Contract strategies in the drug sector from the perspective of a service provider for health insurance companies

Regardless of party political affiliation, political reform projects aim to realize potential for efficiency and effectiveness in statutory health insurance (GKV). The ongoing flow of reforms is accompanied by demands from the affected service providers for fair and reasonable prices. In most sectors of the social market economy, society relies on the positive interaction of supply and demand. In the areas of the health market covered by the GKV, the services offered and their prices are largely determined by the public sector. Interestingly, one of the few exceptions to this principle is patent-protected medicines. These are predominantly developed by a few large international corporations under strong patent protection and therefore represent effective temporary monopolies - which is reflected in the manufacturers' pricing strategies. In inherently more intense market competition, such as those for generic pharmaceuticals and medical aids, the legislature prefers pricing and other state regulatory instruments. Market economy-oriented reform attempts, such as the possibility of discount agreements between manufacturers and health insurance companies, are accompanied by resistance from those who could live well with the previous status and fear a deterioration. The current debate about reforms in the pharmaceutical sector can serve as evidence here. The free selection of medicines by health insurance companies for the care of their insured persons would certainly be a highly efficient means of reducing costs. Pharmaceutical manufacturers are understandably reluctant to completely expose themselves to this free play of market forces. This can also be justified by pointing to society's desire to always have practically every available drug therapy available to everyone. This claim is incompatible with reasonable prices - such as those that would arise in a free market economy.

>> In this regulatory network of market and planned economies, the demand for service companies to support health insurance companies has arisen. These combine technical expertise with the organization of a higher volume of demand. The role of a service provider such as GWQ (Society for Efficiency and Quality in Health Insurance Companies) ServicePlus AG in relation to the pharmaceutical sector will be examined below.
Contracts for family doctor-centered care (HZV) and the medication module
The year 2010 will go down in the history of the GKV as the year of family doctor-centered care. Essentially starting in southern Germany, the new form of care will be rolled out across Germany. After the basic arrangements have been established as part of the first contracts or arbitration awards, the contracting parties now face the task of filling them with life.
The “drug module” plays a special role in selective contracts with general practitioners. Here, doctors receive separate remuneration depending on the fulfillment of jointly defined goals in the drug prescription. The doctors are supported by an additional module to the practice software. Health insurance companies have several tasks to do:

1. Analysis of drug data and formulation of requests for changes in doctors' prescribing behavior.
2. Setting realistic goals for drug prescription together with doctors. These can be maximum quotas for “me-too” preparations or an increased proportion of generics with which the health insurance companies have concluded discount agreements. The differences in the discount contract strategies of the health insurance companies can become a problem here, because it is easier for doctors to implement a “wish list” from the health insurance companies that is as uniform as possible.
3. Support with the technical implementation in the practice software and creation of various drug lists. Synchronization with the reporting of discounted preparations in the pharmacy software plays a crucial role.
4. Constant updating of the lists of participating health insurance companies and medications. The agreed goals and the remuneration of doctors must be continually adjusted and revised.
In all four areas, cross-cash coordination is advisable or even necessary in at least some aspects. In view of the still three-digit number of health insurance companies, it is therefore practically unavoidable that the smaller and medium-sized health insurance companies in many cases use their associations and service providers such as GWQ ServicePlus AG. These have the advantage that they also administer the discount agreements with the pharmaceutical industry and therefore have both the technical expertise and can provide the data basis for the software. From the service provider's perspective, the supporting activity in the HZV drug module is to be understood as an additional service to the main product “discount contracts”.
Drug discount agreements
§ 130a Paragraph 8 SGB V
At over 32 billion euros, drug supply is one of the largest sources of revenue in the area of statutory health insurance and is therefore roughly on a par with medical expenses. Since 2003, health insurance companies have been able to conclude individual discount agreements with drug manufacturers. These initially remained very limited in economic significance. The discount agreements only became truly effective with the GKV Competition Strengthening Act (GKV-WSG) in 2007. This obliged pharmacies to give priority to selling medicines from manufacturers with whom the respective health insurance company had concluded a discount agreement. Since then, the possibility of discount contracts created by the legislature in accordance with Section 130a Paragraph 8 SGB V has been used to a considerable extent by health insurance companies as a tool to reduce costs. Not only the health insurance companies themselves, but also service providers such as spectrum|K GmbH or GWQ ServicePlus AG conclude and administer these discount contracts for health insurance companies. This includes negotiating the contract, maintaining the contract with all adjustments, reporting the contract to the GKV head office and billing via a trust process.
