The rising significance of the (semi-)stationary healthcare sectors for the pharmaceutical industry results from three main reasons:
Figure 1: Overview of the various sectors of the German health sector, the resulting SHI costs and the number of institutions providing treatment; source: Homburg & Partner
Despite greater freedom in the pricing of hospital products, pharmaceutical companies face two major challenges in determining the prices that guarantee optimal prescription numbers.
On the one hand, rising cost pressure in the healthcare system plays a key role. Total medical expenditure by statutory health insurance funds in hospitals and hospital clinics has risen from €34.1 billion in 2012 to €40.4 billion in 2016. As a result, more and more hospital pharmacies are forming purchasing organizations to bundle their purchasing power and exercise greater negotiating power. The sheer number of negotiations between companies and hospital pharmacies is decreasing – but the impact of each negotiation and its importance is larger. For the industry, the importance of a professional pricing to achieve an attractive product positioning in hospitals and hospitals clinics is thus increasing.
On the other hand, the participation of various interest groups in the procurement of drugs within hospitals should be taken into account. In the outpatient sector, where sick funds are the direct payers, the purchasing objectives are geared one-dimensionally to the highest possible cost savings. Other aspects, such as additional services, play a minor role. In clinics and hospital clinics, on the other hand, several parties are involved in the procurement process. Hospital pharmacists, doctors and controllers are always in mutual exchange and influence the purchase decisions of the hospital. The situation is made more difficult by the fact that each stakeholder group has a different value perception and willingness to pay. Each group has its own needs and ideas as to which product should be procured at certain conditions and with certain contractual models. This can result in conflicts of interest that must be taken into account by an optimal pricing strategy – in the end you have to agree on one price. Therefore, a multi-perspective consideration is necessary for the price setting in hospitals and hospital clinics.
Figure 2: Overview of the target groups, their needs and preferences with regard to different contract models; source: Homburg & Partner
Our projects repeatedly show that hospital pharmacies are more interested in innovative contract agreements and services (in addition to medicines) than sick funds. Although a low price is the overarching goal, there is always a willingness to opt for agreements that go beyond simple discounts and volume-based contracts. Examples are (among others):
(i) Budget-Caps: the costs for a medicine (per patient) are limited by an upper expenditure limit.
(ii) Outcome-based: the price for a product is determined on the basis of its actual efficacy or other key figures.
(iii) Additional services for patients: services that facilitate and support the life and therapy of patients (e.g. home-based administration for chronically ill patients).
(iv) Additional services for hospitals: assistance with cost planning, training for staff, etc.
The reason for the higher interest is the lower complexity of administrative processes in hospital pharmacies. The collection and analysis of data required for the management of innovative contracts is much easier. For sick funds in the outpatient sector, such contract models often fail due to implementation issues. The administrative hurdles are too high, partly due to the requirements of data protection regulations. The internal processes of sick funds are too complex for an efficient data management.
Innovative contracts are an attractive way of highlighting the product-specific advantages of a drug over its competitors. For example, the price a hospital pharmacy has to pay for a therapy may depend on the achievement of certain performance indicators. If it is very important for the hospital pharmacy to achieve a certain performance with a product and the pharmaceutical entrepreneur is sure to provide this performance, these contract models create an advantage for both parties a “win-win” situation.
Examples of performance indicators can be efficacy parameters (response rates, etc.) or time units for measuring therapy compliance. Moreover, these individually adjustable contracts can be used to address the various interests of hospital stakeholders. Depending on what needs exist and how strong they are, contract structures can be modular in structure to serve the interests of several stakeholders. Such contractual agreements help to eliminate conflicts of interest in hospital procurement.
Finally, it should be noted that hospitals and hospital clinics offer attractive growth opportunities that are increasingly being exploited by industry. In particular, products that have not received any additional benefit due to rigid AMNOG regulations can highlight their product advantages through smart contract management and generate additional growth.