Cost of Prescription Drugs: Discussion (Resumed)

Today's first session is a follow-up briefing from the HSE and Department of Health on the cost of pharmaceuticals. The second session will start at about 11.30; we have moved the time back a bit. In that session we will hear from Dr. John Holmes on the general scheme of the public health (alcohol) Bill.

I apologise to our witnesses for the delay in beginning. We held our first meeting last Thursday on the cost of prescription drugs and pharmaceuticals in Ireland. The stakeholders at that session included representatives from the IPU and the pharmaceutical industry. We also heard from Professor Colum Dunne from UL. A number of issues were raised concerning negotiations between the pharmaceutical industry, the HSE and the Government, which we want to revisit this morning. I thank Mr. John Hennessy, Mr. Shaun Flanagan, Mr. Paddy Burke, Professor Michael Barry, Mr. Fergal Goodman and Ms Teresa Cody for attending today. I also thank Mr. Ray Mitchell for his co-operation and assistance in organising this meeting.

In private session the committee discussed the fact that Alexion has twice declined our invitation to appear before the committee. The committee has agreed to publish the correspondence with Alexion. On your behalf I express disappointment and regret that its representatives did not appear.

I remind people to turn off their mobile phones, as they interfere with the broadcasting of the proceedings.

I remind people of the position on privilege. Witnesses are protected by absolute privilege in respect of the evidence they are to give this committee. If they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of a long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or any official by name in such a way as to make him or her identifiable.

I ask members to keep to the time limit, which I believe is seven minutes, as we have two busy meetings.

Mr. Fergal Goodman

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.

Thank you, Mr. Goodman. I call Mr. John Hennessy, national director of the primary care division in the HSE.

Mr. John Hennessy

In the interests of time and with the Chairman's permission, I will skip through some of the text in my opening statement, as it is on the lengthy side, but I will cover the key points. I thank the Chairman and members of the committee for the invitation to attend today to discuss the cost of pharmaceuticals.

We welcome the opportunity to outline the progress that has been made with regard to the price of medicines in Ireland during recent years. I am joined by my colleagues Mr. Shaun Flanagan, chief pharmacist, Mr. Patrick Burke, assistant national director, and Professor Michael Barry, chief pharmacologist at St. James's Hospital and head of the HSE medicines management programme.

The HSE provides reimbursement support for medicines and appliances across three main community drugs schemes – the general medical services scheme, or the medical card scheme, the long-term illness scheme, and the drugs payment scheme. Additionally, arrangements are in place for the supply of hospital-initiated high-tech medicines through the community pharmacy contractor network of approximately 1,800 pharmacies covering the country and a population of approximately 4.6 million people. It should be noted that the HSE does not set the prices that pharmacists charge to patients on private prescriptions, but only becomes involved when a claim is made under one or other of the aforementioned community drug schemes. For example, it does not cover patients who pay less than €144 per month and are not covered under either the GMS scheme or the long-term illness scheme.

In terms of current expenditure, the HSE reimbursed the following amounts in 2014 on medicines and appliances across those three main schemes and in the high-tech medicines area. The expenditure covered the ex-factory price of €1.3 billion, wholesale mark-up costs of €107 million, pharmacy fees of €379 million and VAT of €115 million, giving an overall total expenditure of €1.92 billion. Those figures cover reimbursement claims for medicines and appliances dispensed in 2014, involving approximately 70 million separate prescription items. Aggregate spending on the GMS scheme, the drugs payment scheme and long-term illness scheme has decreased since 2009 despite the growth in numbers, changes in eligibility during that period and the introduction of more expensive new medicines such as new oral anticoagulants. This is due to a sustained and ongoing programme of price reductions, on which I hope to elaborate during the course of my presentation. The exception in that respect is expenditure on high-tech medicines, which has increased from €315 million in 2009 to €485 million in 2014. This is as a consequence of the introduction of some highly expensive new drugs and medicines and increased use of some existing products.

With regard to price reductions, expenditure on reimbursed medicines has remained stable between 2009 and 2014 despite the introduction of that range of new medicines. The average price of an item dispensed on the GMS scheme has decreased to below the price paid in 2002, and the average long-term illness scheme price is less than the price paid in 2000.

Detailed information on that is outlined in appendix 3 to the information pack that has been made available to members. Details of the list of actions taken to achieve those reductions are also available. The price reductions have resulted in savings and cost avoidance for the State, amounting to €1.5 billion over the period in question. A significant proportion of the money saved has been invested in new medicines for Irish patients.

