The abolition of free-pricing in Germany, the world’s third-biggest drug market after the US and Japan, is part of the austerity measures drawn up by the Health Minister with the aim of saving around Euros 2 billion during 2011.

The development is significant because many other countries use German prices in their reference pricing system. The bill follows temporary rebates and price freezes on drugs that the government imposed last summer to mitigate a huge deficit in the public insurance system that is forecast for next year.

Drug spending by the statutory sickness funds, which insure more than 70% of the German population, rose 5.3% last year as drugmakers increased prices of patent-protected medicines by 8.9%, according to the Health Ministry.

Generic prices, on the other hand, many of which are already fixed through mandatory discount contracts, fell by 2%. The law will only apply to drugs that are not yet on the market in Germany, and orphan drugs will be completely excluded.

The bill has only been approved so far by Germany’s lower house of parliament, or Bundestag. It will now have to pass the upper house of parliament, or Bundesrat, which is scheduled to take a vote on the issue on 26 November 2010, if approved the law would come into force on 1 January 2011.