Germany’s lower house of parliament approved a health reform bill aimed at reining in rising costs in the statutory health insurance system. The measure passed on Friday and is now set to be considered by the upper house representing the federal states, with Reuters reporting that approval there is expected.

Health insurance in Germany is financed primarily through payroll contributions shared by employees and employers. With costs increasing, higher contribution rates raise both labour costs for companies and reduce workers’ take-home pay, making the system’s financing a major political and economic issue.

The government’s reform focuses on closing a growing funding gap through several measures, including:

higher mandatory rebates from drugmakers, tighter limits on hospital cost increases, and changes to how payments work for a range of health services.

Health Minister Nina Warken said the bill would create a basis for stable finances in statutory health insurance and limit future increases to the development of the overall economy.

Drugmakers sharply criticized the reform. In particular, they objected to tougher statutory discounts and pricing controls that they say could hurt profits, deter investment, and ultimately affect patient care and innovation. The pharmaceutical industry argued that the approach risks weakening Germany’s position as an innovation hub for new medicines.

Even if the upper house delays or rejects the bill, Reuters noted the legislation could end up in a mediation process.