The focus on savings has been concentrated in three key areas, the first of which is new patented medicines. The maximum price a company can seek when it applies for reimbursement for a new patented medicine is the average of the approved prices across nine EU member states, as detailed in the 2012 Irish Pharmaceutical Healthcare Association agreement. Those member states are listed in the document. The 2012 agreement also required companies to submit an evidence dossier containing clinical and economic data in support of reimbursement at the price applied for. This was subsequently underpinned by the Health (Pricing and Supply of Medical Goods) Act 2013, which my colleague Mr. Goodman mentioned. The 2013 Act requires the HSE to consider detailed criteria, as outlined in appendix 5 of the information document, when making decisions. The net effect is that companies must provide robust evidence to justify the price of every new patented medicine. Company dossiers are evaluated by technical staff at the National Centre for Pharmacoeconomics, which is based on the campus of St. James’s Hospital and headed by Professor Barry, who is in attendance this morning. Summaries of all the evaluations carried out are publicly available on the website.

Under the 2012 agreement, a medicine that satisfies a cost-effectiveness threshold of €45,000 per quality-adjusted life year progresses to reimbursement. In exceptional cases, medicines are considered for reimbursement above the threshold, subject to meaningful negotiations having been concluded. The HSE has been increasingly faced with what individual companies consider are exceptional medicines and increasing expectations that the State will be in a position to reimburse medicines which in no way approach any conventional understanding of cost-effectiveness. In such cases, the HSE, like pretty much every other health care system worldwide, is faced with a difficult decision on whether to fund a medicine which the company dossier has demonstrated is not an economic use of resources. The HSE would like to be in a position to reimburse all medicines, but that is not possible given the competing demands for resources. Members will remember that the director general of the HSE, Mr. Tony O'Brien, recently appealed to Alexion Pharmaceuticals to reconsider the price it charges for eculizumab, or Soliris. The HSE's national drugs committee considers all the evidence provided and issues its advice on the basis of pricing offers made by companies and in light of the degree of unmet need, clinical evidence, cost-effectiveness, budget impact and any other relevant factors regarding whether the medicine should be reimbursed.

The second area of focus for control is the off-patent medicines sector, which has also been the subject of a series of downward price revisions under national agreements. When they are launched, generic medicines are now required to be 60% lower in price than the pre-patent expiry price of the branded product. The first reference prices were set on 1 November 2013. As of January of this year, the HSE has set reference prices for 110 interchangeable groups across 37 medicine combinations. It is now reimbursing approximately 1.5 million items per month in relation to reference-priced medicines. The aim in setting reference prices is to achieve the lowest possible price commensurate with continuity of supply. The industry has consistently claimed the HSE is setting its prices too low. On the other hand, some commentators would contend that our prices are still too high. We believe the decisions taken to date are proportionate and reasonable, and are consistent with continuity of supply and the policy of reducing Irish prices to acceptable levels. This project is ongoing.

The third main area of control is the HSE medicines management programme, which is headed by Professor Barry and was established in January 2013 with the aim of enhancing safe, effective and cost-effective prescribing of medicines in the Irish health care setting. The details of the programme's wide range of ongoing activities are outlined in appendix 9 of the information pack. One of the main ways the programme communicates with prescribers is through a series of meetings with general practitioners. These meetings are held across the country in collaboration with the Irish College of General Practitioners, which invites the programme to make presentations on prescribing issues. This has proven to be an extremely valuable way of getting key messages across to prescribers. The programme has met more than 1,100 general practitioners over the past 18 months.

I would like to comment on the impact of these measures. The HSE and the State have benefited from price reductions on new medicines and are regularly paying lower prices than companies would have applied for or indeed would wish. Our most recent audit revealed that Irish prices are now at the average of the nine-country basket and are close to the average price of a wider group of EU member states. However, Irish prices are still above the average calculated across the full 28 EU member states when the more recent entrants from Eastern Europe are included. In the off-patent category, I should point out that when the 2013 Act was introduced, the HSE was reimbursing in excess of €22 million per month on medicines reference-priced in 2014, but by December 2014 this amount had been reduced to €10.3 million per month. Savings of €47.4 million were achieved in 2014 from reference pricing alone. The full-year impact of that will amount to €60 million. This is of course ongoing. The cost of reference-priced drugs now is between 70% and 80% lower than the price paid when medicines were on patent. As of the final quarter of last year, generics now account for 68% of reimbursed claims.

