2000-09: Reimbursement and pricing of medical devices in Germany

Wiesbaden/Germany, Summer 2000
(last revision: September 2000)
by Joachim M. Schmitt , Director General, BVMed
(German Medical Technology Association)

Introduction

Before looking at the reimbursement system for medical devices in Germany, one has to be conscious about the market for medical devices in Europe and in Germany. The German market with approx. 28 billion DM is by far the biggest market in Europe (total: 80 billion DM estimated turnover in 1999), therefore also a market of higt interest to others. It is twice as big as the market in France, three times as big as the Italian market, and four times as big as the market in the United Kingdom.

These four states - Germany, France, Italy and the UK - together represent three quarters of the total European medical device market.

The health care market

Some additional facts and general remarks are important for an understanding of the health care market.

The population is growing. 80 million people join the world's population annually, equivalent to the number of inhabitants of Germany. The global population reached 6 billion people in the year 2000, and hence have exactly doubled since 1960.
People now live longer, too. At the beginning of this century, life expectancy was below 50 years. From 1950 to today, this figure has increased by 7 years and now stands at 73 for men and nearly 80 for women.

Our understanding of health has changed as well. The definition of health has been expanded. There is an increasing tendency toward subjective well-being instead of just more quality of life.

Patients have become more articulate and are better informed. All this can be summarised as all of us wishing to grow old as healthily as possible and to have to endure only brief illness at the very end of our lives, if at all.

Rapid progress in medical technology has greatly contributed to our being able to fulfil these wishes to a greater extent than ever before. Implants will serve here as an excellent example. Products such as electronic hearing aids, heart pacemakers, shoulder joints, breast implants, hip and knee joint implants, blood vessel replacements, etc. are all high-tech medical devices. A defibrillator capable of implantation is another example of high-tech that is only to be had for a price. It isn't the price that's impressive, but the fact that these products didn't exist 40 years ago, or even 20.

Medical progress has made feasible operations, particularly on ever-older patients, that used to be impossible. This is not least due to medical technology that is becoming more and more reliable and capable. One result is that the number of older people is growing immensely. This is also the root cause of the enormous improvement in medical devices, and especially of the increase in the quantity used. This trend will continue. The artificial heart already exists. The artificial liver is only a question of time.

Electronic eyes, ears and other neurotechnical implants and replacements - much change is ahead of us. Enormous increases in efficiency and capability have occurred in the medical field in recent years. These improvements and these quantitative increases also have sent costs spiralling. We are now in the famous progress trap. The more medicine progresses, the more people will be able to profit from the resultant innovations.

Medical devices, however, have the characteristic that product innovations nearly always lead to increased expenditure, at least in the short term. This is a characteristic feature of this industry. We often have so-called add-on technologies to cope with, meaning additional forms of technology that have less of a substitutive character replacing products or methods. This hardly contributes to cost-reduction.

All this naturally leads to a number of questions. Can we continue to afford this tempo of medical progress? The question of whether we can afford not to do so then logically arises. One thing we can be sure of is that we cannot stop medical progress. And we should not!

Now, with these introductory statements, we come to the question: How does the German health care system functions?

The German health care system

At the moment, about 570 billion DM are spent in the health care market in Germany. A retrospective glance is worthwhile. It clearly shows the dynamics and the growth potential of the health care sector.

In the year 1980, about 200 billion DM were spent on health care.
In 1990, this figure rose to 300 billion DM already.
In 1992, the 400 billion DM-limit was strongly exceeded.
If we go ahead with these figures until the year 2000, we will reach a new figure: 600 billion DM will be spent for health care in Germany.
From this total in the health care sector - as today and in the past - about half will be effected by the statutory health insurance. These figures are showing that the health care system is an important factor for the economy and for jobs. The analysis of the progress activity reveals that the health care system will remain a growth market for some time to come.
Progress creates additional health benefits at equal, seldom at less and often at higher costs than existing technologies. This development leads to a big problem, especially for the Statutory Health Insurance.

One has to understand that we have a statutory and a private health insurance system in Germany. The German statutory health insurance system (SHI), in which about 90 % of the population are insured, is based on the principle of solidarity. The principle of solidarity means: the same health services for all. Contributions depend on the income of the individual insured person (up to a limit of 6.450 DM gross income per month).

