot of attention and criticism,[5-7] its underlying ethical values remain to be investigated. In an ideal world, one would start with defining an overall goal for the healthcare system, possibly elicit population values, and then derive the corresponding decision rule. However, in Germany, the goal of the healthcare system is only vaguely described - by Social Law - as the promotion of health under consideration of efficiency and personal responsibility (§11 and §12 SGB V 1988). …

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