Fergus O'Dowd (Louth, Fine Gael)
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Question 246: To ask the Minister for Health and Children her views on the issues raised by the Irish Pharmaceutical Union (details supplied); and if she will make a statement on the matter. [23472/07]

Áine Brady (Kildare North, Fianna Fail)
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Question 281: To ask the Minister for Health and Children if she will amend the Competition Act 2002 to facilitate discussions between the Health Service Executive and the pharmacists organisations with a view to sustaining commercially viable small pharmacies; and if she will make a statement on the matter. [23975/07]

Mary Harney (Dublin Mid West, Progressive Democrats)
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I propose to take Questions Nos. 246 and 281 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, the negotiating team entered talks with the wholesaler representative body, the Pharmaceutical Distributors' 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 (IPU) 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. Consultation with the IPU Pharmaceutical Contractors' Committee, under Clause 12 of the Community Pharmacy Contractor Agreement, in relation to fees, prices or margins, would also be excluded under Section 4 of the 2002 Competition Act. The question of amending the Competition Act, 2002 is a matter for the Minister for Enterprise, Trade and Employment.

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. The consultation process involved direct discussion with wholesaler companies and a call for public submissions, published on 20th December 2006, in response to which a total of 161 submissions (including 143 from community pharmacy contractors) were received.

Following the completion of public consultation, and informed by independent economic analysis, carried out by Indecon Economic Consultants, new reimbursement arrangements were announced by the HSE on 17th September 2007. The new price arrangements involved revised rates for community and hospital supply, as follows:—

Community supply — reimbursement of cost of drugs and medicines to pharmacy contractors reduced from ex-factory price plus 17.66% for wholesale supply (previous mark-up), to ex-factory price plus 8% from 1st January 2008 and 7% from 1st January 2009 (new mark-up);

Hospital supply — new interim mark-up of 5% for wholesale supply from 1st January 2008, with further discounts or efficient ordering and supply in that sector.

Community pharmacies are paid the ex-factory price of drugs and medicines, as determined under the IPHA and APMI agreements, plus a percentage mark-up to cover distribution costs by wholesalers. There is no direct arrangement between wholesalers and the HSE for community delivery, as the HSE does not buy medicines directly for the community schemes. In addition to the foregoing, community pharmacies are paid a dispensing fee per item for dispensing to GMS medical care patients, and a fee plus 50% mark-up on each item dispensed under the DPS and LTI schemes.

In its examination of the issues involved and in determining the new arrangements, 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 markup, 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 also point out that pharmacists' arrangements with wholesalers for the supply of drugs and medicines is a private commercial arrangement, and that the HSE's role is confined to setting the most appropriate reimbursement rates for pharmacies. The basis for the new reimbursement arrangements was set out in detail by the CEO, HSE on the 17th September 2007, and is available on the HSE website.

The negotiating team met with the IPU on the 3rd October to discuss implementation issues arising from the recent announcement of new wholesaler arrangements, and in particular the position of wholesalers in relation to their pricing structures under the new arrangements. I understand that clarification has been received from each of the main wholesalers on their processes for compliance with the new arrangements.