Background and aims In Germany, the Institute for Quality and Efficiency in Health Care (IQWiG) makes recommendations for reimbursement prices of drugs on the basis of a proportional relationship between costs and health benefits. This paper analyzed the potential of IQWiG's decision rule to control health expenditures and used a cost‐per‐quality‐adjusted life year (QALY) rule as a comparison. Methods A literature search was conducted, and a theoretical model of health expenditure growth was built. Results The literature search shows that the median incremental cost‐effectiveness ratio of German cost‐effectiveness analyses was €7650 per QALY gained, thus yielding a much lower threshold cost‐effectiveness ratio for IQWiG's rule than an absolute rule at €30 000 per QALY. The theoretical model shows that IQWiG's rule is able to contain the long‐term growth of health expenditures under the conservative assumption that future health increases at a constant absolute rate and that the threshold incremental cost‐effectiveness ratio increases at a smaller rate than health expenditures. In contrast, an absolute rule offers the potential for manufacturers to raise drug prices in response to the threshold, thus resulting in an initial spike in expenditures. Conclusions Results suggest that IQWiG's proportional rule will lead to lower drug prices and a slower growth of health expenditures than an absolute cost‐effectiveness threshold at €30 000 per QALY. This finding is surprising as IQWiG's rule—in contrast to a cost‐per‐QALY rule—does not start from a fixed budget. Copyright © 2014 John Wiley & Sons, Ltd.