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The European Commission has opened an in-depth investigation to verify whether a German scheme which is granting companies in financial difficulties exemptions is in line with European Union state aid rules.

By Lucy Brake on Jul 29, 2013

The Commission is investigating German law on rebates for pharmaceutical companies facing financial problems. Based on Council Directive 89/105/EEC which allows Member States to impose a price freeze on medicinal products, Germany introduced an obligatory manufacturer's rebate of 16 per cent to be granted by producers of certain prescription medicines to public sickness funds and private health insurers between 1 August 2010 and 31 December 2013.

“The Directive allows pharmaceutical companies to apply for derogations from such price freezes, if this is justified by ‘particular reasons’. After a complaint by a German pharmaceutical company, the Commission opened an investigation on a German law that provides derogations from the mandatory rebate if it would jeopardise a company's financial standing”. The Commission says that on this basis a number of derogations have been granted by the federal authority in charge. This is the opening of an in-depth investigation which provides interested parties an opportunity to comment on the scheme under assessment.

eyeforpharma has previously explored what Germany’s Act to Reform the Market for Medicinal Products means for market access for pharma companies, summarising that “if one piece of legislation can be said to embody the harder line pricing and reimbursement systems in Europe are taking on wringing value out of new medicines, Germany’s Act to Reform the Market for Medicinal Products must be a frontrunner.” This latest inquiry is likely to add fuel to these concerns.
 

The Commission considers that the derogations granted by the German government involve state aid, as the exemptions from the rebate have an impact on state resources. They increase the costs of the public sickness funds that receive their means mainly from a central health fund which is partly financed through tax subsidies. “Moreover, although the possibility for derogations from price freezes is foreseen in the Directive, the legal basis for the exemptions is a German law and they are granted on a case-by-case basis by a German authority. The notion of ‘particular reasons’ leaves significant discretion to Member States.”

For a while now the pharmaceutical industry has been concerned about the approach the German government has taken towards this sector in terms of approvals and pricing. The Commission notes that due to the definition of 'particular reasons' under German law, it is very likely that all beneficiaries concerned are firms in financial difficulty. State aid granted to companies in difficulty needs to comply with common criteria set out in the EU guidelines for rescuing and restructuring companies in financial difficulty. These criteria are aimed at avoiding that ailing companies are kept artificially alive with public subsidies to the detriment of more efficient competitors.

“At this stage, the Commission has doubts that the German measure complies with the R&R guidelines, because the aid is neither limited in time nor granted on the basis of a restructuring plan.”