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Partner Institute: 
Bertelsmann Stiftung, Gtersloh
Survey no: 
Sebastian Hesse
Health Policy Issues: 
Pharmaceutical Policy
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes yes no no no


On May 1 the new Pharmaceutical-Prescribing-Efficiency-Act (AVWG) to save costs regarding pharmaceuticals became effective. As the first reform act in the health sector of the newly elected big coalition (Christian Democrats and Social Democrats) this reform is of great interest in Germany. The reform became necessary because costs for pharmaceuticals still were rising after the last reform in 2004.

Purpose of health policy or idea

The Pharmaceutical-Prescribing-Efficiency-Act is the first reform act of the newly elected big coalition. The reform act is necessary because costs in the pharmaceutical sector were still rising even after the reform act of 2004.

What are the cornerstones of this reform:

  1. Pharmaceutical companies are no longer allowed to give rebate in kind to pharmacies.
  2. Physicians are obliged to use a certified software to compare pharmaceuticals.
  3. A two-year price decree will be in place for all pharamceuticals.
  4. It will be defined in a separate act what can be understood by a therapeutical improvement.
  5. The reference prices for me-too products will be reduced.
  6. If a pharamceutical company has not reduced its prices according to the reference price it can negotiate individual rebates with the sickness funds. The rebate has to have the same effect as the reference price to the sickness funds.
  7. Fostering the individual responsibility of the physicians for their prescribing methods: One of the main cost-containement tools of this reform act is the installment of a bonus-malus system for physicians. Physicians will get defined daily therapy costs they have to meet for a certain number of diagnosis. These therapy costs are based on the "Defined Daily Dosis" a WHO concept to compare ways of prescribing in different countries even though the WHO does not recommend this concept to calculate target costs. If a physician prescribes more than 10 % over the defind daily therapy costs he personally will get a reduction of his honorarium (malus). If all physicians together meet the overall target all physicians will get a bonus. This means that a physician is liable for his own prescribing practice but will not get an individual bonus if he personally is very cost-efficient.
  8. The Regional Physicians Associations (Kassenärztliche Vereinigungen - KVen) are allowed to negotiate regional target agreements with the sickness funds regarding the daily therapy costs. Most of the 17 Regional Physicians Associations will negaotiate individual target cost or will use those negotiated before the reform. Membership in the Regional Physicans Association is mandatory for the physicians if they want to participate at the supply of care for all those patients in the statutory health insurance.
  9. Patients can be exempted from copayments if the price of a pharmaceutical is significantly under the reference price.

Interestingly the reform contains no new regulation regarding the distribution of pharmaceuticals. In Germany there are two separate ways of distributing pharmaceuticals, one in the ambulatory sector and one for hospitals. Pricing in ambulatory care is strongly regulated (reference pricing etc.) but not the pricing in hospitals. This leads to a distribution strategy of the pharamceutical companies through the hospitals. They give high rebates in kind to hospital pharmacies hoping that patients once they left hospital with a new medication will insist to keep this medication when they see their outpatient physician. On the hearing in the "Bundestag" - the Federal parliament -a major controversy about this point took place but finally not leading to a change in the reform act.

Main points

Main objectives

Cost containment

Type of incentives

Financial: Bonus-malus mechanism to force physicinas to prescribe less or less costly pharmaceuticals.

Groups affected

Physicians, Patients, Sickness funds, Pharmaceutical companies

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Characteristics of this policy

Degree of Innovation traditional rather traditional innovative
Degree of Controversy consensual highly controversial highly controversial
Structural or Systemic Impact marginal rather fundamental fundamental
Public Visibility very low high very high
Transferability strongly system-dependent system-neutral system-neutral

Political and economic background

After the general election in September 2005 a big coalition out of the Christian Democrats and the Social Democrats has been formed. Ulla Schmidt from the Social Democrats remained Minister of Health. This guarantees a continuity at least in the personnel within the Ministry of Health. The Ministry was in charge of health and social affairs before the election. After the constitution of the new government the Ministry remains in charge of health only.  

The Pharmaceutical-Presribing-Efficiency-Act is not the most important reform act of the big coalition in the health sector but nevertheless the first one. And it has some influence on the day-to-day work of the physicians.

Cost containment regarding pharmaceuticals has been high on the agenda of every Federal Government in the last decades. However costs still are rising. In 2005 the sickness funds had to spend 23,4 Billion Euros on pharmaceuticals - an increase of 3,3 Billion Euros or 16,4 % compared to 2004.  

Various cost-containment tools had been used in Germany the most important one the reference pricing. Another method is to foster the use of generic products what still is very high on the agenda.

Change of government

General Election in September 2005; Social Democrats still part of the government; Ulla Schmidt remaines Minister of Health.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes yes no no no

Origins of health policy idea

The necessity and the idea for further cost containment regarding pharmaceuticals was already clear before the General Election in September 2005. The administration in the Ministry of Health had the plans for a new reform act already prepared before the election. Nevertheless negotiations restarted after the election with the new constellation within the government. Hence this reform act was somehow a test. How does the newly formed big coalition work together? Will it be possible to shoulder big and controversial reform projects as everyone expects from this coalition in this legislation? 

Ulla Schmidt and the Ministry came up with a draft bill in the first place presumably knowing that this draft will not be exepted by the Christian Democrats (CDU). Hence the CDU tried to show their influence on this reform by renegotiating parts of it. Finally the coalition came up with a draft bill that most likely would have been agreable in the first place.

