The German coalition government -- comprising the Christian Democrat Party (CDU) and the Social Democrat Party (SDP) -- has agreed on a plan to reduce drug spending by EUR1bn (US$1.18bn). Under the plan, patient co-payments for some drugs will rise, medicine prices will be frozen for two years, and drugmakers will be barred from offering discounts to pharmacies.

Under the new system, a maximum reimbursement level will be set for available medicines, with patients paying any differentials above this threshold. In such cases it is suggested that consumers opt for cheaper generic alternatives.

Market sources claim the plan will hit revenues for research-based drugmakers, who are unlikely to cut prices in line with the new reimbursement levels. Meanwhile, the planned price freeze could further impact drugmakers, which will be unable to impose the higher VAT rate planned for 2007 to product prices.

The ban on pharmacy discounts is expected to help curb over-prescribing in Germany. Currently, some drugmakers offer pharmacies one or two extra packs for each one sold. These additional drugs are then made available to consumers, with health funds covering the costs. In the future, doctors prescribing more than an average amount of medicines could have their fees reduced.

Drug expenditure has been soaring in the country in recent years, with Germany's Federation of Industrial Health Funds, the BKK, estimating that spending will increase by 19% in 2005.