Michael Ring (Mayo, Fine Gael)
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Question 246: To ask the Minister for Health and Children if her attention has been drawn to the recent directive from the Health Service Executive to pharmacies in relation to the reduction of the wholesale mark-up on medicines from 1 January 2008; the effect this will have on rural pharmacies; and if she will make a statement on the matter. [21813/07]

Michael Ring (Mayo, Fine Gael)
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Question 247: To ask the Minister for Health and Children if rural pharmacies will be forced to restrict service and even opt out of the medical card scheme as they will be operating at a loss, if the new measure to cut the wholesalers margin calculated on the ex-factory price of medicines is introduced; and if she will make a statement on the matter. [21814/07]

Mary Harney (Dublin Mid West, Progressive Democrats)
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I propose to take Questions Nos. 246 and 247 together.

My Department and the HSE have been reviewing the pharmaceutical supply chain, with a view to seeking value for money in the State's drugs bill in order to better fund existing and innovative therapies without compromising continuity of supply or patient safety. An HSE-led negotiating team, including officials from my Department, engaged with the Irish Pharmaceutical Healthcare Association (IPHA) and the Association of Pharmaceutical Manufacturers of Ireland (APMI), representing the proprietary and generic supplier representative bodies, and completed new agreements with these bodies in mid-2006. These agreements are in place.

As wholesale margins are not addressed in the new IPHA and APMI Agreements, it was intended to negotiate direct formal arrangements with the wholesale sector. Following completion of the manufacturer agreements and in line with the process agreed by the Cabinet Committee on Health, the negotiating team entered talks with the wholesaler representative body, the Pharmaceutical Distributor's Federation (PDF).

Early in discussions, PDF refused to negotiate a new margin for community supply, based on its own legal advice that this was a contractual matter between individual wholesalers and retailers. Subsequent legal advice to the HSE, confirmed by legal advice to my Department, indicated that, under section 4 of the 2002 Competition Act, PDF as an association of undertakings may not collectively negotiate fees, prices or margins on behalf of its members. Given the fact that the Irish Pharmaceutical Union is also an association of undertakings, it is not possible for the State to negotiate with PDF or the IPU on fees or margins as such negotiations would place these bodies at risk of prosecution.

In light of the legal position arising from the wholesaler legal advice, the negotiating team re-considered how best to address the review of pharmaceutical supply. Based on the legal advice, a consultation process accompanied by independent economic analysis was considered the most appropriate means to allow for the determination of new reimbursement arrangements. Following the completion of this process, and informed by independent economic analysis, new reimbursement arrangements were announced by the HSE on 17th September 2007.

In its examination of the issues involved, the negotiating team considered a reimbursement level that reflects the market value of pharmaceutical wholesale services, and security and continuity of supply at current levels to patients. The evidence on which the decision is based, following examination of the issues, direct consultation and independent economic analysis, all indicates that the State is currently paying a premium for the services in question. It is possible and necessary for revised arrangements to be put in place without a substantial impact on the delivery of such services.

Information available to the negotiating team indicates that small and rural pharmacies typically receive discounts of 2-3% on the existing wholesale margin, while larger urban pharmacies and chains typically receive discounts of up to 12%. Therefore, smaller and rural pharmacies would be proportionately less affected by the revised arrangements. I would point out that pharmacists provide services under the medical card scheme under the terms of a contract agreed with the HSE. In the light of the legal advice received, and following consultation with the IPU, a separate procedure was also agreed to examine available options for advancing contractual negotiations in compliance with Irish and EU competition law. This process is being chaired by Mr Bill Shipsey, SC. This process is continuing.