Reference prices and how they are set

Reference prices are price limits on certain pharmaceutical substance groups. They determine the maximum amount statutory health insurance providers will pay for a pharmaceutical of a certain substance group. The reference price group system was introduced by the Healthcare Reform Act (Gesundheitsreformgesetz, GRG) in 1988 to ensure long-term controls on increasing expenditures for pharmaceuticals. It is solely an instrument for regulating prices and does not place any restrictions or exclusions on prescriptions. According to a statement by the Central Federal Association of Health Insurance Funds in 2012, reference price grouping has resulted in annual savings of around 5.8 billion euros in expenditures on pharmaceuticals.

If a pharmaceutical company does not lower the price of a pharmaceutical to the reference price of the group the drug is classified under, insured persons must pay the price difference themselves.

How can patients avoid co-payment if the pharmaceutical company does not lower the price?

Physicians can prescribe an equally effective pharmaceutical without co-payments from the same reference price group, or offer another treatment option from the statutory health insurance schedule of benefits. This option always exists for pharmaceuticals in reference price groups, as an active ingredient may be allocated to a reference price group only if alternatives for medically necessary prescriptions are available (SGB V, section 35, paragraph 1, sentence 3). Pharmaceuticals with patented active ingredients, a novel mode of action, or a significant and proven therapeutic improvement such as fewer side effects cannot be assigned to a reference price group according to the G-BA rules of procedure.

In contrast to rebate contracts for pharmaceuticals with identical active ingredients, reference price pharmaceuticals must not be substituted in the pharmacy. A switch to an appropriate comparable pharmaceutical within the reference price group may be ordered only by the physician in agreement with the patient.

Who determines reference price groups and what is the procedure?

Reference prices are determined in a multi-phase procedure. The legal foundation for this procedure is the German Social Code, Book Five (SGB V), section 35.

a) Reference price grouping and specification of prescription-related average doses (G-BA)

First, the G-BA specifies groups of active ingredients for which reference prices can be set (appendix IX of the Pharmaceutical Directive). Reference price groups list active ingredients only, not branded or generic names of pharmaceuticals. Reference price groups are distinguished as follows:

  • Pharmaceuticals with identical active ingredients (level 1)
  • Pharmaceuticals with pharmacologically and therapeutically comparable active ingredients, particularly with chemically related substances (level 2)
  • Pharmaceuticals with therapeutically comparable effect, particularly combinations of pharmaceuticals (level 3)

The G-BA then specifies the necessary average daily, individual dose, or other appropriate prescription-related average doses to be used in later calculations of reference prices.

b) Calculation of reference prices (Central Association of Statutory Health Insurance Funds)

On the basis of these prescription-related average doses, the Central Association of Statutory Health Insurance Funds (the umbrella organization of statutory health insurance funds) then sets the reference prices. The statutory health insurance providers cover the costs for the active ingredient in question up to that amount.

c) Internet publication of the current reference prices (German Institute for Medical Documentation and Information, DIMDI)

The Central Association of Statutory Health Insurance Funds prepares regular overviews of all reference prices and the pharmaceuticals affected, and sends them to the German Institute for Medical Documentation and Information for publication in the Internet:

Regular monitoring of reference price groups and prescription-related average doses calculations (G-BA)

The Pharmaceutical Directive of the G-BA mandates that reference price groups must reflect the generally accepted medical state of the art, and must therefore be monitored regularly.

Prescription-related average doses must also be regularly updated based on the most recent annual data available (SGB V, section 84, paragraph 5). Appendix X of the Pharmaceutical Directive lists the reference price groups of pharmaceuticals for which the prescription-related average doses must be updated following the protocol specified in the Pharmaceutical Directive, section 43, and in the G-BA rules of procedure, section 6, chapter 4, appendix I).

Once the prescription-related average doses have been updated, the Central Association of Statutory Health Insurance Funds will usually adjust the reference price.

German and European high courts confirm constitutionality of reference price groups

How reference price groups are established has repeatedly been the subject of legal disputes in both civil and social courts. Drug manufacturers filed claims questioning the compatibility of key legal provisions of SGB V, sections 35 and 36, with German constitution law and European Union competition law. In its verdict of 17 December 2002 , the German Federal Constitutional Court concluded that the procedure for fixing reference prices is constitutional. Similarly, in 2004 the European Court of Justice also concluded that setting maximum prices for pharmaceuticals does not violate European laws on competition or monopolies.

Benefit assessments and the reference price grouping procedure in accordance with SGB V, section 35a

Since 1 January 2011, and in addition to the procedure thus far, a reference price group can be modified or a new reference price group can be formed in accordance with SGB V, section 35a.

For pharmaceuticals that are pharmacologically and therapeutically comparable to those in the reference price group, additional benefit must be demonstrated as a therapeutic improvement. If no therapeutic improvement has been established for a pharmaceutical with a new active ingredient, it must be allocated in the resolution (in accordance with SGB V, section 35a) to the reference price group with pharmacologically and therapeutically comparable pharmaceuticals (SGB V, section 35, paragraph 1). In its rules of procedure, the G-BA also specifies that if no additional benefit has been proved in accordance with SGB V, section 35a, the G-BA can examine the option of allocating the pharmaceutical with a new active ingredient to a level 3 reference price group, and if applicable, mandate this allocation by resolution in accordance with SGB V, section 35a, paragraph 3. In all other cases the G-BA will examine whether a level 2 or 3 reference price group can be formed.