Regulation of pharmaceutical markets in Germany: improving efficiency and controlling expenditures?

Abstract

Rising pharmaceutical expenditure has become a major concern for policy makers in Germany over recent years. Therefore, the pharmaceutical market has been increasingly targeted by different kinds of regulation, focussing on both the supply and the demand side, using price, volume and spending controls. Specific regulations include price reductions, reference pricing, pharmacy rebates for sickness funds, increasing co-payments, an 'autidem' substitution, parallel imports, a negative list, directives, and finally, spending caps for pharmaceutical expenditure per physicians' association. Although it is difficult to attribute certain effects to single measures, some measures like reference pricing and physician spending caps are more effective and long-lasting than others. In spite of being opposed by physicians, the spending caps applied between 1993 and 2001 have limited pharmaceutical expenditure for an entire decade. However, while some measures do effectively control expenditures, their effect on allocative efficiency may be detrimental.