Solidarity implies that insured people receive what they really need from the common pool and contribute as much to it as they are economically able. The current contribution rate amounts to 14 % of the gross salary. One half has to be paid by the employers. Members of family are automatically co-insured.

The basic principle of the private health insurance, by contrast, is called equivalence. Here, the contributions are based on personal characteristics such as age, gender, state of health and on the volume of health care services selected. Only about 8 % of the German population have private insurance.

Reimbursement in the out-patient field

First of all, it is important to make a strong division between the out-patient and the in-patient sector, because there are different reimbursement systems for these two sectors. Let us look at the out-patient field.

The principle in Germany remains that the doctors prescribe, the patients consume and the insurances pay. Whilst there is usually itemised contractual pricing at the "Länder" level for dressings and medical consultancy need, technical aids must be looked at more closely. The SHI, that means the seven associations of public sickness funds, draw up a list of therapeutical technical aids. In this list, all technical aids which can be reimbursed are catalogued.

There are 34 different product groups. In the product groups, sub groups for technical aids which in their function are of the same kind and of the same value, are being determined. For the different product groups, there are so-called quality standards. The technical aids must fulfil these medical and technical requirements. Prerequisite for the entry of new technical aids into the catalogue of technical aids is that the manufacturer proves the workability, the therapeutic benefits and the quality of these technical aids.

The manufacturer has to submit an application to the SHI, in this case to the guild sickness funds. After the examination, the Medical Service, a special institution of the SHI, makes a decision on the entry into the list of technical aids. The application is to be filled in as comprehensively as possible and shall contain the corresponding attestations. The preparation of the application takes about 3 to 6 months. If the result is positive, the adapted technical aids together with the name of the manufacturer will be published in the Federal Journal.

In the individual product groups, fixed reference prices can be established. The reference prices for technical aids are being determined jointly by the regional sickness funds, that is on the "Länder" level.

In contracts, the health care providers can declare their willingness to provide technical aids at lower prices than stipulated in the reference price list. The prices agreed upon are maximum prices. Where no reference prices or maximum prices exist yet, the previous contractual price agreements remain valid.

The industry and the sickness funds are still looking for new kinds of reimbursement, for example by utilising a monthly lump sum for treatment, among others for the use of incontinence aids. The discussions, however, have not been finalised.

New committee in the out-patient field

It is also vital to be informed about a very important and new committee in the outpatient field. Since January 1998, there is a new guideline including new treatment methods in the list of treatments (the health care benefits catalogue) that are covered by the SHI. This guideline demands that manufacturers of medical devices prove the economic efficiency of a new method of treatment in addition to its medical effectiveness.

The manufacturers must consider the costs and benefits for the patient and for the insurance system as a whole. The guideline demands a cost benefit analysis in relation to existing methods of treatment. Manufacturers of medical devices don't have the right to file reimbursement applications for new products. Applications can only be submitted by the Federal Association of Panel Doctors, the regional associations of panel doctors and the SHI.

Reimbursement decisions are made by the "BÄK" (Bundesausschuß Ärzte-Krankenkassen), a special committee of doctors and health insurers. There is no stipulated period in which an application must be decided on by the BÄK. Therefore, no complaints can be made about the time that is taken. In addition, once the results of the evaluation process are published, they immediately become legally binding and there is no provision for an appeal.

What is the consequence? The risks of not being able to market a new product or of only being able to market it on a small scale have increased. For example, extracorporal shockwave therapy in orthopaedic applications will not be reimbursed.

The hospital sector

The hospital sector is in Germany - as probably in all other states too - the area in health care which has most expenses. The expenses in 1996 amounted to almost 100 billion DM. That is about one third of the total expenses of the statutory health insurance. With regard to the expenses, one must distinguish between personnel costs and non-personnel costs. About half of the non-personnel costs are costs for medical needs. Other non-personnel costs are for example costs for food, electricity, water etc.

In the hospital sector we have had a dramatic increase of costs over the years. Therefore, the government has tried by several means to get control of the situation. The utmost goal was to save costs. In 1996, the government introduced a DRG-like system. We distinguish between case payments and special payments, which account for 25 % of the total costs in the hospital sector. The remaining 75 % of expenses are being settled via departmental and basic nursing and medical rates. In doing so, each hospital negotiates its own individual budget with the regional sickness funds.

The case/special payments are a scoring system which is calculated as a compromise on the basis of the costs for the same procedure in different hospitals. With the case payments and special payments, there is a differentiation between personnel costs and non-personnel costs.

