As online pharmacies have grown in prominence, the German government aim to pass legislation to increase the profits of brick-and-mortar pharmacies in order to keep more physical locations available to Germans. Did it move sales from online to brick-and-mortar pharmacies? Is the law likely to keep brick-and-mortar pharmacies in business? These are the questions asked by a recent Health Economics paper by Gail, Götz, Herold and Schäfer (2026). Some background on the issue:
The German Pharmacy Act requires brick-and-mortar pharmacies to provide the general population with access to medications. However, the number of pharmacies dropped by roughly 12.5% from 2010 (21,441) to 2020 (18,753)…This decline coincides with a rise in competition from foreign online pharmacies. Their market share for OTC drugs increased from around 5% in 2008 to 20% by 2020…Initially, regulation rendered prices for Rx drugs uniform, which limited price competition to OTC medications. However, a 2016 European Court of Justice ruling (Case No.: C-148/15) allowed online pharmacies to also offer discounts in the form of vouchers on Rx drugs (Albrecht et al. 2020). These vouchers indirectly reduced patients’ co-payments. In this ruling, the judges claimed that the German government had failed to show that a system of uniform Rx prices was an effective tool to achieve the alleged goal of securing a comprehensive supply of pharmaceuticals to the general population.
In the light of these developments, on December 15, 2020, the German government implemented the so-called Local Pharmacy Support Act (“Vor-Ort-Apotheken Stärkungsgesetz”, henceforth VOASG), with the goal to strengthen brick-and-mortar pharmacies. This law prohibits online pharmacies from rewarding the majority of patients (those covered by the mandatory statutory health insurance scheme, making up roughly 90% of the population) with vouchers for purchasing prescription drugs. The other part of the population, privately insured individuals and self-pay patients, are still allowed to be granted vouchers.
Because some patients were able to get these vouchers (the private pay) and some were no longer (those in statutory health insurance), this created a natural experiment for the authors to us. The authors employ three dataset to conduct their analysis:
Brick-and-mortar sales data (n=9231 pharmacies): High-frequency sales data provided by the major merchandise information system (MIS), sourced from AWINTA, ADG and Pharmatechnik. Information on drug package sizes or doses: The authors use the N-classification system established by the Federal Institute for Drugs and Medical Devices (BfArM) in Germany to identify package sizes and doses. The actual data come from IQVIA and from the largest German health insurance fund (i.e., Techniker Krankenkasse). Information on health insurance memberships over time. These data come from the Federal Ministry of Health and the Association of Private Health Insurance.
Using this approach, the authors find that:
…rebates in the form of vouchers significantly affect patient’s choice regarding online and offline pharmacies: the partial ban led to an increase in offline sales of around 1.42%–1.67% for an average brick-and-mortar pharmacy compared to a counterfactual scenario without the ban…
So the ban did help increase sales among brick-and-mortar pharmacies, but is this increase in sales likely enough to halt the decline of brick and mortar pharmacies? The authors conclude that the answer is ‘no’.
…in absolute terms, large pharmacies benefited more strongly from the rebate ban than smaller pharmacies. For instance, the estimated additional annual profits generated by the rebate ban for pharmacies in the first and tenth deciles were approximately €1587 and €6,077, respectively…The findings also indicate that the majority of pharmacies experienced only a mild increase in profits, with a median increase in profits of €3246. Given these relatively modest gains, it seems unlikely that the policy had a substantial impact on pharmacies’ decision to enter or exit the market.
You can read the full paper here.
