Germany’s lower house of parliament has approved measures to curb drugmakers’ freedom to set prices, which are expected to cost the industry 2 billion euros a year.

Under Germany’s first-ever controls on prices, which were approved in a 324-269 vote in the Bundestag at the end of last week,  drugmakers will (from next January 1) have a year from the introduction of a new drug to agree its price with health insurers. If a price cannot be set through negotiation, the Health Ministry will establish a maximum price and the product will undergo a cost-benefit analysis by Germany’s health technology assessment body, the Institute for Quality and Efficiency in Health Care (IQWiG).

During the product’s first year on the market, the manufacturer must prove its benefits, and if it cannot do so, the product will be added to the reference pricing system. This system will also now be widened cover all so-called “me-too” drugs.

The new pricing regulations will not apply to medicines which are already on the market in Germany, and orphan drugs will be completely excluded.

The abolition of free drug pricing is contained within the Act for the Restructuring of the Pharmaceutical Market in Statutory Health Insurance (AMNOG), which forms part of the austerity package drawn up Health Minister Philipp Roesler with the aim of saving around 4 billion euros next year. The upper house of parliament, the Bundesrat, will vote on the law on November 26.

The measures will have serious implications for drugmakers beyond Europe’s biggest pharmaceutical market, because Germany is a reference-price market for a large group countries. According to analysts at IHS Global Insight, subsequent downward pressure on prices will likely be felt in Austria, Belgium, Canada, Finland, France, Greece, Hungary, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, Norway, Slovakia, Slovenia, South Korea, Switzerland and Taiwan. It also could spread on a more moderate scale to countries that refer to at least one of those countries under their international reference pricing methodology, they add.

Supporters of the reforms, drawn up by the coalition government of Chancellor Angela Merkel’s Christian Democratic Union and the Free Democratic Party, say they will end drugmakers’ “monopoly” on pricing, while IQWiG head Juergen Windeler adds that manufacturers will now be forced to focus on “real innovation.” And the federation of statutory health insurers – the GKV Spitzenverband – says that the accelerated fixed-payment procedure – under which a new drug which offers no additional benefits is automatically assigned a fixed price, plus the start of negotiations where there is no fixed price – presents “real progress.”

However, industry spokesman say that the requirement in AMNOG that drugmakers should negotiate prices with the GKV Spitzenverband rather than with individual funds will put companies at a disadvantage and create a monopoly, rather than the increased competition which the coalition government had pledged.

Cornelia Yzer, director general of Germany’s association of research-based pharmaceutical manufacturers (VFA), comments that if the “decisive” organisation of initial prices is fair, open to innovation and takes account of “the very point in time of the calculation,” then it will not be a threat to quality of care.

However, she is concerned that price negotiations with the GKV Spitzenverband rather than individual funds might focus only on cutting costs, and stresses the importance of taking both cost efficiency and quality of care equally into consideration.

- Germany’s statutory health insurance system, the Gesetzliche Krankenkasse (GKV), covers around 85% of Germany’s population and spent 32 billion euros on medicines last year, a rise of 5.3% on 2009, with most of this growth due to the 8.9% increase by value during the year for drugs which are not covered by the reference price system. The GKV is currently carrying an 11 billion-euro deficit.