Batt O'Keeffe (Cork South Central, Fianna Fail)

I am pleased to have the opportunity to answer this question on behalf of my colleague, Deputy Harney, the Minister for Health and Children. I welcome the opportunity to set out the Government's position and thank Senator Kitt for raising the matter.

In 2005, the Cabinet committee on health agreed a range of options for containing growth in the State drugs bill. These options were based on proposals jointly made by the Department of Health and Children and the Department of Finance. The first issue addressed was the renegotiation of the agreements with IPHA, representing the research-based industry, and the Association of Pharmaceutical Manufacturers of Ireland, representing the generics manufacturers. These two agreements set out State pricing and supply arrangements for branded and generic drugs. Other issues to be addressed separately include drug schemes reform and the renegotiation of the pharmacy contract.

The new IPHA agreement means the prices of new off-patent proprietary and generic drugs will be much more closely aligned with other EU member states. That will be welcomed by the Senator. The APMI agreement will align generic prices accordingly.

The new 2006 agreements came into force in September and their main points include the following. The agreements are between the HSE as the purchasing and reimbursement authority and IPHA and APMI. The agreements are for four years and the pricing basket for new medicines is extended from five to nine member states, including lower-priced states such as Spain and Austria.

There is a price cut of 35% for substitutable off-patent medicines, including hospital buying, in two steps. For existing off-patent items, this will be 20% in March 2007 and 15% in January 2009. As products come off patent, they will be reduced accordingly, on introduction of a generic equivalent. There will be two price reviews for new medicines, at two and four years. The first will allow a price review against a full price basket, as not all prices may be available at introduction of a new medicine, and the second will capture other member states' price reviews.

The State may use pharmacoeconomic assessment in deciding on reimbursement of drugs and medicines under the State drugs schemes. Assessments include value for money and analyses of the benefits for patients. Reimbursement can be approved, refused or conditions applied, based on the analyses.

There will be innovative pricing structures, such as flat pricing across a dosage range. This may be used to keep older or commercially unviable products on the market where there is no alternative therapy. Generic manufacturers will have to compete with the lower off-patent prices. Generic prices will be reduced at the same time as off-patent products, through notification by the company or, failing notification, by the HSE.

Generic drugs are already widely available in the Irish market. Use of a proprietary or a generic equivalent is a matter for the prescriber, in consultation with the patient. The Department of Health and Children and the HSE have addressed the issue of generic supply in the State drug schemes through the IPHA and APMI agreements.

We have a 35% price cut for substitutable patent-expired drugs, with a similar reduction for generics. The reduction in the rate of increase in the State drugs bill will be approximately €320 million over the next four years. This will release significant resources for new and innovative therapies. This return is much greater than potential savings from formal structures, such as patient or pharmacist-led generic substitution or reference pricing. Therefore, neither the Department nor the HSE intends to pursue these formal generic options for the foreseeable future.

The Government is confident it can influence generic use through ongoing education of patients and prescribers. Of course, private patients will also benefit from the proposed price cuts under the new agreements, and they will be able to discuss, with their prescriber, the most appropriate cost-effective drug therapy for their needs.