I am very pleased to attend today's meeting to discuss the cost of pharmaceutical drugs. I am assistant secretary in the primary care division in the Department of Health. I am accompanied by my colleague Ms Teresa Cody, principal officer, primary care unit, and her colleague Emma Jane Morgan, who is assistant principal in the unit, is behind us.
Among the significant factors that come into play when we discuss the cost of pharmaceutical drugs is the demographic trend, which has a significant effect on consumption of the drugs and the cost drivers. Population growth in Ireland in the earlier part of this century outstripped that of Europe as a whole. Ireland’s population is still increasing, although now at rates similar to the EU average. There was 21% growth in the 65-and-over population between 2006 and 2013, and growth in the older age groups will continue at this order of magnitude in the years to come. In particular, the cohort of people aged over 80 is increasing by about 4% a year and, of course, they are high users of all health services. By 2021, the population over the age of 65 will have increased by close to 40% since 2011, representing an additional 200,000 people.
Life expectancy has increased substantially in recent years. Between 2002 and 2012, male life expectancy at birth increased by 3.7 years, and is now at 78.7. For women it increased by almost three years in the preceding decade and is now above 83. Much of this is obviously attributable to advances in medical science and in the treatments available, including drug treatments. As well as bringing very clear benefits to individuals and to society generally, increased life expectancy means that as people live longer, they are likely to do so with an increasing burden of chronic disease and increasing dependency on health services. Despite the success of policies aimed at controlling drug costs, we need to continue the efforts to maximise the benefit to individuals and society of the medicines used in Ireland in a way that is affordable.
This is the backdrop against which the cost of drugs and medicines has been under intense scrutiny in recent years. This has not only been highlighted at Government level, but it was also a significant issue for the troika during the bailout period. The Department and the HSE have played a significant part in delivering this reform. This has achieved benefits for the Exchequer and has assisted in managing the pressures on the very constrained health budget in recent years. It has also brought benefits to patients in terms of facilitating the adoption of innovative new drugs and in substantially reducing the prices that people pay across the counter in the pharmacies.
I will outline some of the key policy developments that have resulted in reductions in the price of thousands of medicines. Price reductions of the order of 30% per item reimbursed have been achieved between 2009 and 2013. The average cost per item reimbursed is now running at 2001 to 2002 levels.
As the committee will be aware, we have had a series of agreements with the Irish Pharmaceutical Healthcare Association, IPHA, and the Association of Pharmaceutical Manufacturers in Ireland, APMI, representatives of which the committee met last week. The agreements in 2006 generated savings in the region of €250 million, and a further €250 million in savings flowed from the subsequent agreements in 2010 and 2011. The current agreement was negotiated in 2012, and that had a value in excess of €400 million in the period up to 2015. It expires, as members will be aware, at the end of October this year. In broad terms, about half the financial value of the deal relates to reductions in the cost of patent and off-patent drugs, while the other half, or €210 million, is related to the State securing the provision of new and innovative drugs. Also in 2012, a new agreement was reached with the APMI which significantly reduced the maximum price paid for generic products. That price was further reduced by agreement in 2014, with the result that the price differential between off-patent drugs and most generic equivalents increased from 5% to approximately 20%. Taking these agreements together, we estimate that cumulative savings in excess of €1.5 billion have been achieved in the nine years since 2006.
On generic substitution and reference pricing, members will be aware of the Health (Pricing and Supply of Medical Goods) Act 2013. This important legislation provided for the introduction, on a statutory basis, of generic substitution and reference pricing and brought about significant structural change to the system of pricing and reimbursement of medicines. The introduction of generic substitution and reference pricing promotes price competition among suppliers and ensures that lower prices are paid for these medicines. Generic substitution allows pharmacists to substitute a cheaper generic equivalent, at the patient's request, when a more expensive product has been prescribed. Generic medicines are as safe and efficacious as proprietary products and are subject to the same requirements of quality, safety and efficacy. The Health Products Regulatory Authority, HPRA, has responsibility for the designation of interchangeable medicines under the Act.
Under the 2013 Act the HSE is responsible for reference pricing, which involves setting a common reimbursement amount for designated interchangeable groups of medicines. Only the reference price is reimbursed by the State, thus incentivising the patient to opt for a generic medicine at or below the reference price. Reference pricing coupled with generic substitution therefore provides patients with an incentive to opt for the cheapest available product but does not impose unavoidable additional costs on patients. Generic substitution has been introduced incrementally, with the HPRA prioritising those medicines which will achieve the greatest savings for patients and the State. This process will continue until all relevant items on the reimbursable lists have been assessed. Reference pricing has also been successfully introduced, with the price of many products being substantially reduced from previous levels.
The impact of this legislation has been positive in terms of increasing the level of generic penetration in the Irish market. As part of the troika commitments, a target for generic penetration of the off-patent market by volume was set at 70% by 2016. The target to be achieved by the end of 2015 was 65% and 70% by the end of 2016. However, by quarter four of 2014, generics already accounted for approximately 68% of the total off-patent market, so the target set for the end of 2015 has been already exceeded.
The recent European Commission staff working document on Ireland acknowledged the substantial cost savings that have been made by the introduction of generic substitution and reference pricing. Reference pricing was expected to deliver savings in the region of €50 million in 2014, which is retrospective at this stage, and a further €25 million in the current year. The Act of 2013 also improved and updated the statutory basis for the supply of medicines and other prescribed items under the general medical services, GMS, and community drugs schemes.
Other important initiatives, on which members can hear more from colleagues - including Professor Michael Barry, who is here with us - include the establishment of the medicine management programme, which has a focus on cost-effective prescribing and a reduction in drug expenditure through more rational prescribing.
The measures I have briefly outlined - I will keep this brief, as it is a technical area - have been instrumental to achieving the significant savings required in this sector in recent years. That said, the State still continues to face upward pressure on the drugs bill. This is due to a range of factors, including the demographic trends to which I referred, the significant increase in recent years in number eligible for the GMS and community drugs schemes, and the desire on the part of clinicians, patients and the public generally to have access to the newest and most innovative medicines, with the associated high costs.
In order to ensure that funding is available to enable patients to have access to new and innovative drugs, it is necessary to continue to pursue savings and efficiencies in expenditure in this area. The Minister’s and the HSE’s preference is for these additional savings to be delivered in co-operation with the pharmaceutical industry, so long as it enables the needs of all parties to be met. However, I note that section 21 of the Health (Pricing and Supply of Medical Goods) Act 2013 affords the HSE powers to review and alter prices. This is an option that is open to HSE to exercise in the event that agreed approaches are not capable of meeting the funding pressures that the HSE faces in regard to drugs.
The Department and the HSE, with a strong level of commitment, most of which precedes my time in my current role, have successfully implemented a range of policy measures, which I have outlined. Colleagues from the HSE will be able to provide further detail, but it is clear that significant cost savings have already been delivered for the Exchequer, resulted particularly in reduced prices being paid by the public. Given the substantial cost pressures that the health service will continue to face in the coming years, this is an agenda we will continue to pursue in many ways in order to further reduce the cost and ensure the affordability of medicines for the State and for patients.