Germany may have the answer for reducing drug prices

Harvard Business Review

11 September 2019 - American lawmakers attempting to stem spiraling drug costs might find inspiration in Germany, where the government’s regulatory model has been curbing price growth without thwarting innovation or access, says research from Harvard Business School.

Since 2011, Germany has been requiring drugmakers to prove that a new medication’s benefits merit a higher price if cheaper, similar drugs are available. The process rewards companies whose drugs are more novel or help patients more, while forcing manufacturers of equally or less effective treatments to cut prices, says research by Ariel D. Stern, the Poronui Associate Professor of Business Administration.

Pharmaceutical companies have long opposed efforts to regulate drug prices, arguing that prices reflect the companies’ massive research investments. But Germany’s approach shows how the right incentives can push manufacturers to price based on performance, a step toward what health economists call “value-based pricing.”

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Michael Wonder

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Michael Wonder

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Medicine , Regulation , Pricing , Germany