The pharmaceutical industry is facing $2.7 billion in price cuts in Germany, where lawmakers are set to approve the first price controls on newly approved meds. The law gives drugmakers one year to negotiate prices with insurers after new drugs are introduced, but if a deal isn’t reached, the German Health Ministry will set maximum pricing, triggering a cost-benefit analysis, Bloomberg News writes.

The development is significant because agreements between drugmakers and insurers are likely to dampen sales. Moreover, other countries use German prices as a reference point. The bill follows temporary rebates and price freezes on drugs that German Chancellor Angela Merkel’s government imposed last summer (back story) to mitigate a huge deficit in the public insurance system that is forecast for next year.

Spending for drugs by funds that insure more than 70 percent of the German population rose 5.3 percent last year as drugmakers increased prices by 8.9 percent, according to the Health Ministry. Generic prices, many of which are already fixed through mandatory discount contracts, fell 2 percent, the news service notes. The law, however, only refers to drugs that are not yet approved for sale.