Germany is becoming a freeloader in global pharmaceutical innovation. American patients and taxpayers finance a disproportionate share of the research that produces new medicines, while German price controls allow Berlin to demand the benefits of innovation without bearing its share of the cost. The consequences are hard to ignore: Between 2017 and 2021, the share of new medicines launched in Germany fell from 66 percent to 61 percent. As the country ages and healthcare costs rise, German patients risk losing access to the very breakthroughs their own pharmaceutical industry once helped pioneer. Germany should serve as a cautionary tale for all nations, and it is a reminder that free markets are the best at delivering medical treatments.
Germany has spent years building an elaborate system of pharmaceutical price controls, using centralized assessments, reimbursement negotiations, and reference pricing to determine what its public insurers will pay for new drugs. When manufacturers cannot accept the government-backed price, they face a stark choice: absorb the loss and shift costs to consumers in freer markets like America, submit to arbitration, or withdraw the medicine from the market.
Between 2011 and 2018, 29 drugs were removed from the German market following the country’s assessment and pricing process. For the patients who might have benefited from those treatments, the result was not affordability. It was no access at all.
This is the central weakness of price controls. They promise lower costs by ignoring scarcity. Government can dictate what it is willing to pay for a product. It cannot compel a company to sell that product at a loss. It cannot force investors to finance the next generation of treatments. And it cannot command scientists to produce cures after policymakers weaken the incentives that make research possible.
Developing a new medicine is expensive and uncertain. Researchers invest years in laboratory work, clinical trials, regulatory review, manufacturing, and distribution. Most experimental drugs never reach patients. The treatments that succeed must help finance the many promising ideas that fail.
Price controls do not make that process cheaper. They merely conceal the costs or shift them elsewhere—usually the American consumer. Over time, companies become more cautious about financing difficult projects, leaving potential—or even existing—cures beyond the reach of patients who need them.
The consequences are visible in global markets. During the first year after a medicine’s global launch, when time matters most to patients with serious illnesses, only 44 percent of new drugs reached Germany. The figure was 24 percent in Sweden and 36 percent in Denmark. In the United States, it was 78 percent.
These disparities did not emerge by accident. They reflect economic reality: Innovation and access follow incentives.
Germany now risks learning that lesson the hard way. As the country confronts mounting healthcare costs, officials are considering still more restrictions on pharmaceutical spending. Pharmaceutical executives have warned that new medicines could be launched later in Germany—or not at all—if the country continues to manipulate prices while other nations reconsider how much they are willing to pay.
Germany should serve as a warning to America. Price controls do not produce cures. Scientists, researchers, entrepreneurs, and investors do. A serious healthcare policy rewards innovation rather than punishing success through government mandates.
Price controls offer consumers the illusion of savings at the cost of poorer access and less innovation. Free markets preserve the conditions that make better treatments possible for those who need them.
Victor Riches is President and CEO of the Goldwater Institute.
