Update on the legislative initiative against supply shortages in drug

The German Federal Ministry of Health (BMG) has specified its ambitions to reduce supply shortages in drug procurement. The respective draft of the "Act against Supply Shortages and for the Improvement of Drug Procurement" (German short form title: "Arzneimittel-Lieferengpassbekämpfungs- und Versorgungsverbesserungsgesetz - (ALBVVG)") provides for a number of legal actions and amendments, in particular for the generic pharma industry. 

There is little doubt that supply shortages for vital drugs and medicines such as antibiotics, cancer therapeutics and children drugs have increased, most notably during the COVID-19 pandemic and the following market disturbances. However, the problems and challenges related to the supply of critical medicines are relatively complex, multi-factorial and often beyond the control of the German market participants. Therefore, the political debate how to fight supply shortages and improve drug procurement was expected to be rather controversial. Now, other than previous amendments relating to German healthcare legislation, the proposed Act mostly provides for incentives rather than bans, obligations or regulations. Overall, the reaction to the suggestions of the BMG is, therefore, fairly affirmative.

In a nutshell, the Act shall provide for the following: 

Incentives to build a national reserve for antibiotics against multi-resistant bacterial infections. Those antibiotics address limited indications only and usually don't generate sufficient revenues. The production and stocking of any such antibiotics is, therefore, not very attractive. As a consequence, the Act will now allow the pharma industry to maintain the sales price upon market entry for longer than the usual six months. 

The establishment of an early warning system for the identification of supply challenges. The Act proposes the introduction of a nationwide and transparent early warning register through the regulatory authority (BfArM). Market participants shall be obliged to notify BfArM about their current stock, their supply source, the sales volumes and imminent shortages. 

Incentives to increase the supply of children's medicine. The BMG also proposes to incentivize the development and supply of critical paediatric drugs. Changes are pre-dominantly suggested in the field of the reference price system - which is proposed to not apply to any such drugs. Whereas the reference price system continues to apply to other medication, it shall exempt paediatric drugs (and other critical medicines, as well as, likely, critical active pharmaceutical ingredients). As a consequence, the cap in the reimbursement scheme (on reference price level) shall not apply to any such products. 

The possibility to substitute medicinal products by pharmacies. Pharmacies shall now formally be able to substitute drugs with supply challenges more flexibly - a practice which is reported to apply already to some extent.

Liberalizations in the current reimbursement schemes. Rules and regulations governing patient surcharges will also be amended in order to reduce price pressure on pharmaceutical companies, in particular in the generics industry.

Adjustments to the current rebate agreement system. Incentives shall be introduced for medicines produced in the EU and rebate agreements shall provide for more reliable supply and stocking periods.

The suggested provisions appear fair and efficient to address the most imminent supply challenges in drug procurement. However, the German healthcare system is complex and it is not easy to predict the possible interactions and implications of the multitude of changes suggested by the Act. Many associations may have wished for a more fundamental change to the system. Criticism of professional associations is mostly directed at the reach and range, though: Associations almost unanimously suggested a more extensive application of the incentives to other products. Occasionally, some associations have taken the suggestions as an opportunity to resume the old criticism of the rebate system as such. However, we believe that the chances and advantages of the Act for the industry outweigh the risks and obligations attached to it. 

Matthias Wiedenfels, industrial expert and senior adviser in our Healthcare practice group, states:  "Overall, the ALBVVG looks like a meaningful and fairly logic response to the supply challenges in critical drug procurement. However, rather than addressing overall structural changes to the German healthcare system, the Act adds more alterations and exceptions to an already complicated system. Market participants are well advised to monitor the initiative closely." 

We have abundant experience in the healthcare industry and regularly advise pharma companies, wholesalers, service companies, investors and other healthcare businesses. Ashurst is unique in combining legal with industrial expertise so that we provide extra added value to our clients.