(The following was presented as a workshop at the ISPOR 9th Annual European Congress, Copenhagen, Denmark, 31 October 2006) 

Introduction
This article highlights existing hurdles and problems related to regulatory affairs beyond market approval regarding coverage, coding, prescription, and use of drugs within the German health care system.

On the whole, most regulations are described in the Social Code Book V (SGB V) for both the inpatient and outpatient sectors. Beside the SGB V directives there are several directives with relevance for the inpatient setting. In addition to the directives, negotiations may be organized separately between the providers and the Statutory Health Insurances (SHI). The fundamental impact of these negotiations for the health care industry can be seen by the fact that nearly 90% of the German population is insured by the SHI system and by the fact that the various insurances negotiate collectively and uniformly.

The 2x3x6 Matrix of the German Reimbursement Process
The reimbursement process for drugs can be demonstrated on the basis of a 2x3x6 matrix as shown in Figure 1. There are different reimbursement pathways for health care, devices, and drugs. Additionally, the inpatient sector is less regulated than the outpatient sector. As a third structural component policy makers use a variety of instruments per reimbursement hurdle, i.e. license, coverage, coding, payment, prescription and use.

The Main Issues
Firstly, some aspects can be outlined using this structural matrix. Basically, the license is important for all three products, i.e. health care, devices, and drugs. Secondly, decisions on coverage are inherent to the outpatient setting. As a third point, a proper coding option for the health care service is much more important for the inpatient setting than it is for the outpatient area.

With respect to any possible restrictions in the physicians' prescribing behaviour, the inpatient setting is controlled by drug lists (a so-called inhospital positive list); while in the outpatient setting restrictions are determined by physicians' budgets.

The Inpatient Setting
In order to gain deeper insight into the reimbursement process, let us start with the inpatient setting. While there is no dramatic hurdle regarding the coverage of drugs in the inpatient setting, proper coding is an interesting aspect. Generally speaking, the he German DRG-system is an evidence-based system. In 2004 more than 260 hospitals provided their real-life cost data to a database, which was used to value each DRG. The German DRG system 2007 defines 1035 DRGs and 105 so-called extra rates. Each DRG is a combination of several operation codes as well as indications. As the nomenclature of the indications is based on the International Classification Code of Diseases (ICD-10), there is little chance to influence this system. On the other hand it is possible to apply for the creation of a drug-specific code for the procedure itself, codified in the OPS code. Additionally, the combination of ICD-10 and OPS, as defined in the “DRG grouper” algorithms, is subject to yearly reviews.

Following the complex algorithm methodology, each DRG consists of a wide variance of constellations, sometimes with more than 20 different main ICD-10 and multivariate OPS codes. It turned out that the empirical database revealed a precise understanding of different cost items, resulting in a value per DRG. With respect to innovative and expensive pharmaceuticals hospitals may apply for extra rates besides the DRG. Examples of this are dose-dependent extra rates for Adalimumab, Doxorubicin, or Busulfan. It is the duty of the hospital pharmacies to decide on the drugs to be included in the hospital's pharmacy- list as well as on the purchasing.

The Outpatient Setting
As mentioned above, the reimbursement process for the outpatient setting is much more complicated. Figure 2 illustrates the key issues.

Basically, SHIs refund drugs approved by the Federal Institute of Pharmaceuticals and Medical Devices (BfArM) or the European Medicines Agency (EMEA). The Joint Federal Committee (GBA) is authorized to set limitations on coverage, if “there is no proof of diagnostic or therapeutic benefit, medical need, or efficiency on the basis of established medical experience” (§ {para} 92, 1 SGB {Social Code Book Five ("Sozialgesetzbuch")}). A second function of the G-BA is the definition of drugs, which are subject to fixed prices.

Figure 3 lists all the G-BA health policy instruments, codified in the pharmaceutical regulations and prepared by the G-BA subcommittee “Pharmaceuticals”.

Coverage of Pharmaceuticals in the Outpatient Setting
Unlike many other countries, Germany has no “positive” list of SHI-reimbursable pharmaceuticals. On the other hand there are several negative lists, which limit the coverage of drugs in the SHI benefit basket. These are now gaining attention. Since 2004 the SHI Modernization Act has introduced several substantial groups of excluded drugs:

So-called lifestyle drugs have been legally excluded from the benefit catalogue (Annex 8), e.g. antiobesity drugs such as the substance Rimonabant (G-BA suggestion dated October 17, subject to review by the Ministry of Health). Additionally, OTC drugs may no longer be reimbursed out of SHI funds, with some exceptions still to be defined by the G-BA. Two further negative lists (drugs for “trivial” diseases and “inefficient drugs”) complete the catalogue of excluded drugs.

Two new instruments were introduced in 2006: Annex 9 defines drugs eligible for off-label-use, e.g. Methotrexate and Doxorubicin to be used for the treatment of mamma carcinoma. Annex 10 lists drugs with a prescription ability following the assessment of the NICE-like Institute for Quality and Efficiency in Health Care (IQWiG). As a first milestone, this annex includes the negative decision regarding the coverage of insulin analogues for the treatment of diabetes mellitus.

