The European Commission (the Commission) confirmed on 27 March 2015 that a German scheme exempting pharmaceutical companies from mandatory rebates is in line with EU State aid rules. The Commission concluded that the scheme facilitated price freezes on certain medicines, which in turn allows the costs of the public health system to be kept under control.

Council Directive 89/105/EEC allows Member States to introduce price freezes on pharmaceutical products. Article 4(2) of the Directive states that derogations from price freezes can be justified for “particular reasons”. Based on these provisions, Germany introduced a mandatory manufacturer’s rebate of 16% on certain prescription medicines sold to public sickness funds and private health insurers between 1 August 2010 and 31 December 2013. Also, under the Article 4(2) exemption, Germany set up a system of derogations for companies whose financial viability would be threatened by the rebate.

On 24 July 2013, the Commission opened an in-depth investigation after a competitor complained that derogations from the mandatory rebates constitute illegal state aid (case number SA.34881). The scope of the Commission investigation was to verify whether the German law that provided derogations from the mandatory rebate for companies in financial difficulties was legal under EU state aid rules.

In its decision, the Commission concluded that the scheme resulted in state aid on the following basis:

  • The derogations were granted by a federal authority on the basis of federal law.
  • As a consequence there was an increase in the costs of public sickness funds.
  • Only companies that would be in financial difficulties because of the rebate could receive a higher price for their sales than their competitors.
  • The advantage affects trade between Member States.

Nevertheless, the Commission found that the measure is compatible with Article 107(3)(c) of the Treaty on the Functioning of the European Union, which provides that “aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest” may be compatible with the internal market. It reached this conclusion on grounds of the following reasons:

  • The German scheme pursues an objective of common interest, namely to reduce public health spending.
  • The aid is strictly limited to what is necessary to reach this objective.
  • Strict controls are in place to verify and monitor that the rebate indeed places an unacceptable financial strain on the company applying for the derogation.
  • A direct causal link between the rebate and the financial strain needs to be proven.

This decision is very good news for those pharmaceutical companies that benefited from the exemption, but also for other Member States wishing to set up similar schemes. It also shows that it is possible to combine cuts in public healthcare spending without jeopardizing the national pharmaceutical manufacturing industry.


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Photo of Johan Ysewyn Johan Ysewyn

Johan Ysewyn is widely respected as a highly skilled European competition lawyer, advising on complex competition issues, including on merger control, anti-cartel enforcement, monopolisation cases and other conduct investigations. He acts as Co-Head of the firm’s Global Competition group and as Managing Partner…

Johan Ysewyn is widely respected as a highly skilled European competition lawyer, advising on complex competition issues, including on merger control, anti-cartel enforcement, monopolisation cases and other conduct investigations. He acts as Co-Head of the firm’s Global Competition group and as Managing Partner of the Brussels office.

Clients turn to Johan when they need cutting-edge competition and regulatory advice. He has been advising some of the world’s leading companies for over 30 years on their most complex competition issues. Johan is “an exceptional lawyer who is solution-oriented, has a remarkable ability to rapidly understand our business and has excellent reactivity.” (Chambers Global) Johan “attracts considerable praise for his reliable practice, as well as his great energy and insight into cartel proceedings.” (Who’s Who Legal)

Johan represents clients from around the world in dealings with competition authorities as well as in court litigation. He has in-depth knowledge of regulatory procedures and best practices as well as longstanding relationships with key regulators, in particular at the European Commission. He has also an active advisory practice covering a range of areas of interest to corporates, including the interplay between ESG goals and competition law, the impact of competition law enforcement on digital markets and broad strategic compliance issues.

Johan’s experience spans many industry sectors, with recent experience in telecoms and information technology, media, healthcare, consumer goods, retail, energy and transport. He has advised on several of the most major merger investigations in recent years. In addition, he has represented clients in many conduct investigations.

Johan’s practice also has a strong focus on global and European cartel investigations. He has acted for the immunity applicants in the bitumen and marine hose cartels, and acted for defendants in alleged cartels in financial services, consumer goods, pharmaceuticals, chemicals, consumer electronics and price benchmarking in the oil sector. He has acted for the European Payments Council in the first European Commission investigation into standardisation agreements in the e-payments sector. Johan has written and lectured extensively on international cartel and leniency-related issues. He co-authors the loose-leaf European Cartel Digest and lectures on cartel law and economics at the Brussels School of Competition.

Johan is also one of the leading experts on EU State aid issues, working both for beneficiaries and governments. He has advised a number of leading banks and governments, as well as represented major European airlines. From the cases that can be publicly disclosed, he has been involved in the Fortis, KBC, Dexia, Arco, Citadele, airBaltic and Riga Airport State aid cases.