Bayer AG (BAYRY), Roche (RHHBY), and other drug manufacturers are upset by a German government proposal to tighten price controls on prescription drugs, claiming the move could restrict patient access to new drugs.

Under a proposed new law, Germany would set a 250 million euro ($268 million) ceiling on sales of a new drug during its first year on the market. Once a drug's sales exceed that ceiling, price controls would kick in. The law essentially limits the revenues a newly-launched drug can collect during its first year.

The same proposal is applicable to older drugs that are slated to expire between 2017 and 2022.

The Business Times reports that: “Together, the two measures could save as much as about 1.9 billion euros annually,” with the older drugs accounting for the larger part of the savings. (See also: Top-Costing Drugs for Medicare.)

At present, drug manufacturers are free to charge whatever they want during the first year a drug goes to market, regardless of how much they earn. A six-month assessment is made in the interim to check whether their drug beats what's already available on the market, and that assessment forms the basis of price determinations beyond the first year.

Increasing Global Health Care Spends

As governments across the globe struggle to contain the increasing costs of healthcare, pressure is trickling down to drug makers that are being forced to reduce prices with new regulations. (For more, see Hospitals Feel Pain of Soaring Drug Prices.)

German officials justify the new proposed law, claiming it allows initial benefits to the drug makers up to the set ceiling. If a drug company clears the ceiling, that means its expensive drug has a demand from enough patients to warrant governmental price controls. (See also: Top-Costing Drugs for Medicare.)

Naturally, drug companies are concerned about lost revenues, claiming it would impede their development of innovative new drugs.

Due to the existing open drug pricing during initial launch, new drugs are introduced earlier in Germany than in other EU nations. (For more, see Why Germany Is the Economic Powerhouse of the Eurozone)

Germany is the largest health care market in the European Union, and the fourth-largest in the world. German drug sales, which topped $58.6 billion in 2014, is expected to hit $65 billion by 2020. (For more, see What Countries Comprise the Majority of Global Drugs Sector?)

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