The HSE is continuing with reference pricing. We expect to deliver in excess of €25 million in additional reference-priced savings in 2015. The HSE has been successful in providing access to many new medicines while reducing the prices of new and existing products. The figures speak for themselves. Savings of €1.5 billion have been achieved to date in this complex area. Members will understand that the various stakeholders involved will try to protect and defend what they have and resist changes that may reduce their incomes. We remain committed to ensuring pricing in Ireland is reasonable and fair. We want to provide access to as many new medicines as possible from within the resources available to us. At all times, our concern is to ensure continuity of supply and avoid causing additional co-payments for patients when making pricing decisions. My colleagues and I will endeavour to answer any questions that members may have.

I thank Mr. Hennessy and his colleagues for the very informative pack that members have received. I call Deputy Kelleher.

I welcome everybody. We acknowledge and welcome the improvements that have been made in terms of value for the taxpayer when medicines are being purchased on behalf of the State. It is obvious that demographic factors will present huge challenges from now on. The witnesses mentioned the increase in life expectancy and the improvement in the treatment of chronic diseases. We are probably slow to address some of the issues that will lead to an increase in the prevalence of chronic diseases in the years ahead. Obesity and smoking will lead to an increase in diabetes, heart conditions and smoking-related illnesses. We are making efforts, but maybe we are not gaining as much ground as we would like. High-tech medicines that are tailor-made for small cohorts of people are also becoming more prevalent. There will be huge pressures in the years ahead.

I would like to take a slightly historical view of these issues for a moment to help me to get my head around them. I applaud the HSE and everyone else responsible for the progress that has been made. The 2006 reductions agreement generated savings of approximately €250 million. A further €250 million in savings was generated by agreements reached in 2010 and 2011. That leads me to believe there was a great deal of fat in the system. Perhaps the question I will ask in that context will be asked by another Oireachtas committee at some stage. Was there that much fat in the system because of a lack of political will, or because appropriate mechanisms were not in place? Was the State being jockeyed by the Irish Pharmaceutical Healthcare Association and the Association of Pharmaceutical Manufacturers of Ireland on a constant basis in terms of the cost of available medicines? What allowed the HSE to reduce the price of medicines to the State by such an enormous amount in such a short period?

Was it lack of regulation or lack of legislation? Was it the comparators with the nine European countries in the basket? Was it lack of political will or was it just the inability of the State to negotiate? One would have to say that the savings made suggest that there was a poor negotiating stance in the first place. I am not making a statement of fact but just inquiring on that issue.

The other area that is of concern to me, if I have understood correctly, is that if a company applies for reimbursement of its on patent new drug, the nine European countries are used as a basket. If the drug is not available in those nine European countries, is it correct that it is to a minimum of three countries? Is there huge potential for companies to manipulate the price? Let us be very clear, if there are nine countries, there is a better chance that there will be an average, but if a company is going to make its drug available and knows that the price is going to be based on three countries, it will obviously make it available to the dear ones first and work out from that. Is there not a huge flaw in the system there in terms of pricing? The average will always come from the highest down as opposed to from the other way up or from the middle. I would like further clarity on that. If that is the case, who decides, first and foremost, the basket of countries and who decides which three countries the medicine will be made available in first? It is obvious it will be the companies. There is quite a weak area in the mechanism of adjudication of the price. Is that a regulatory matter for the European Union or is it a State matter? Where do we go in terms of trying to address that weakness in pricing?

As an aside to Mr. Flanagan on Soliris for the treatment of PNH, I am led to believe that the Government, the Department or the HSE has made an announcement that Soliris will be made available to individuals with PNH but I am also led to believe it is not available yet. Soliris has been referenced quite a number of times and reference has been made in Parliament that this issue has been resolved, but I am led to believe that it may not be resolved for the people who are waiting for it so I would like clarity on that issue.

I have raised this issue without saying that it is factual but there has always been a strong belief among some people that there have been sweetheart deals in this State for many years, with some drug companies in previous times being induced to invest further or locate here in the first place, perhaps by the IDA and others or through back channels, and it is obvious the reason they come here is our corporation tax rate. We have a politically stable environment, we have a reasonably bright graduate workforce and we now have a critical mass, so I accept that there are many other factors why they are here. However, there was always a view in the earlier part of industrial development policy that there were inducements other than the obvious attractions the State provides upfront. Has Mr. Flanagan ever come across that particular issue or those suspicions in terms of dealing with various pharmaceutical companies and the pricing of same?

