Wasting of rear leg muscles usually indicates a problem with either the dog having arthritis making them use the muscles less or an issue with the spine where nerve signals are not getting to the rear legs to make the muscles work. Sometimes a tick carried disease can cause joint and muscle pain leading to this type of response also.
Dogs that drink extra water may be hypothyroid and those dogs typically eat less also.
Your vet has rule out liver and kidney disease as those can make a dog drink too.
But diabetes and an adrenal gland issue called Cushings disease can both make a dog drink more and be really hungry and want to eat more. The need for more food may rule these out.
But if your dog is weak, and has pale gums or tongue in areas that are normally pink the weakness and thirst may be a sign of internal bleeding possibly from a tumor such as a chest wall or spleen tumor.
You may find an x-ray or ultrasound will tell you more about what is going on with your dog.
Hope this helps you!
Then internal tumors, spine problems, tick carried diseases may be worth checking for and Cushings takes very special testing with a different sort of blood work.
As your dog is not eating you might consider trying giving him some Nutrical a sticky supplement from the pet supply store or a similar product such as Dyne, Vitastat, or Nutristat. These are highly nutritous and can be placed right in the mouth so the dog has to swallow them and can perk up appetite too.
I see you added your dog is a German Shepherd (its a site problem that I couldn't see that before not your fault) and that may mean the rear issue is degenerative meyelopathy which you can read about here including diet and other care possibilities.
Blood work would be blood testing. The vet checks for diseases such as hypothyroidism, liver problems, the presence of white blood cells etc through blood work.
Its a different type of test that is done for Cushings disease.
If you read the article on the link I gave you about myelopathy above it lists things you can do to help the dog.
Here is an article on blood work