Initiators of idea/main actors

  • Government
  • Parliament
  • Providers
  • Payers
  • Patients, Consumers

Approach of idea

The approach of the idea is described as:
renewed: The bonus-malus regulation is somehow a renewed collective regress a mechanism used earlier in German health policy.

Stakeholder positions

Reform act very controversialThe reform act was - as expectable - very controversial in Germany.

Besides the pharmaceutical industry that always complains about too many regulations and price cuts in the pharmaceutical sector in Germany this time the physicians were the ones very much opposing against the reform.

Physicians: Bonus - Malus regulation leads to more bureaucracy and affects doctor-patient relationshipEspecially the bonus-malus regulation leads to major concerns. The income of a physician is substantially influenced by his way of prescribing. Basically that means if a physician presribes as low costly pharmaceuticals as possible he will increase his income. Physicians regard this as a major thread to their doctor-patient relationship and as unethical. Plus the physicians will experience a reduction in their freedom of treatment. Furthermore the physicians fear a massiv increase in bureaucracy.

Bonus - Malus as thread to care for chronically ill?Critics reckon that the reform supports rationing in the Germen health care system. Patient representatives share the views of the physicians. Costly patients - especially those with chronic diseases - fear to be excluded from appropriate treatment.

Patients: Increase in co-payments expectedPatients representatives and even representatives from sickness funds fear an increase in co-payments because of the new legislation regarding the reference prices. As mentioned above the pharmaceutical companies are not obliged to lower their prices according to the reference prices. They can alternatively seak an individual solution with each sickness fund. If the individual rebate lies above the reference price this difference has to be paid by the patient. 

Furthermore that implies that for the first time the availability of pharmaceuticals might differ from sickness fund to sickness fund.    

Actors and positions

Description of actors and their positions
MoHvery supportivevery supportive strongly opposed
Bundestagvery supportivesupportive strongly opposed
Bundesratvery supportiveopposed strongly opposed
Physiciansvery supportivestrongly opposed strongly opposed
Pharmaceutical Companiesvery supportivestrongly opposed strongly opposed
Sickness fundsvery supportivesupportive strongly opposed
Patients, Consumers
Patientsvery supportiveopposed strongly opposed

Influences in policy making and legislation

The Pharmaceutical-Prescribing-Efficiency-Act became effective on May 1 2006.  As described above this reform act was a sort of finger exercise for the newly formed coalition and a test for future major reform acts in the health care sector especially the financial reform.

The reform act was not passed without problems. Even though pushed forward by the big coalition the Bundesrat - the chamber of the "Länder" refused to pass the reform act and send it back to the arbitration panel a committee formed out of members of the Bundestag and Bundesrat. The arbitration panel referred it back to the Bundestag where the reform act passed with the majority of the big coalition and became effective on May 1.

All stakeholder groups tried to influence the reform according to their needs. This is very usual in German health policy that is very much influenced by the various lobby-groups.

Legislative outcome


Actors and influence

Description of actors and their influence

MoHvery strongvery strong none
Bundestagvery strongvery strong none
Bundesratvery strongstrong none
Physiciansvery strongneutral none
Pharmaceutical Companiesvery strongweak none
Sickness fundsvery strongneutral none
Patients, Consumers
Patientsvery strongweak none
MoHSickness fundsBundestagPatientsBundesratPharmaceutical CompaniesPhysicians

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation


July: New reference prices
September: Until September 15 sickness funds and Physicians Associations will have to agree upoan the basics of the adoption of the bonus-malus regulation.

2007: The malus regulation will be effective in 2007.

The reform act offers various options for shaping the future for the different stakeholder groups. Pharmaceutical companies and sickness funds can negotiate rebates and Regional Physicians Associations and sickness funds regulations regarding the target costs. This will need some time and it shows that the "contract-business" becomes part of German health care reality. 

Working life will become more complicated for the physicians. Beginning with July 1 the individual physician will have to keep in mind if the price of a pharmaceutical lies above the reference price. If yes the physician and the patient have to decide together if the quality and the individual benefit of the pharmaceutical legitimates higher co-payments for the patient. Even more complicated it will be if pharmaceutical companies negotiated seperate rebates. Then the prescription options of the physicians depend on the sickness fund the patient is registered with.

Monitoring and evaluation

Pharmaceutical spending is closely monitored in Germany. Hence one will see whether the overall goal of the reform - cost containement - will be reached.

To my knowledge no evaluation of the parts of the reform is planned.

Expected outcome

It can be expected that costs of pharmaceuticals will decrease. Nevertheless all former reform activities in this sector showed that spending went up again after a while.

This reform is rather heterogenius and gives the players various options for negotiations. This makes it rather difficult to say if the reform will be a success.

The cost containment might be bought dearly if co-payments of patients increase significantly and the bonus-malus regulation really puts a thread to patiants-physicians relatuonship.

And as we all know: After the match is before the match!

Impact of this policy

Quality of Health Care Services marginal neutral fundamental
Level of Equity system less equitable system less equitable system more equitable
Cost Efficiency very low high very high

Reform will have to show if really cost-effective.

Worries regarding co-payments and chronically ill patients.


Author/s and/or contributors to this survey

Sebastian Hesse

Suggested citation for this online article

Sebastian Hesse. "Pharmaceutical-Prescribing-Efficiency-Act". Health Policy Monitor, 04/2006. Available at