German Constitutional Court upholds pharmaceutical cost control measures: implications for drug pricing and reimbursement

In a significant decision rendered on May 7, 2025, Germany's Federal Constitutional Court (Bundesverfassungsgericht) rejected a constitutional complaint against the GKV Financial Stabilization Act (GKV-Finanzierungsstabilisierungsgesetz), upholding key cost containment measures in the pharmaceutical sector. 

This analysis examines the court’s decision and implications for pharmaceutical pricing in Germany, following the recent publication of the detailed reasoning behind the ruling on July 16, 2025.

Background: Germany's Healthcare Financing Challenge

Understanding the significance of this ruling requires consideration of the structure of Germany's healthcare system. The country operates a dual healthcare system with statutory health insurance (Gesetzliche Krankenversicherung, GKV) covering approximately 85% of the population, while the remainder is covered by private insurance. The system faces mounting financial pressures due to demographic changes, rising healthcare costs, and the economic impact of recent global events. 

In Germany's pharmaceutical reimbursement framework, no specific reimbursement authorization is required for drug distribution following the grant of marketing authorization. Under the pre-existing regulatory regime, pharmaceutical manufacturers enjoyed unrestricted pricing autonomy during the initial twelve-month period post-launch, after which mandatory price negotiations commenced with the National Umbrella Association of Statutory Health Insurance Funds (GKV-Spitzenverband). This established pricing mechanism was substantially modified by the contested legislative provisions. 

The GKV Financial Stabilization Act introduced several key cost containment measures affecting the pharmaceutical sector, some of them highly disputed:

• Guard rails for reimbursement negotiations: Mandatory price ceilings for drugs with no, minor, or non-quantifiable additional benefit when the comparator is patent-protected, limiting negotiation flexibility
• Combination therapy discount: A mandatory 20% flat-rate deduction for new active ingredients used in designated combination therapies
• Increased manufacturer's discount: Temporary 5 percentage point increase in the general manufacturer's discount for 2023 (total rebate of 12 %, time-limited to 2023 only)
• Retroactive reimbursement: Implementation of retrospective validity of reimbursement amounts from the seventh month after market launch, thereby effectively shorteing the period of full pricing autonomy to only six months
• Quantity-related pricing: Mandatory inclusion of quantity aspects in reimbursement negotiations
• Waste consideration: Required consideration of drug waste exceeding 20% due to uneconomical pack sizes as a price-reducing factor
• Reduced orphan drug threshold: Lowering of the revenue threshold for orphan drugs from €50 million to €30 million for benefit assessment, resulting in the need for a full dossier for the HTA process

The constitutional complaint

Pharmaceutical industry stakeholders challenged several key provisions of the GKV Financial Stabilization Act. First, they contested the additional 12% discount on dispensing prices, which works alongside the existing 7% discount to create a combined discount burden of nearly 20% for pharmaceutical companies.

Second, they challenged the extension of the price moratorium through the end of 2026, which keeps prices frozen at August 2009 levels. Industry stakeholders argued that this long-term price freeze, spanning over 17 years, constituted an unconstitutional restriction on their ability to adjust pricing in response to inflation, increased costs, and changing market conditions.

Third, the 20% combination therapy discount for new active ingredients used in designated combination therapies was also challenged. 

Finally, the industry challenged the stricter guidelines for reimbursement negotiations, including mandatory price ceilings for drugs with limited additional benefit as well as the retroactive reimbursement implementation from the seventh month after market launch.

The constitutional complaint was filed by pharmaceutical industry stakeholders who argued that these measures violated fundamental rights protected under Germany's Basic Law (Grundgesetz), including property rights and the principle of proportionality. The complainants maintained that the combined impact of these cost containment measures constituted an excessive interference with their property rights, business operations, negotiation rights, and fair market competition principles.

Key provisions upheld by the court

The Constitutional Court's decision confirms the validity of several critical cost control measures that will continue to shape the German pharmaceutical market:

First, the court upheld the additional 12% discount on dispensing prices, which operates alongside the existing regular 7% discount that was implemented in 2023. This means that pharmaceutical companies must provide a combined discount of nearly 20% on their products sold through the statutory health insurance system. This represents a substantial reduction in revenue for pharmaceutical manufacturers operating in the German market.

Second, the ruling confirms the extension of the price moratorium until the end of 2026, with prices frozen at August 2009 levels. This moratorium prevents pharmaceutical companies from increasing prices for existing products, effectively maintaining pricing at levels established over 15 years ago. For international observers, this represents one of the most stringent price control mechanisms in any major pharmaceutical market globally.

Decision on combination rebate and guard rails for reimbursement negotiations

Notably, the Constitutional Court's decision addressed the combination therapy discount, guard rails for reimbursement negotiations, and the retroactive reimbursement implementation from the seventh month after market launch in a nuanced manner. While the court dismissed the constitutional complaint as inadmissible, it explicitly stated that questions regarding the legality of the 20% combination therapy discount remain within the jurisdiction of the regular courts. This means that while the constitutional challenge failed on procedural grounds, the substantive legal questions surrounding this measure have not been definitively resolved. Similarly, the guard rails for reimbursement negotiations—which establish mandatory price ceilings for drugs with no, minor, or non-quantifiable additional benefit when the comparator is patent-protected—were not subject to a full constitutional review due to the inadmissibility ruling. These provisions therefore remain subject to potential challenge in administrative, social and civil courts, which retain jurisdiction to examine their compliance with pricing and reimbursement law, administrative law principles, and other legal frameworks beyond constitutional considerations.

Implications for ongoing legal challenges

This means that pharmaceutical companies and industry associations can still challenge these measures through social, administrative and potentially civil courts, which have jurisdiction over specific aspects of healthcare regulation. These courts will need to examine whether the measures comply with European Union law, administrative law principles, and other legal frameworks beyond constitutional law. Due to procedural particularities in German constitutional law, it remains possible that these specialized courts may refer the relevant questions back to the Federal Constitutional Court through the concrete judicial review procedure, which would then require the Constitutional Court to render a definitive decision on these matters.

Looking forward

The Constitutional Court's decision provides legal certainty for the immediate implementation of certain cost containment measures through 2026. However, ongoing challenges in specialized courts regarding the combination rebate and broader pharmaceutical pricing sustainability debates indicate that this ruling represents one chapter in continuing legal and policy discussions rather than a final resolution.

For pharmaceutical companies operating in the German market, the decision requires strategic recalibration to address both confirmed cost containment measures and ongoing legal uncertainties. Given the legal uncertainty surrounding the 20% combination therapy discount and the guard rails for reimbursement negotiations, pharmaceutical companies should incorporate scenario planning for these measures into early-stage product development decisions, including trial design, market entry strategies, pricing models, and therapeutic positioning. This forward-looking approach becomes particularly critical for combination therapies and products targeting indications where comparator treatments remain under patent protection.