Price Regulation of Pharmaceuticals in the Outpatient Setting
Besides the price regulations along the distribution chain that apply to the entire ambulatory pharmaceutical market, several price regulative instruments have been established by the G-BA, including rebates, reference pricing, and “aut idem” substitutes.

Reference Pricing
The system of reference pricing establishes an upper limit of sickness fund reimbursement, based on § 35 SGB V. The regulation stipulates that the reference price should be defined for drugs with the same or similar substances or with comparable efficacy. It is worth noting that very few drugs now exceed the reference price, because patients themselves have to pay the difference between the reference price and the market price, which they are not willing to do. If the efficacy or safety of an innovative drug is superior to that of an existing drug, manufacturers are free to set the price without regulatory interference.

Aut idem Rule
The principle of the aut idem rule is very simple: The pharmacist hands out substances instead of brands. The aut idem rule means, in brief, that the pharmacist substitutes a lower-priced but identical compound unless the physician has explicitly prohibited it. But in any case, the substitute has to be for the same indication. This is the most crucial point for substitution, as generics often have other indications.

Reduced Patient Co-payment
As a rule, the patient has to pay 10% of the overthe- counter price out of pocket, restricted to a co-payment of between a minimum of Û5, - and a maximum of Û10, - (§ 61 SGB V). Since April 2006 there has been no patient co-payment for fixed price drugs within the lowest third price category of drug classes/substances (§ 31 (4) SGB V). There is a list of several hundred brand names of drugs, which are subject to this regulation. In the first three months - between April and June 2006 - more than 600,000 prescriptions had no co-payment due to this new price instrument. Thus, this patient incentive (of co-payment exemption) proves to be an effective measure of cost-containment.

Spending Caps for Pharmaceuticals in the Outpatient Setting
Basically, the physician prescribes drugs and has the freedom of decision. Nevertheless, each outpatient physician is subject to two drug budget restrictions (§ 84 (7) SGB V), the Regional Budgets and the Benchmarks.

Regional Budgets
The regional physicians' associations and the associations of sickness funds are required to negotiate yearly budgets (“Ausgabenvolumina”), since otherwise they can be overruled by the self-governing SHI representatives at federal level and finally by the Federal Health Assembly.

According to the law, negotiations shall take into consideration, amongst other things, expected changes such as regional needs, price developments, including discounts or increased VAT, and shifts in the market, including the entry of innovative drugs or generics. Sanctions for exceeding drug budgets are not obligatory but the self-governing bodies are free to make use of them as a contractual component. The SHIs provide monthly reports as a prescription feedback to SHI affiliated physicians on the basis of so-called “GamSi” reports.

Benchmarks
Another restrictive instrument for spendingis the negotiation of benchmarks (“Richtgrößen”) per patient per physician within each regional physicians' association. Each physicians' association subtracts certain types of drugs and drugs for patients with certain indications (e.g. insulin, interferon for the treatment of multiple sclerosis, or anaesthetics for palliative care) from the yearly gross budget. Subsequently it allocates the remaining budget to different medical specialities. As a result, each medical speciality has a benchmark resulting in a target of how much can be prescribed per retired or non-retired person per year. The targets for individual physicians for the current year are calculated retrospectively by multiplying the total number of treated cases for each physician by the target of each specialty.

Individual Negotiations for Pharmaceuticals in the Outpatient Setting
One illustrative example for individual negotiations between regional SHI associations and the regional physicians' associations is the cooperation agreement between the AOK (a leading SHI) and the Physicians' Association (KV) Berlin in 2006: The AOK negotiates rebates for specific drugs with manufacturers, while the KV informs the participating physicians about these rebates. The physicians themselves prescribe these cheaper drugs and receive a percentage of savings due to the rebate negotiations. The agreement contract lists several substances, which involve such an incentive, such as Diclofenac, Enalapril, Ibuprofen, Methotrexate and Tamoxifen, just to give some examples.

Conclusions
The German reimbursement process for pharmaceuticals is changing dramatically at the moment. Most of the regulative instruments are legally binding. As a consequence, a large number of German patients are affected.

Thus, the development of a market (and marketing) strategy should consider reimbursement issues beyond a market license. The reimbursement research should include all the above mentioned hurdles, i.e. coverage, coding, payment, prescription, and use.

Focussing on the inpatient setting, the DRG coding methodology, the applications of extra rates, as well as the hospital controlling behaviour are decisive factors.

The ambulatory sector is much more regulated than the hospital sector. Manufacturers should watch the current negative lists, the reference price system, as well as physicians' constraints when prescribing drugs.

It is of crucial importance to conduct market research in a systematic and differentiated manner, focussing on specific drugs, with predefined clinical settings, and particular instruments of health policy.

On the basis of the legislative framework of the Social Code Book, the Federal Joint Committee (G-BA) issues directives relating to all sectors of care. The German Health Care Reform Act 2006 strengthens the role of the G-BA (§ 91 SGB V) and arranges the merger of SHI associations into a single umbrella association (§ 217 SGB V). This marked centralisation is generally regarded as a step towards a more state regulated medical system.