In terms of cross-Border and the continual fluctuations in sterling versus the euro and, in particular, how it is fluctuating now, is there any way of addressing the issue of people in the North coming South or vice versa when it suits or when it is more profitable?

I want a small bit of information on parallel wholesaling where if a drug is cheap in Ireland, it is purchased in Ireland through the wholesale system and sold into the dear countries. Is this done by pharmacists? We all know about the free movement of goods and services but if a product is sold to the State, one would think that it should stay in the State and not be shipped out in containers to some other country. Is there a weakness there as well in the context of parallel wholesaling through the European Union countries?

I thank the Chair and welcome the witnesses. The first thing to say to Mr. Goodman is there is credit due for the effort made and the fact that there have been significant reductions achieved in recent years. I want to acknowledge that at the outset. I put the question because there is a common view that the Department or our negotiators, whoever they may be individually, in terms of any of the manufacturing companies, are less committed to the challenge necessary to bring about the optimum reduction, particularly where the manufacturing base is located in Ireland. There is a general conversation, which one hears in the corridors of this institution, that there is a fear that the inward investor manufacturing companies would pack up their tents and leave with a consequent loss of hundreds of jobs. It is said regularly and across all political opinion. Will Mr. Goodman address that to try to restore people's sense that such is not the case and that we are not being bullied into accepting less than we should? I leave that as it stands.

I wish to ask Mr. Barry about other important initiatives that Mr. Goodman referred to in his contribution, one of which was more rational prescribing. Will Mr. Barry elaborate on that because it is something that I have raised before? I have no doubt we are all conscious, and I am conscious even in terms of my extended family, of a bathroom cabinet overflowing with unused prescribed medications. I cannot attribute it to a particular age profile. It is difficult to know. I have not done any examination or exercise to try to suggest that it is particular to any age group. We are talking about a reduction in drug expenditure through more rational prescribing and I would like Mr. Barry to advise the committee of what is being done in that case. I mean no criticism of those in general practice but I think there is a need to ensure that prescribing practices are as required and on the basis of certainty of being used. I will leave it at that and I appreciate what further the witnesses can tell us.

I thank Mr. Hennessy for his contribution. I am glad he stuck to the opening pages because it runs to many pages and it is a lot of information. Why do we take the average of the nine EU member states? Why do we go for the average? Why do we not take the least expensive? Who has determined that we must take the mean or median position across whatever number of states, even if it happens to be nine? Why is it always that we are last? Why would we not be first, especially when we are such a manufacturing base?

I may be corrected if I am wrong, but in respect of new patented drugs manufactured in Ireland, we were basing our cost on what it was costing in other EU member states. Why were we not the first one determining the cost? It follows on from what Deputy Billy Kelleher was asking earlier. Why are we always waiting for three or more of these? Why can we not move from the median to the lowest cost across three or up to nine other EU member states? What do we have to do to be able to say we have a position and are firm and emphatic on it, end of story?

I am concerned about the sentence in the submission that under the 2012 IPHA agreement, where a medicine satisfied a cost-effectiveness threshold of €45,000 per quality adjusted life year, the medicine progressed to reimbursement. My sense of cost-effectiveness does not equal a threshold in terms of monetary cost alone. Cost-effectiveness is not about a threshold of cost in euro and cent. It takes into account the situation of the dependent patient, the need of the individual citizen, his or her circumstances and availability for work. Where a patient is dependent, it might be that he or she could be a contributing taxpayer if he or she was able to return to work as a result of access to a prescribed medication. I will not go on about it, but the witnesses know exactly where I am coming from in this regard. It seems a very bald statement to refer to a cost-effectiveness threshold of €45,000. It is not what I have understood cost-effectiveness assessments should be.

On the Alexion situation, the Chairman indicated something at the outset in terms of our private meeting earlier. This is the public opportunity. I reaffirm what the Chairman said. It is not lost. I do not know if anyone in the media is taking any interest in our work here but it is important that it is noted that today we decided for the third time to write to Alexion to record our collective Government and Opposition vexation at its refusal to come before us on the cost of eculizumab, known more commonly as Soliris. It is infuriating that a company would take such a rigid stance of refusal on the two previous occasions we have invited it to come before the committee.

