Policies and Legislation

First posted: 10/10/2013

First posted: 10 October 2013 

In Germany, pricing of medicines is officially unregulated even though the authorities influence medicine prices through the reference pricing system (RPS).

Physicians are not required to prescribe by international nonproprietary name (INN), however, physician budgets and computer systems to assist generics prescribing encourage generics prescribing.

If the physician issues a prescription for a specific medicine without excluding substitution, the pharmacist must dispense the prescribed medicine or one of the three cheapest alternatives. However, pharmacists have no incentive to dispense generics and are in fact financially penalised when doing so due to fixed margins.

Patients’ co-payments should encourage demand for generic medicines, and the government has attempted to inform patients of generic medicines.

A free pricing policy means that medicine prices in Germany tend to be higher than in other European countries [1]. This stimulates the entry of generics onto the market.

In 2005 generic medicines were at an average level compared with prices in France, Italy, Spain and the UK [2].

Reference pricing
Germany was the first country to introduce a RPS. The so-called 'festbetragsystem' was launched in 1989 and gradually introduced in the early 1990s [3].

Physicians are legally obliged to inform patients that they will have to pay the difference out of their own pocket when prescribing a medicine priced above the reference price (RP) [4].

RPSs were set for homogenous groups of medicines, which were defined at three levels. Level 1, implemented in 1989, related to off-patent medicines with the same active substance. As of 1991, level 2 applied to medicines with pharmacologically and therapeutically comparable active substances. Level 3 was introduced in 1992 and grouped medicines with a comparable therapeutic effect without restrictions on chemical similarity. Initially, levels 2 and 3 of the RPS covered patented medicines from the moment that the first patent for an active substance in the group had expired. Subsequently, newly patented medicines were exempt from RPS after 1996. The RP is calculated as a function of ex-factory prices, medicine dosage and package size, and the number of generics competitors. In 1998, an additional condition was imposed, specifying that the RP could not surpass the highest price in the bottom third of the price range for the homogeneous group [5].

International price comparison
Germany is, together with the UK, one of the few EU Member States that does not apply any kind of external price referencing, i.e. international price comparisons. Germany is a reference country for most EU Member States using external price comparisons. This explains why pharmaceutical companies ask for a premium price, i.e. a rather high one, in Germany [4].

Incentives for physicians
During the 1990s, Germany experimented with different budget models at both the regional and physician level. From 1998 onwards, in practice, regional budgets were replaced by physician budgets based on practice-specific prescription targets. Physicians surpassing their individual target by more than 15% received written notice informing them to reconsider their prescribing practices. Physicians exceeding 125% of the medicine budget were required to refund the difference between the actual budget and 115% of the target budget in the absence of a justification for the budget deficit. Although this recourse procedure generally took years, it was successfully carried out in a number of regions [6].

From 2000 onwards, data on regional prescribing practices were sent to each physician [5].

Since 2001, medicines budgets have been replaced with target agreements with prescribing physicians, which take into account the characteristics of the physician’s practice, and which are connected to financial sanctions [3].

Physicians can also draw on computerised prescribing to inform their prescribing behaviour. However, physicians are neither legally required nor stimulated to issue prescriptions by INN [5].

Both the RPS and physicians’ budgets appear to have boosted the German generic medicines market during the 1990s: actual generics prescriptions as percentage of potential generics prescriptions increased from 57% in 1994 to more than 76% in 2008 [7, 8].

Additionally, physicians and their patients accept and have confidence in generic medicines due to well-known company branding of generic medicines [5].

Incentives for pharmacists
Since 2002, pharmacists are obliged to substitute and dispense lower cost, equivalent medicines, unless the physician forbids it ('Aut-idem-Regelung'). In the case of a prescription by INN, the pharmacists must dispense one of the three cheapest medicines [3].

If the physician issues a prescription for a specific medicine without excluding substitution, the pharmacist must dispense the prescribed medicine or one of the three cheapest alternatives provided that they have an identical dosage and package size, and interchangeable pharmaceutical form and same range of indications [5].

Since implementation of the healthcare reform in 2004, pharmacists are paid a fixed margin of 3% in addition to a flat rate payment of Euros 8.10 [4]. This remuneration system implies that pharmacists financially benefit from dispensing an originator medicine [5].

Incentives for patients
Patient co-payments are 10% of the pharmacy retail price with a minimum fee of Euros 5 and a maximum of Euros 10, and a maximum of 2% of gross income per year. This co-payment is charged on top of any amount payable above the RP [4].

The government has targeted information activities at the public in order to inform patients about generic medicines [3].

Policy analysis

Key factors aiding the development of the generic medicines market:

  • Market entry of generics benefits from a RPS that sets higher RPS in medicine groups with fewer generics competitors, thus stimulating price competition, but still making it possible for generics companies to earn profits [5].
  • Prescribing by INN is encouraged, but not obligatory; however, there are obligatory prescription guidelines with prescription volume target agreements and possible budget sanctions for physicians who do not comply [3].
  • Demand for generics is driven by generics substitution by pharmacists and by physician budgets in combination with prescription targets and feedback on prescribing behaviour [5].
  • Patients can ask for substitution by a generic medicine [4].

A key factor hindering the development of the generic medicines market:

  • Pharmacists are financially penalised for dispensing generics and biosimilars [5].


1.  Mrazek MF. Comparative approaches to pharmaceutical price regulation in the European Union. Croatian Medical Journal. 2002;43(4):453-61 

2.  Die Bedeutung der Generikaindustri für die Gesundheitsversorgung in Deutschland [The importance of the generic medicines industry for the German healthcare system]. Accenture Health & Life Sciences. 2005. German.

3.  Vogler S, Schmickl B. Rational use of medicines in Europe. Gesundheit Österreich   GmbH/Österreichisches Bundesinstitut für Gesundheitswesen (GÖG/ÖBIG). 2010 Feb.

4.  Österreichisches Bundesinstitut für Gesundheitswesen (ÖBIG). Surveying, assessing and analysing the pharmaceutical sector in the 25 EU Member States. 2006 Jul.

5.  Simoens S, De Coster S. Sustaining Generic Medicines Markets in Europe. 2006 Apr. [monograph on the Internet]. Brussels, Belgium, European Generic Medicines Association (EGA) [cited 2013 Oct 10]. Available from: www.egagenerics.com/doc/simoens-report_2006-04.pdf

6.  Schreyoegg J, et al. Managing pharmaceutical regulation in Germany: overview and economic assessment. 2004.

7.  Umsatzanteil der zu Lasten der gesetzlichen Krankenversicherung verordneten Generikapräparate in % des Umsatzes aller Arzneimittel [Sales of prescriptions at the expense of public health insurance generic drugs as % of sales of all drugs] [homepage on the Internet]. Gesundheitsberichterstattung des bundes (gbe-bund). 2010. [cited 2013 Oct 10]. German. Available from: www.gbe-bund.de/oowa921-install/servlet/oowa/aw92/WS0100/_XWD_PROC?_XWD_566/4/XWD_CUBE.DRILL/_XWD_592/D.000/1

8.  Busse R, Riesberg A. Health care systems in transition: Germany. Copenhagen, WHO Regional Office for Europe on behalf of the European Observatory on Health Systems and Policies, 2004.

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