Healthcare now costs Germans 14.4 percent of their gross wages. Only Americans and Swiss pay more. And Germany’ drug bill is rising. In 2001, $22.7 million in pharma sales represented an increase of almost nine percent over the previous year.

Health insurance underpins the system. Lower income employees must belong to one of the country’s 350 sickness funds, to which both they and their employers contribute. Most of the rest have private insurance, except for state employees like the police and the military, whom the government covers free of charge. Only 0.1 percent of the population is uninsured.

A reform program to save $11.5 billion next year and $23.8 billion by 2007, out of a total annual bill of $160 billion, is underway. The reforms focus on cost cutting rather than structural or quality issues. But under the new program, patients’ co-pays will rise to 10 percent of each medical bill, up to a maximum of 2 percent of their gross income.

For pharma, the most controversial proposal is a plan to extend the reference pricing system—introduced for generic medicines in 1989—to brand-name drugs in 2005. Essentially, the government declares the maximum price it will pay for a particular generic therapy. Manufacturers are free to set their own prices up to that level; patients pay for all charges beyond that.

Currently, pharma companies are free to charge what they like for brand-name medicines, and the sickness fund reimburses the amount. Reference pricing will limit what  companies can charge, and doctors will be encouraged to prescribe cheaper drugs.

Also likely to have a huge effect on pharma is the planned hefty increase in the 6 percent discount that companies must offer the sickness funds. The proposal is to increase that to 16 percent. Unhappy about those plans, the Association of Research-Based Pharmaceutical Companies, VFA, is developing alternative proposals. However, a spokesman says the association is not yet prepared to disclose those ideas.

The German government dropped two other proposals that VFA opposed: A Quality Control Institute, analogous to the UK’s National Institute for Clinical Excellence (NICE), and a plan to introduce a list of drugs covered by insurance. Pharma companies feared that would lead to doctors not prescribing medicines that were absent from the formulary. Parliament is drafting compromise proposals, and the final vote is expected in October. But VFA believes that the proposals miss an important chance to adopt a sustainable change in the healthcare system. “Without getting better quality or enhanced rights to choose a health insurer, the insured community will be overburdened,” says a VFA spokesman. “The compromise, primarily focused on cost-containment measures, means structural problems of the system will not be solved.”