AOK s successful strategy contracts of procurement, generics, on-patent drugs. Dr. Christopher Hermann Deputy CEO. AOK Baden-Württemberg

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1 European Healthcare Seminar Identifying Healthcare Investment Opportunities, London AOK s successful strategy 2011 contracts of procurement, generics, on-patent drugs Dr. Christopher Hermann Deputy CEO AOK s Chief negotiator discount contracts with pharmaceutical companies

2 Agenda Statutory health insurance system in Germany and AOK group What is the issue? AOK s tender (AOK VI) generics AOK s tenders generics: up to the present New AOK tender (AOK VII) generics Contracts to on-patent drugs and vaccines Conclusion 2

3 Agenda Statutory health insurance system in Germany and AOK group What is the issue? AOK s tender (AOK VI) generics AOK s tenders generics: up to the present New AOK tender (AOK VII) generics Contracts to on-patent drugs and vaccines Conclusion 3

4 1 Statutory health insurance system in Germany and AOK group AOK i.e. local general health insurance fund AOK group: biggest nationwide h.i.f. in Germany 12 h.i.f. all over Germany approx. 25 m. insurants market share 35% s.h.i. system: traditional anti-competitive structures are changing step by step 4

5 Agenda Statutory health insurance system in Germany and AOK group What is the issue? AOK s tender (AOK VI) generics AOK s tenders generics: up to the present New AOK tender (AOK VII) generics Contracts to on-patent drugs and vaccines Conclusion 5

6 2 What is the issue? AOK s expenditures in billion EUR AOK s turnover in pharmaceuticals in billion EUR Total expenditures 10 2 Med. products turnover Generic drugs market Source: AOK s scientific institute (WIdO) according to Ministry of Health (KJ1 und KV45) and AOK s data of medical prescription ( 300 SGB V ) 6

7 2 What is the issue? Market development Producers significance in value adding chain of pharmaceuticals bn EUR Pharmaceutical industries added value and advanced services Pharmacies added value by phamaceutical service Value added tax Pharmaceutical wholesalers added value Savings by discount contracts are supplied by pharmaceutical industry Source: ABDA 7

8 Agenda Statutory health insurance system in Germany and AOK group What is the issue? AOK s tender (AOK VI) generics AOK s tenders generics: up to the present New AOK tender (AOK VII) generics Contracts to on-patent drugs and vaccines Conclusion 8

9 3 AOK s tender (AOK VI) Basic elements (I) EU-wide public tender closely follows the formal contracting laws New regulation 01/01/2011: drug market reorganization act (AMNOG): cartel law, civil jurisdiction Regional lots: 7 lots of coherent AOKs with different number of insurants: AOK Bavaria AOK HE, PLUS AOK BW AOK NW AOK RH-HH, RP, SL AOK Bremen, LoSa, SAN AOK NO (4.3 m. insured) (4.2 m. insured) (3.8 m. insured) (2.7 m. insured) (4.0 m. insured) (3.4 m. insured) (1.8 m. insured) offers allowed to all regional lots 9

10 3 AOK s tender (AOK VI) Basic elements (II) 7 regional lots Source: AOK media service Regional lot 1 AOK Bavaria Regional lot 2 AOK Hesse AOK PLUS Regional lot 3 Regional lot 4 AOK Northwest Regional lot 5 AOK Rhineland/Hamburg AOK Rhineland-Palatinate AOK Saarland Regional lot 6 AOK Saxony-Anhalt AOK Bremen/Bremerhaven AOK Lower Saxony Regional lot 7 AOK Northeast 10

11 3 AOK s tender (AOK VI) Basic elements (III) Prescription only drugs of 80 off-patent active substances/ substance combinations (lots for areas) AOK s total expenditure so far 2.0 billion EUR p.a. New insertion of drugs permitted until contract period starts Contracting per area or regional lot only to one tenderer/ one consortium of tenderers Contract period: 2 years (June/01/ May/31/2013) 11

