The European Commission has opened an "in-depth" inquiry into a scheme offering assistance to German pharmaceutical companies which are in financial difficulties.

The scheme allows such firms exemption from the rebates which they are obliged to offer to Germany's public sickness funds and private health insurers, and the EU wants to verify whether this is in line with European Union (EU) rules on state aid.

Based on Council Directive 89/105/EEC, which allows EU member states to impose a price freeze on medicines, Germany required a manufacturer's rebate of 16% to be granted by producers of certain prescription drugs to public sickness funds and private health insurers between August 1 2010 and December 31 2013.

The Directive allows drugmakers to apply for derogations from such price freezes if justified by "particular reasons." However, after receiving a complaint from a German drugmaker, the Commission is now investigating a German law that provides derogations from the mandatory rebate if it would jeopardise a company's financial standing. On this basis, a number of such derogations have been granted by the German federal authority, it reports.

At this state, the Commission considers these derogations to involve state aid, because the exemptions from the rebate have an impact on state resources. They increase the costs of the public sickness funds that receive their means mainly from a central fund which is partly financed through tax subsidies. 

Also, although the possibility for derogations from price freezes is foreseen in the Directive, the legal basis for the exemptions is a German law and the national authority grants them on a case-by-case basis.

The Commission notes that the notion of "particular reasons" leaves significant discretion to member states and, as a result of the definition set out under German law, it is very likely that all beneficiaries concerned are in financial difficulty. State aid granted to such companies has to comply with common criteria set out in the EU guidelines for rescuing and restructuring companies in financial difficulties - the "R&R" guidelines - which are aimed at avoiding a situation where ailing companies are kept artificially alive with public subsidies, to the detriment of more efficient competitors.

At this state, the Commission says it has doubts that the German measure is compliant with the R&R guidelines, because the aid is neither limited in time nor granted on the basis of a restructuring plan.