Mary Harney (Dublin Mid West, Progressive Democrats)

I welcome the opportunity to update the House on the pharmacy reform programme, which one cannot isolate from the overall health transformation programme that has been under way for the past number of years. The purpose of the latter is to deliver better services to patients and clients of the health service to ensure that we place a higher emphasis on quality of care and that people have access to health services at primary care level or in the acute system when necessary. Since the establishment of the HSE at the start of 2005, the increase in the organisation's expenditure of more than €4 billion is greater than the total sum used to support the health service in, for example, 1996. I want to put this fact in context. That notwithstanding, we hear frequent references to cutbacks and so on.

One of the greatest increases in health budgets, in Ireland as in other places, is the rising cost of drugs. We want to ensure that, as new therapies and innovations appear on the market, they are accessible to patients. There are three main groups in the pharmacy chain, namely, the producers of medicine, the distributors to the retail sector and the pharmacists, the dispensers of medicine to patients. Reform and better value for money have been recommended by many reports. The most recent, the Brennan commission, was highly critical of our system of reimbursements under the drugs payment scheme, which I shall address.

In terms of seeking better value for patients who purchase drugs and for taxpayers who pay more than 70% of the State's drugs bill, the HSE and the Department of Health and Children began to negotiate with the various components of the supply chain. They began with the producers of medicine and achieved a successful outcome. Heretofore, Ireland was in a basket of five countries, generally the most expensive in Europe, and paid the average price of the five. We are now in a basket of nine countries, including Spain, and will pay the basket's average price to the producers of drugs, leading to a 10% reduction in our payment for new drugs.

Drugs go off patent. When drugs are on patent, companies that innovate are entitled to a return on their investments, which are significant in the area of pharmaceutical development. Many investments never come to fruition. When drugs go off patent, we will get a reduction of at least 35%. Over four years, this represents a saving of €260 million. Some have stated that it would have been better to move to generic prescribing. According to the National Centre for Pharmacoeconomics at Trinity College, we have done better as a result of the reduction of at least 35% than we would have had we moved to generics. Our negotiated agreement with the producers of medicine is a good one and will benefit taxpayers and patients.

In good faith, the HSE and the Department entered into negotiations with the wholesalers. Our constant opinion, which I hold strongly, has been to seek to negotiate where possible. However, in the course of the negotiations, the wholesalers produced legal advice suggesting that negotiating prices with any group was against competition policy in Ireland and at European level. This was the first time the issue was raised. When the HSE sought legal advice and I asked the Attorney General's office to reflect on the matter, it was confirmed that we are not free under Irish and European law to set down and effectively fix prices with any group. This being the case, the negotiations on the price for the wholesale margin came to an end. In Ireland, the wholesale margin was just under 18%, twice the rate in Europe. To put this in context, in Ireland just over €1 billion was spent on community drugs in 2007 and it cost €600 million to take those drugs to patients. It is incredible that it should cost an extra 60% to take products to patients and such a situation exists nowhere else in the world. The wholesale margin of 17.8%, double the European Union average, was regarded as excessive. Indecon was asked, as an independent consultancy firm, to evaluate this area on behalf of the Health Service Executive, HSE, and following its evaluation it was accepted that from 1 December 2007 the margin should be reduced from 17.8%, to 8% and then to 7% next year. This reduction was delayed for three months to facilitate a Shipsey process that, unfortunately, went nowhere.

The wholesale margin will, effectively, be halved, which will save about €100 million in a full calendar year, or about €9 million per month. The wholesalers accept that an 8% margin can allow for a quality service and give them a reasonable profit. Recently when the HSE went to tender for the distribution of a particular product——

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