Mary Harney (Dublin Mid West, Progressive Democrats)

I am very happy to be here to deal with pharmacy pricing issues. Many Members of this House have been interested in this for some time. I want to set out the context in which the HSE and the Government is examining the cost of pharmaceutical products. We cannot separate this from the wider issue of health reform. In the health reform or transformation programme we seek to achieve a number of objectives, in particular to make our health service more responsive to the needs of patients and ensure patients have access to appropriate treatments when they need them, whether in hospital treatments or pharmaceutical or other products.

The cost of pharmaceutical products in Ireland has risen very dramatically. In 1991, for example, we spent the equivalent of €200 million on the community drugs scheme. In 2007 we spent €1.5 billion on the same scheme. By any standards that is an incredible increase. When the Government and the HSE investigated the rising cost of drugs in Ireland we had to examine the whole supply chain. There are three elements in that chain: the manufacturers or producers, the wholesalers and the community or retail pharmacy sector.

First, the HSE and Government began negotiations with the producers of medicine and the result of those negotiations has been positive from the perspective of taxpayers and patients. Prices of all drugs going off patent will be reduced by at least 35%. That is significant and the National Centre for Pharmacoeconomics said it is a greater saving than if we immediately moved to generic prescribing. In addition, Ireland is part of a wider basket of countries. In the past we belonged to a basket of five countries, and they were the five most expensive countries in the EU. Today Ireland belongs to a basket of nine countries including Spain, and we will procure new pharmaceutical products at the average price in that basket. That is 10% lower than the price at which we produce new products today. That is very satisfactory from the perspective of the taxpayer and the patients.

Next, the HSE and the Department of Health and Children sought and began, in good faith, to negotiate with the wholesalers. In the middle of those negotiations the wholesalers produced legal advice that suggested it was a breach of competition law to negotiate, that fixing or agreeing prices with the wholesalers, which is what would happen through those negotiations, was contrary to Irish and European competition law. Negotiations were suspended for the HSE to get legal advice. I also sought the advice of the Attorney General and independent legal advice was sought. It confirmed that Irish and European competition law does not allow the Government to enter negotiations on price setting with any group. That was a disappointment and it was news to us, but it is the law. Thereafter, the HSE commissioned independent research by Indecon to look at the wholesale margin in Ireland. Essentially the wholesale margin in Ireland is double the margin across the EU. For example, we pay 18% by way of a wholesale margin.

The next piece in the equation is the retail or community pharmacist, and the State's contract with such pharmacists is based on supplying drugs through the General Medical Services, also known as the medical card scheme, or through the drug payment scheme. There are also some small agreements on high-tech drugs. For the GMS, we pay a dispensing fee of €3.26 per item, and we pay a 50% mark-up on the drug for the drug payment scheme, as well as a dispensing fee of about €2.60. Those fees deliver an average of €240,000 per year to pharmacists, or €100,000 more than pharmacists in Northern Ireland for the service they provide.

It is my view that pharmacists should be paid for the professional service they supply, which is the dispensing of medication. They should not be paid fees based on the commodity price or based on a mark-up of the commodity price. As drugs get more expensive, a 50% mark-up clearly would become unsustainable and I know of no country where fees are paid on that basis. We are seeking to get better value for taxpayers and better value for patients. The wholesale margin will be reduced to roughly the European average of 8% from 1 March and 7% from 1 January 2009. When the wholesalers made their submission to the HSE as part of those negotiations, they acknowledged that the 7% to 8% margin allowed for overheads and running costs of 4% to 5% plus a profit margin of 2% to 3%. The HSE recently went to tender for the supply of vaccines, which must be distributed in complicated conditions in freezers and so on. The company that won the contract did so on a 4% margin. In Northern Ireland the wholesale price is 12.5% for the first €180,000 and thereafter it drops to 4%. Therefore, I do not accept that a wholesale margin of 7% from the start of next year is not adequate for a thriving wholesale business.

We have a virtual market here. The three big wholesale companies have major interests in the pharmacy sector. United Drug has invested €300 million in pharmacies. Cahill May Roberts owns about 70 pharmacies while Uniphar owns between 400 and 500 pharmacies.

A number of changes have been made to pharmacy legislation in recent years. A regulation was introduced in 1996 to restrict the location of pharmacies, based on the number of miles from the nearest pharmacy. This was repealed by the then Minister for Health and Children, Deputy Martin, in 2002. At that time the Irish Pharmaceutical Union predicted that there would be catastrophic consequences, but since then we have had a 26% increase in the number of pharmacies in this country.

I enacted a Bill in 2005 to liberalise the market to allow more pharmacists to open premises in Ireland, including many graduates who could not get into pharmacy school in this country because we only had one school with a restricted number of places. Many of our own young people had to go abroad to study pharmacy, but when they came home they could not open their own pharmacy. When we acted in 2005 to change that, it was again predicted that there would be dire consequences for the pharmacy sector. Since then, there has been a 5% increase per annum in the number of pharmacies in the country.

The Government wants to see a thriving community pharmacy sector. It has been suggested that up to 200 pharmacies may close as a result of the new wholesale price. Even if we were to accept that, it means that we are being asked to pay €5 million per annum to each of those pharmacies to keep them open. I do not think anyone could suggest that that would be possible or desirable.

The new dispensing fee of €5 per item from 1 March for those who wish to enter into a temporary contract, as announced by the HSE, represents a 70% increase on the €3.26 fee. That may well be attractive for some pharmacists. However, representatives of the pharmacy union made the point to me that because that fee was not set by an independent process, pharmacists would be very reluctant to accept it. That is why I asked Mr. Sean Dorgan, a former head of the IDA and a former Secretary General of two Departments, to oversee a group which was composed of himself, Mr. Mark Moran, the former chief executive officer of the Mater Private Hospital and who worked in the pharmaceutical sector, and Ms Mary O'Dea, the director of consumer affairs at the Irish Financial Services Regulatory Authority and who has enormous credibility as a consumer champion. The group was asked to look at the flat fee for dispensing on a temporary basis.

We are not in a position to break a contract nor would we wish to do so. Breaking a contract requires at least six months' notice. The intention of the Government and the HSE is to enter into negotiations with the IPU on a new contract for pharmacists. I want to see the developmental role of pharmacists taken more seriously. I want to see pharmacists, as well-educated and skilled health care professionals, more involved in chronic illness management, in preventative health care measures and in primary care. Through negotiating a new contract with the IPU, I hope we will be able to do that. We would not be able to negotiate the price for that new contract owing to the competition laws I mentioned earlier, so it will have to be set by an independent body.

It is not acceptable nor sustainable that it should cost €600 million in Ireland to get €1 billion worth of products from the manufacturer to the patients. I know of no sectors that have margins of 60% to 70%. Therefore, I believe that the separation of the professional dispensing fee from mark-ups and discounts is desirable in the interests of the taxpayers and in the interests of the patients. It is also desirable in the interest of the pharmacy sector, especially those pharmacists that are very heavily dependent on medical card patients or in rural areas with very small turnover. Such pharmacists will do a lot better as a result of a higher dispensing fee than is currently the case.

I am very pleased that patients have not been adversely affected since 1 March. The freefone line operated by the HSE has taken about 300 calls. In all those cases the operatives have been able to reassure the patients, and I pay tribute to the pharmacy profession. I think pharmacists——