At the beginning of 2010 there were around 10,000 discount contracts (Pro Generika short analysis 2009, own data). As a technical basis, the GKV head office provides pharmacies with well over 1 million data sets every month via their software providers. This “discount report” represents the technical basis for the functioning of the contracts. This number illustrates the considerable effort for this cost containment instrument on both the health insurance and pharmacy sides. There are good reasons for this: In contrast to uniform fixed amounts, individual contractual regulations enable the health insurance company to position itself individually in the market:
Health insurance companies that spend little on generics are more willing to offer their policyholders a very wide range of discounted drugs. Health insurance companies with high regional market power and high expenses are more likely to prefer a strategy of cost optimization, even if this can lead to policyholders switching their usual preparation more often. The main argument for the discount agreements is certainly financial: the discount revenues can be estimated at over 1 billion euros per year (extrapolation from GWQ billing data from 2009).
Economic fundamentals of
drug discount agreements
Since the price of the drug included in a discount agreement is reduced, the amount of redirection realized determines whether the discount is also worthwhile for the manufacturer. If he succeeds in overcompensating for the price reduction, he can generate additional revenue. An often underestimated aspect here is the ability to plan sales for the manufacturer. This is a particular problem with tenders with “multiple awards”. The sales of a manufacturer who has been awarded the award depends primarily on its three or four competitors who have also been awarded the award. At the time he submits his offer, these are of course still unknown to him. This fact is of course taken into account when calculating the offer price. Manufacturers have greater planning security when it comes to tenders from AOK, TK and GWQ. The advantage of the first two is the large market share represented by these cash registers. So far, the AOKen have not been restricted in their outstanding market position by antitrust law. However, according to BMG plans, this could change in the near future (BMG key issues paper, 2010).
Drug tenders
The legal basis for the awarding of discount contracts by health insurance companies has not yet been clarified in detail. First of all, the contracts are usually concluded freely without a formal tender for a manufacturer's entire portfolio. This was supplemented to varying degrees by tenders. There were numerous legal disputes surrounding these tenders (Meyer-Hofmann and Hahn, 2010).
However, several active ingredient-related tendering models have now been established. In principle, you can achieve higher discounts in tenders than in direct contracts for the entire portfolio. However, when it comes to tenders, it is often difficult to get the discount contract partner to actually get the pharmacist to dispense the goods. The effectiveness of contracts is limited by problems in compliance, the pharmacist's own economic interests and a lack of commitment regarding the interchangeability of preparations or gaps in the discount partner's offer for certain strengths or pack sizes. Simply looking at the highest discount rate is not helpful here.
The GWQ cash registers strengthened their market position with the promise of a sales guarantee and were thus able to compensate for their size-related disadvantage with 77 % average discounts (sales-weighted, without statutory compulsory discounts) (own information).
A desired positive side effect here is the decoupling of the tender from the technical discount reporting process: While health insurance companies usually promise a specific process for promoting sales by exclusively reporting the discount medicines in the pharmacists' software, with the GWQ process the path to sales promotion remains open, but is instead Tender winners are guaranteed an explicit sales target within a certain period of time. As a result, for technical and legal reasons, there are differences in the discount reporting to pharmacies between GWQ health insurance funds and the other health insurance funds: Usually, when an active ingredient is advertised, only the preparations from the tender winner are reported in the pharmacy software. However, the tender winners almost never cover the entire range of application forms and dosages in an active ingredient area. So parts of the active ingredient lot remain unrebated. The more active ingredients are advertised and the lower the minimum requirements for the manufacturers in terms of pack size and amount of active ingredients, the greater this effect becomes. This negative consequence for health insurance companies is particularly pronounced in the case of low-sales active ingredients and tenders with “multiple surcharges”: In order to have enough competitors per active ingredient lot, these health insurance companies have to keep the minimum requirements for manufacturers particularly low. Accordingly, only some of the different active ingredient strengths and pack sizes are actually discounted. With the GWQ funds, however, the so-called “portfolio discount agreements” can still be taken into account, at least in part, in the advertised active ingredients. The creation of the discount report depends on the actual tender winner, the interchangeability of his products with those of the competitors and the degree to which the guaranteed sales target has been met.
However, the additional economic success for the health insurance companies is also offset by considerable administrative effort for the service provider responsible for reporting the discount. This process also makes individual cash register solutions possible. This is also necessary from a service provider's perspective in order to take into account the respective insured and cost structure of a fund.
