How does Germany control health care spending?

By contracting with office-based doctors (gate keepers?) , by using DRGs [diagnosis-related groups] to reimburse for hospital care, and by encouraging everyone to avoid unnecessary expenditures.

As an example, I will describe the incentives we use to limit drug expenditures. First, we introduced small copayments for prescriptions. These copayments, which vary based on each drug’s cost, discourage patients from using expensive medications that provide no real advantage over less expensive alternatives.

We then introduced a reference price system based on therapeutic classes—groups of similar drugs used for the same condition. Under this system, we reimburse for all drugs in a therapeutic class at the same price (for more details on how this is done, see sidebar “How Germany establishes reference prices,”). Our goal was to give pharmaceutical companies an incentive to concentrate on innovation and not simply to produce follow-on medications. Reference pricing does not prevent a pharmaceutical company from demanding more money for a given drug, nor does it prevent a doctor from prescribing that drug. However, the doctor would have to explain to patients why that drug is necessary, and the patients would have to be willing to pay an added amount above the normal copayment. The pharmacists filling the prescriptions would also question the patients to make sure that they understood that less expensive alternatives were available. Because generic substitution is permitted in Germany, we have yet another check in place to ensure that expensive drugs are used only when appropriate. Last but not least, we removed most over-the-counter drugs from the benefits package. Patients who buy drugs without a prescription have to pay for them.