The figures in the scoring system are points. The value of the points has to be negotiated every year on a regional level between the German Hospital Association and the health insurance funds. Since mid-1997, the statutory health insurance and the German Hospital Association have the additional task to supervise the existing case payments and special payments. This has led to considerable cuts for case/special payments as well as personnel costs and non-personnel costs. Basis for the new calculations were studies in the market with respect to actual development.

These studies revealed the following for medical devices, especially for high-tech products:

The prices have dropped continually. The quantities have increased strongly, so strongly that the turnover went up in spite of a slump in prices.

One tries to solve this quantitative problem in that the health insurance funds do not reimburse the full costs to the hospital after a certain quantity has been reached. For the hospitals, there is hardly an incentive anymore to give health services above that quantity. Since 1997, the statutory health insurance funds and the German Hospital Association have also the task to further develop the existing DRG system.
The public health insurance funds prefered an all-inclusive case payment system like the AP-DRG system in the USA with 640 case payments for all of the hospital sector. The German Hospital Association wants to extend the existing case payments to other areas. In addition, there is supposed to be an individual budget for each hospital. This budget is supposed to cover the costs of the hospital, which are independent of which health care services the hospital renders or not.

Towards the end of June 2000, both partners, the German Hospitals' Association (DKG) and the Health Insurance Schemes, finally agreed to use the Australian AR-DRG System (Australian Refined Diagnosis Related Groups). AR-DRG consists of 661 categories, each of five grades of severity. The new German system will contain between 600 and 800 diagnostic groups and should be introduced in 2003, initially with a budget-neutral effect. From 2004 onwards, it should be in full operation.

The current situation of the medical device industry in Germany

The medical devices industry in Germany is characterised by an ongoing process of concentration. There exists a ruinous price competition. This dangerous game is called: More market shares at any price. Domestic employment in the industry is continually being reduced. Some production is being moved to cost-advantageous countries abroad. This tendency is a sustained one.

Manufacturing companies more and more are turning to exclusively supplies and distribution functions. There are as good as no new companies being founded in this field at all. The entrepreneurial spirit is currently considerably dampened. Prognoses for the current year give little ground for optimism. At the moment, clear general conditions and political benchmarks are lacking.

Health care reform 2000

The election to the "Bundestag", the Lower House of Parliament, in September 1998 brought about a change of government in Germany. Therefore, we also have a new Minister of Health. Primarily, Mrs. Andrea Fischer (Green Party) cancelled measures introduced by the old government that are linked with a strong financial self-contribution of the persons insured in the SHI. With the so-called GKV Law on Strengthening Solidarity (GKV-SolG; GKV = statutory health insurance funds ), a health care budget for 1999 was resolved.

With this instrument, the expenses for drugs, dressings and remedies, for the hospital sector and for the total of medical compensation are to be limited. The law was made, says the new government, so that there is time to develop a new big reform for the health care sector.

After months of wrangling, the Statutory Health Insurance (SHI) reforms became law on 1st January 2000. Full of confidence, the “red-green” coalition government had begun the political discussion about the proposed reforms at the start of 1999, with a draft bill requiring the agreement of the Bundesrat, (the Upper House of Parliament), since at that time, the government enjoyed a majority both in the Bundesrat and the Bundestag (Lower House). However, with the loss of its majority in the Bundesrat in regional elections, it soon became clear that a “slimmed down” version of the bill not needing the assent of the Upper House would be necessary and this was eventually passed by the Bundestag on 16th December 1999.

The provisions of the revised health care reforms include:

• the integration of ambulatory and in-patient care;
  
• strengthening of the primary care role of family physicians;
  
• the introduction of a flat rate payment system in hospitals;
  
• continuation of the sectoral budgets;
  
• the establishment of a Federal Hospitals Committee;
  
• the establishment of a Coordinating Committee;
  
• an information system to evaluate medical technologies;
  
• change in the guidelines on the prescribing of technical aids.

In a considered and detailed reaction to the proposals, BVMed emphasized to Federal Health Minister Andrea Fischer that high quality medical care of patients must be at the forefront of the discussions on health reform. Therefore reforms must not result in an inability to finance medically necessary services.

It is clear: The allocation of financial resources becomes more and more important. Therefore, industry must and will continue to offer intelligent suggestions and solutions in the future.

The author: Joachim M. Schmitt , Director General of BVMed