Germany's digital healthcare market is expected to expand significantly. This is underpinned by two recent developments

  1. Draft legislation that will allow fees for e-health applications to be reimbursed by public health insurance providers, thus greatly improving revenue potential.
  2. A €100m venture capital fund (VCF) set up by private health insurance providers for start-ups active in the digitization of healthcare.

Health insurance in Germany

By way of background, the German healthcare market is driven by a dual health insurance system:

  1. There are roughly 110 statutory public health insurance providers which cover people with an annual income below approximately €60,000 – most of the employed population (around 88 per cent). These insurers make payments directly to healthcare providers, with the rates negotiated via a rather complex corporatist social bargaining arrangement.
  2. Around 45 private health insurance providers, covering all other people on individual plans. These reimburse a client’s costs after having been invoiced by the healthcare provider.

Health insurance is compulsory for every German citizen and costs on average several hundred euros per month. German consumers have hitherto tended to be unwilling to pay for extras such as healthcare apps so e-health providers seek arrangements with insurers whereby the latter pay for app usage by the insureds. 

The legislation and the venture capital fund mentioned above (and described in more detail below) may reduce some of the associated burdens and thereby improve market access for e-health providers.

'Germany is going to introduce regular reimbursement for health apps under the statutory health insurance. This will drive investments into the market for digital healthcare solutions.' – Michael Ramb, Partner, Freshfields' Healthcare Group

1. The Digital Healthcare Act 

Germany's draft 'Digital Healthcare Act' (Entwurf eines Gesetzes für eine bessere Versorgung durch Digitalisierung und Innovation [PDF, in German]) introduces a range of measures to speed up the digitization of the German healthcare system. These include telematics infrastructure, telemedicine and its advertising as well as a digital patient file. The Act also prolongs and extends the mandate of the government’s innovation fund, which has an annual budget of €200m.

The most important feature is the introduction of 'apps on prescription' (§33a, §134 and §139e SGB V in the draft). Individuals insured by statutory public health insurance providers shall be entitled to receive digitalised healthcare. This is limited to low-risk products, namely those in risk classes I and IIa pursuant to article 51 and annex VIII of the EU's medical device regulation (PDF). These are mainly products that don't require clinical trials (or at least prospective randomised studies) and that are already on the market.

To be eligible for reimbursement by statutory health insurance providers, the relevant app needs to be both:

  • registered with the Federal Institute of Drugs and Medical Devices (BfArM); and 
  • either prescribed by a doctor or approved by the relevant statutory public health insurer. 

Registering an app with BfArM requires proof that the app:

  • complies with safety, functional efficiency and quality standards for the relevant medical device;
  • complies with data protection rules and data security standards; and
  • has positive effects on healthcare supply.

If 'positive effects' cannot be proven upon initial registration, an app can still be registered but will be deregistered if no proof has been provided within one year (although this may be extended by another year in exceptional cases). The draft Act does not specify the kind of proof required to meet the registration criteria mentioned above but instead gives the German Health Ministry power to issue regulations that do this. The Ministry has yet to publish those regulations but we are monitoring the situation.

On the remuneration side, app providers still need to negotiate with statutory public health insurance providers. However, app providers will be given significant leverage in such negotiations because, until an agreement can be found, their actual prices (calculated according to a general framework agreement) will have to be reimbursed and, after one year, an impartial arbitral tribunal will settle the pricing dispute within three months.

Thus, healthcare apps should be able to claim remuneration from insurance providers much more quickly, and have the tools to achieve adequate and timely results in pricing negotiations. Furthermore, the power to list products as eligible for prescription (and, thus, eligible for reimbursement by statutory health insurance providers) shall be moved from insurers to BfArM, which is an agency of the German Health Ministry.

The draft Act allows for developers to distribute health apps directly to patients and,  in exceptional cases, via third parties, such as an app store. 

Eligible products are not limited to those produced by German or European vendors; the Act also says that application forms should be provided in English.

'Closely monitoring the progress of the Act will mean you'll be better prepared when the new provisions enter into force.' – Katharina Reinhardt, Associate, Freshfields' Healthcare Group

The draft Act was approved by Chancellor Merkel's federal cabinet and ministers in July. The Federal Council of German States (Bundesrat) does not have a veto right but is nonetheless involved. 

Various council committees have indicated their general support but are requesting certain amendments (notably regarding the procedure around registration and price negotiation, where they are looking to strengthen the positions and institutions of the health insurances) and most of these requests have been adopted by the plenary assembly of the council on 20 September. These requests are not binding but an important indication, and the Federal Cabinet is preparing comments on them for the end of September/early October. 

Negotiations in the German Parliament (Bundestag) will start thereafter and extensive health committee hearings are expected. The Federal Council will then have to be involved again, so it is likely that the legislation won't be finalised and come into force until early 2020.

2. €100m venture fund by private health insurance providers

The draft Act provides that a health insurance provider can invest up to two per cent of its financial reserves in investment funds for the purpose of furthering digital innovation. 

Given that reserves currently total around €21bn, this could mean further investment of around €420m. Yet investments by statutory health insurance providers are heavily regulated in order to safeguard their ability to fund the German healthcare system. As such, this provision is an exception and its practical implementation will require complex arrangements so that capital is invested in a way that makes losses 'seem impossible' while returns have to be 'reasonable'.

Private health insurance providers have precluded such investment activities by the statutory health insurance providers by launching an investment fund of their own. Heal Capital is looking to provide capital for start-ups that develop digital innovations for the healthcare sector. It will focus on areas including digital health applications, telemedicine, digital prevention and the digitisation of care. The fund will be managed by two Berlin-based digital health investors, each with a proven track record (Heartbeat Labs and Flying Health).

Please also see our related publications on innovation in the healthcare space, such as 4D printing and the medical patent landscape and New product liability and jurisdictional questions in E-health.