Portfolio contracts
In the case of the so-called “portfolio contracts”, which were usually awarded without a tender (the exception is the BAHN-BKK tender from 2007), securing sales rather than increasing sales often plays the main role. A manufacturer secures its future sales by making price concessions. Therefore, it is an “entry ticket into the market” as a result of an economic constraint. The comparatively easy sales planning is also an important motive for the manufacturer to conclude the contract. Unlike most tenders, the competitors here are generally known. In relation to the large number of preparations, the administration costs are quite low. Changed or new preparations are usually immediately included in the discount notification to the pharmacies and in the billing without any contractual adjustment. Health insurance companies that have only concluded a discount agreement with a few manufacturers and have guaranteed limited exclusivity may be able to achieve slightly higher discounts. However, such a strategy is vulnerable to legal attacks from manufacturers who are not contractual partners. Here, affected companies can take legal action against the de facto market access restriction with reference to public procurement law. As a result, health insurance companies with such an exclusive strategy occasionally have problems making these “automatically” part of the contract, especially with economically interesting new offers. Furthermore, these health insurance companies put a lot of effort into communicating to their insured persons the reason for the restriction of the range of medicines and actually enforcing these discount agreements in the pharmacies. The situation is different with the health insurance companies, which have concluded discount agreements with practically all market participants for the respective ranges, with the exception of the areas affected by tenders. From the perspective of the insured, a similar situation has been achieved here as in the period before 2007: Practically every patient can keep their usual preparation and the pharmacist will in almost every case always offer a discount agreement in favor of the health insurance company. Although this contract strategy should theoretically be accompanied by smaller discounts, these relate to a much larger share of sales. There is hardly any undiscounted market share for generics anymore. By not restricting market access, the health insurance companies have largely gotten rid of the procurement law problems. The AOKen and also the GWQ health insurance companies pursue this concept. The balance between tenders and portfolio contracts at health insurance companies is also important and constantly under discussion. High discount rates can usually be achieved through tenders, but on the other hand these often only relate to a part of the actual sales in an active ingredient lot. With broad portfolio contracts, you can cover the entire range of an active ingredient lot with discounted products, but at the expense of the discount amount. Some health insurance companies such as BARMER GEK still rely entirely on portfolio contracts, others such as DAK or the
AOKen, on the other hand, relies largely on the tender. The GWQ cash registers occupy a middle position here.
Discount contracts for patent-protected ones
medicines
Not only the generic market, but also the patent-protected market is an important area for discount agreements. However, the competitive situation here is of course completely different: there is no exchange obligation on the part of the pharmacist to enforce the discount agreement. Only in the area of imports is there a legally unclear situation (framework agreement according to §129 SGB V, 2010). This could change as a result of current legal initiatives by the BMG in favor of discount contract partners and to the detriment of importers. Manufacturers with a high proportion of imports are often willing to conclude discount agreements with health insurance companies in order to improve their situation. Despite the uncertain legal basis, these contracts have had practical success. Examples of this are contracts for the antiepileptic drug “Keppra” from UCB or the antidiabetic drug “Actos” from Takeda and “Saizen” from Merck (German Pharmacy Portal, 2010).
In some cases, discount agreements are also implemented in the area of patented medicines in later life cycle phases. This reduces the need for doctors to switch the drug treatment of their patients from the original preparations to generics (Schumacher et al. in “Die Krankenversicherung” 2009). In addition, some original manufacturers can offer health insurance companies an interesting product mix of original products and generic preparations, as the range contracts of the replacement insurance companies show. Examples of this are the original suppliers Sanofi-Aventis and Novartis with their generic subsidiaries Winthrop as well as Sandoz and Hexal. For example, these companies have the option of offering both patent-protected original preparations and generic products and thereby gaining advantages over generic competitors (Schumacher et al. 2009). Discounts can also help to keep the list price high in order to maintain the price level in reference price systems. This is an important aspect for the original manufacturers and may also have motivated the BMG in its reform planning to rely more on discounts than on government price interventions. Overall, the importance of discount agreements in the area of patent-protected preparations is still comparatively small and barely accounts for 10 % of the discount revenues in the generic area. However, especially in view of the next planned steps by the legislature (key points paper of the BMG, 2010), the importance could increase significantly. Health insurance service providers such as GWQ have the task of advising health insurance companies individually on possible discount agreements, negotiating and processing them. The prerequisite here is knowledge of the motives of the respective discount contract partners. Only if both contractual partners generate sustainable success from these contracts will they have a future. The losers of such a discount agreement are the respective competitors. In the future, discount agreements could also be concluded with the aim of achieving long-term savings, for example in hospital costs, through potentially more expensive drug therapy. Coupling with selective contracts starting with the HZV drug module can offer interesting approaches here. However, this requires a certain willingness to take risks on both sides and also effective contract controlling. <<