Martin Mansergh (Tipperary South, Fianna Fail)

I welcome this opportunity, or not as the case may be, to outline to the House the background to the decisions taken by the Minister for Health and Children under the Financial Emergency Measures in the Public Interest Act 2009 to tackle the rapid growth in the cost of distributing and dispensing drugs under the medical card and community drug schemes.

The cost of these schemes has doubled since 2002 to over €1.6 billion in 2008. Fees and other income earned by pharmacists have doubled accordingly. It cost the taxpayer €640 million to get €1 billion of drugs from factory gate to patients in the community in 2008. The Minister considers this growing level of cost unjustifiable and unsustainable and it has to be reduced.

Approximately 1,600 pharmacies hold contracts with the Health Service Executive from which they receive substantial fees and income and will continue to do so under the new measures the Minister announced. In view of the complex nature of the sector, and the different rates and retail mark-ups which apply under the schemes, the Minister decided to overhaul the payment structure.

Up to now, the general medical services scheme has attracted a dispensing fee of €3.60 per item, while the drugs payment scheme and long-term illness scheme attracted dispensing fees of €3.16 plus a 50% mark-up on the ingredient cost of the drugs. The changes involve a new higher dispensing fee structure for the schemes based on a sliding scale. It will be €5 for the first 20,000 items, €4.50 for next 10,000 items and €3.50 for the remaining items. The changes will reduce from 50% to 20% the retail mark-up payable under the community drugs schemes. No mark-up is payable under the general medical services scheme.

The amount paid to pharmacists includes a wholesale mark-up of 17.66% over the ex-factory price of these products. It means, for example, that in the case of a drug which leaves the factory gate at a price of €85, the Health Service Executive pays the pharmacist €100. In theory, this mark-up is intended to cover the price paid by pharmacists to their wholesale suppliers for the delivery of products. It is estimated the wholesale mark-up amounts to approximately €200 million per annum, of which half is retained by community pharmacists.

The Minister considers there is no justification for half the wholesale mark-up being retained by pharmacists in addition to the fees and mark-ups they are paid. This mark-up will be reduced to 10% which will save €77 million in full year terms.

Pharmacists are also paid a premium of approximately €33 million per annum on foot of an agreement in 2001 arising from the granting of medical cards on an automatic basis to persons aged 70 years and over. Upwards of €200 million has been paid to pharmacists up to the end of 2008 under this arrangement. This special payment is being ended now to save €33 million in a full year.

The savings to the Exchequer from these measures are estimated at €55 million for the remainder of this year and €133 million on a full-year basis. This is almost exactly what would have been saved if the Minister had imposed an across-the-board 8% reduction in fees and retail mark-ups and re-imposed the reduction in wholesale mark-up to 8%, as attempted by the Health Service Executive last year. However, the Minister decided to achieve broadly the same level of reduction through a revised common fee structure for dispensing, a reduced retail mark-up, removal of the special payment for over-70s dispensing, along with the lesser wholesale reduction.

In accordance with the Financial Emergency Measures in the Public Interest Act 2009, a public consultation process has already taken place. All interested stakeholders were invited to make submissions. Over 100 other written submissions were received, most of them from community pharmacists. The Irish Pharmacy Union made a written submission and made an oral submission to Department officials. These were analysed and considered before the Minister made her decision on the restructuring of payments.

The retail pharmacy sector has been on notice for some time of the need to reduce substantially the amount paid by the State. Senator Ross pointed to the number of investments in their businesses made by pharmacists, sometimes involving high degrees of borrowing. In the last analysis, a pharmacy is a business and, as we know with investments in other sectors of the economy, investment can pay off or be over ambitious. I would be second to none in my regard for my local pharmacies. The truth, however, is that the State is not in a position to pay the escalating sums of money in order to maintain the status quo.

The Minister is aware that a number of pharmacists have threatened to withdraw from participation in the community drugs schemes. Under the Act, health professionals are required to give 30 days notice of their intention to withdraw service. The Minister believes the threats of withdrawal of service by community pharmacists are unjustified and not in patients' interests, and there can be no grounds for causing upset or anxiety about the supply of prescriptions to patients. The HSE has written to all 1,600 community pharmacy contractors to clarify whether they intend to continue the provision of services under the GMS and community drugs schemes. A contingency plan is being put in place by the HSE and will be implemented if required to ensure supplies of medicines to patients under the GMS and community drugs schemes will continue in the event of discontinuation of services by community pharmacists.

The Government recognises that those measures will pose a challenge for the pharmacy sector. However, not making those savings will be even more challenging for health services and would mean significant, immediate cuts in hospital and home-based services for patients. The budget of the HSE this year assumes savings of at least €50 million to be achieved in the area of pharmacy costs. Other actions are being taken and will be taken by the Department and the HSE with a view to containing costs. Among the matters being addressed are the price of drugs, the volume of drugs prescribed and the extent of use of patent and generic drugs.

The reality is that we are in a very difficult situation and the Government has to take difficult and painful decisions. We previously discussed measures that will affect the Houses and will cause difficulty and distress for people. Regardless of their level of income people's commitments rapidly meet their income and, generally speaking, somewhat exceed it, so those sorts of adjustments are always very difficult. We have to combine understanding and compassion with difficult decisions but we must also be reasonably tough minded in the present situation. Every sector and group, including ourselves as Members, can always make a strong case as to why the status quo or something like it should be preserved, and that it is inadequate compared with what it should be, but this is just one area and there are many areas that will cause us difficulties.

We will have to work our way through it. We cannot allow ourselves to be completely swayed by messages and communications from a particular group that is defending its interests, in a bona fide way from its point of view, but where we are apt to lose sight of the larger interest, namely, that we survive and get through the current difficulties both in the health service and in every other sector of the economy. Unfortunately, that involves us – the Government in particular, but also the Oireachtas in a larger sense - taking and standing over tough decisions.