Examining confidential wholesale margin estimates in European countries for the price negotiation of patented drugs in Germany: a statistical model

TL;DR

This paper proposes a statistical model to better estimate confidential wholesale margins in European countries, improving price negotiations for patented drugs in Germany.

Contribution

A new statistical model using power distribution to estimate regressive wholesale margins, improving accuracy for high-priced drugs.

Findings

Wholesale margins in most European countries regressively decrease with higher drug prices.

Regressive statistical models outperform average-based methods in estimating confidential margins.

Using a power function model reduces inaccuracies in margin estimation for high-priced drugs.

Abstract

Based on the legal framework laid down in section 130b (9) of Book V of the German Social Code, various criteria are relevant for the negotiated price for new patented drugs in Germany. European reference prices (ERPs) are one criterion. The ERP is based on the ex-factory prices (EFPs) of the countries included in the European country basket. However, in some of these countries, the EFP is not published due to confidential wholesale margins. Wholesale margins must therefore be estimated and deducted from purchase prices. In this context literature-based estimates to date do not assume regressive margins with higher pharmaceutical prices. This assumption is questionable and can lead to systematically underestimated country prices, especially for high-priced drugs. Percentage wholesale margins in the majority of European countries develop to a comparable extent regressively with increasing prices. It should therefore be examined (1) whether statistical models can predict the margins of individual countries, in principle and especially for countries where margins are unknown and regressive trends are likely, and (2) to what extent the estimation of margins improves when regressive statistical models are used to estimate margins instead of cross-price averages published in the literature.

Qualitative preliminary research explores the basic wholesale pricing mechanisms in countries with confidential wholesale margins. Wholesale margins for reimbursable drugs were then modeled for regulated European countries. Estimation quality and impact of the model was compared to estimations based on average margins.

In both regulated countries and in countries with confidential wholesale margins, percentage margins of wholesalers develop regressively as drug prices rise. Regressive courses of margins can be resiliently modeled for the regulated countries using a power distribution with significantly lower mean squared errors in a linear mixed model in comparison to literature-based estimations with country-specific cross-price averages.

If there is reason to believe that margins are regressive, confidential wholesale margins are expected to be better estimated by the power function based on margins of regulated countries than by the published country-specific average margins, reducing significantly inaccurate effects on margin estimations of high-price drugs.

The online version contains supplementary material available at 10.1186/s13561-024-00503-9.

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