12 Agenda Statutory health insurance system in Germany and AOK group What is the issue? AOK s tender (AOK VI) generics AOK s tenders generics: up to the present New AOK tender (AOK VII) generics Contracts to on-patent drugs and vaccines Conclusion 12

13 4 AOK s tenders: up to the present Attacks Legal proceedings against AOK s tenders tender I 2007 tender II 2008 tender III 2009 tender IV 2010 tender V 2010 tender VI 2011 active pharmaceutical companies orders/ court orders

14 4 AOK s tenders: up to the present Results AOK s total expenditure so far 3.5 billion EUR p.a. 1,020 contracts concluded with 49 pharmaceutical companies regional lots: acceptance active substance » one tenderer got all acceptance nationwide for more than two-thirds of the substances» two tenderers share the regional lots of 17 substances» in case of one substances, three tenderers share the regional lots 14

15 4 AOK s tenders: up to the present Results Discount volume and saving potential p.a. of the tendered substances Discount volume AOK group m. EUR Discount volume AOK group m. EUR Saving potential AOK group m. EUR Total discount volume bn. EUR 15

16 4 AOK s tenders: up to the present Results Discount contracts with pharmaceutical companies take effect on those who are in charge of pricing: the pharmaceutical companies disclose significant gains of efficiency in spite of continuing, binding prices of drugs optimise the continual supply of identical drugs during the 2-year contract period simplify the stockkeeping of pharmacies with more of casual customers 16

17 Agenda Statutory health insurance system in Germany and AOK group What is the issue? AOK s tender (AOK VI) generics AOK s tenders generics: up to the present New AOK tender (AOK VII) generics Contracts to on-patent drugs and vaccines Conclusion 17

18 5 New AOK tender (AOK VII) generics New nationwide tender in preparation Public tender planned for 9/ off-patent active substances (lots for areas) 7 regional lots = 700 contracts planned AOKs` total expenditure so far 2.02 bn. EUR p.a. contract period 2 years: planned April/01/ March/31/2014 Advance information will be published by the Publications Office of the European Union TED (tenders electronic daily): online version of the Supplement of the Official Journal of the European Union 18

19 Agenda Statutory health insurance system in Germany and AOK group What is the issue? AOK s tender (AOK VI) generics AOK s tenders generics: up to the present New AOK tender (AOK VII) generics Contracts to on-patent drugs and vaccines Conclusion 19

20 6 Contracts to on-patent drugs and vaccines 1. On-patent drugs New regulation : drug market reorganisation act (AMNOG) Older on-patent drugs: legal uncertainty EU-wide public tender required or not, no AOK group procedure, diverse contracts already signed New on-patent drugs: New legal situation without additional benefit and fixed amount category = fixed amount with additional benefit or without additional benefit and without fixed amount category 1st step: Nationwide contract head association of h.i.f. pharmaceutical companies or arbitation decision 2nd step: Contract between h.i.f. and the pharmaceutical company = additional or compensating contract documents, freedom of scope (arrangement with doctors about preferential order) 20

21 6 Contracts to on-patent drugs and vaccines 2. Vaccines exclusive contract between h.i.f. and pharmaceutical company possible procedure comparable to generics 21

22 Agenda Statutory health insurance system in Germany and AOK group What is the issue? AOK s tender (AOK VI) generics AOK s tenders generics: up to the present New AOK tender (AOK VII) generics Contracts to on-patent drugs and vaccines Conclusion 22

23 7 Conclusion 4 Big Points Much ado about much! Reaching legal certainty for realisation of discount contracts for generics Increasing the security of supply of AOK insured Ensuring suppliers plurality by 1,020 contracts with 49 tenderers / pharmaceutical companies Developing significant savings to stabilize h.i.f. expenditure 23

24 European Healthcare Seminar Identifying Healthcare Investment Opportunities, London Thank you for your attention Dr. Christopher Hermann Deputy CEO AOK s Chief negotiator discount contracts with pharmaceutical companies