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.