As online pharmacies have grown in prominence, the German government aims to pass laws to increase the profits of brick-and-mortar pharmacies in order to have more physical locations available to Germans. Did it shift sales from online to brick-and-mortar pharmacies? Is this legislation likely to keep brick-and-mortar pharmacies in business? These are recently asked questions health Economics Paper by Gale, Götz, Harold and Schaefer (2026). Some background on the issue:
The German Pharmacy Act requires brick-and-mortar pharmacies to provide access to medications to the general population. However, the number of pharmacies has declined by approximately 12.5% from 2010 (21,441) to 2020 (18,753)…this decline coincides with increased competition from foreign online pharmacies. Their market share for OTC drugs increased from about 5% in 2008 to 20% by 2020… Initially, regulation made prices of RX drugs uniform, limiting price competition for OTC drugs. However, a 2016 European Court of Justice ruling (case number: C-148/15) allowed online pharmacies to offer discounts in the form of vouchers on RX medications (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 the system of uniform RX prices was an effective tool to achieve the stated goal of ensuring a wide supply of pharmaceuticals for the general population.
In light of these developments, on December 15, 2020, the German government enacted the so-called Local Pharmacy Support Act (“Vor-Ort-Apotheken Starkungsgesetz”, henceforth VOASG) with the goal of strengthening brick-and-mortar pharmacies. This law prevents online pharmacies from rewarding the majority of patients (people covered by the compulsory statutory health insurance scheme, which is about 90% of the population) with vouchers for the purchase of prescription medicines. Other segments of the population, privately insured individuals and self-pay patients, are still allowed to be given vouchers.
Because some patients were able to obtain these vouchers (private pay) and some were no longer (those with statutory health insurance), this created a natural experiment for us as authors. The authors use three datasets to conduct their analysis:
- Actual sales data (n=9231 pharmacies): High-frequency sales data provided by key business information systems (MIS) sourced from AWINTA, ADG and Pharmatechnics.
- Information on drug package size or dosage: 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 dosages. The actual data comes from IQVIA and the largest German health insurance fund (i.e., technicar crankcase).
- Information on health insurance subscription over time. These data come from the Federal Ministry of Health and the Association of Private Health Insurance.
Using this approach, the authors found that:
…Rebates in the form of vouchers significantly influence patient choice regarding online and offline pharmacies: the partial ban led to an increase of about 1.42%-1.67% in offline sales for the average brick-and-mortar pharmacy compared to a counterfactual scenario without the ban …
So the ban helped increase sales among brick-and-mortar pharmacies, but is this increase in sales enough to stop the decline of brick-and-mortar pharmacies? The authors conclude that the answer is ‘no’.
…Overall, larger pharmacies benefited more strongly from the discount restriction than smaller pharmacies. For example, the estimated additional annual profits arising from the discount ban for pharmacies in the first and tenth decades were €1587 and €6,077, respectively…The findings also indicate that most pharmacies experienced only a modest increase in profits, with an average increase in profits of €3246. Given these relatively modest benefits, it does not appear that this policy would have had a substantial impact on pharmacies’ decisions to enter or exit the market.
You can read the full paper here.