I may be the person here living closest to the Border, where I was born and brought up all my life. I am only four miles from it. I am still meeting constituents who drive the short distance north of the Border to get their prescriptions processed. It is still cheaper to access prescribed medications north of the Border than it is in this jurisdiction and, identifiably, to access medications and drugs that are actually manufactured in the State. I ask the witnesses for their comments.

Before I start, I note that I would like to meet Deputy Ó Caoláin after the meeting to give him my prescription for Atorvastatin. If one of his constituents could pick some up for me, I would be very grateful.

One of the underlying realities of pharmaco-economics is that we are working in an increasingly globalised world. We hope that as more harmonisation of drug purchasing policy takes place in the EU, it will improve our negotiating position with the companies. I say that with the caveat that we do not want to harmonise down to the UK level and that perhaps the German way of taking new drugs on board is more realistic. In reality, a small economy like ours is not that important. At a global level, if a company reckons it will completely lose sales in Ireland in acting to avoid an adverse judgment against its pricing policies, it will pay that price. We are a tiny part of the international drug trade. With respect to the question of sweet deals, I believe firmly and have for a long time that there is a complete lack of linkage between where international companies put their manufacturing plants and our domestic drug consumption policies. It is all about the 12.5% corporation tax rate. If we ever want to do the experiment to isolate the effect of the 12.5%, we should jack up the tax rate and see what happens. It is possible, however, that companies would try to lead us to believe there were such sweet deals in an attempt to strong-arm us. We discussed this the other day but we saw evidence of it last year or the year before when pressure was brought to bear on the Taoiseach on the issue of the approval of some drugs by companies suggesting darkly, and entirely inaccurately, that it had an influence on where companies decided to locate their manufacturing plants. I hope that as the EU gets better at this activity, we will be part of a market force which allows us to drive a harder bargain collectively.

My second point is that the companies are now engaging in predatory pricing. There is no way around that. We discussed this earlier in private session, but I recap the point. Companies are no longer basing their pricing policies on cost plus cost of failed drugs plus a reasonable profit margin. Rather, they are using professional marketers to set the price their analysis indicates will be the maximum price the market will sustain before the demand for the drug goes down in line with the principle of price elasticity of demand. We must understand that, unfortunately, we are getting into an adversarial position vis-à-vis the companies. The western economies of the USA, Canada, the EU, Australia and others must get together to give companies signals that there are certain thresholds beyond which we will not go on the pricing of drugs. There is an illustrative example of this. A good friend and colleague, Dr. Lenny Saltz from Memorial Sloan Kettering, who trained with me many years ago, reacted to a very unreasonable pricing demand made for a drug called Zaltrap, a colon cancer drug. He said that the incremental difference it made was so small compared with the standard treatment, which in truth was not that great either, that he would not pay for it. The company heard him and the price of the drug was decreased by approximately one third in the USA. That tells us the power of what one can do, but it also tells us that these guys are still making money at a price that is one third lower than the price at which they originally pegged the drug. There is wriggle room on most drugs. In fact, there is wriggle room for most. I know of one drug which has been approved for an uncommon cancer. The company argues that as it is uncommon, the market is not very big. It is €120,000 per annum for the drug. The registration trial for the drug involved 100 patients, which means it did not cost that much money to develop. It is a further example of predatory pricing.

We must make savings where we can because there are places where we cannot. Unfortunately, our market is so small that we are not in a good position to drive hard bargains with international drug companies for expensive drugs. I hope this problem will be addressed at a global level. When I speak to the industry I tell them they are going to kill the goose that lays the golden egg. In a previous generation, one could go to the US Food and Drug Administration with a drug that had a 5% survival advantage in a cancer and be reimbursed and paid for it. That will change. In an era when multiple drugs produce small marginal benefits, people cannot afford to pay for them all. The industry needs to find a way to make those drugs cheaper or apply them to the smaller number of patients where the impact is greater. What can we do? In the short term, we have to make generics mandatory to save where we can. I am happy to take two generic drugs, which I do. If one wants the branded drug, one should pay for it. If society is paying for the drug and has deemed that the generic is just as effective as the branded version, why should it be asked to pay for the more expensive one? We need to find a way to save money on those drugs which make up the bulk of our drugs bill. The bulk of our drugs bill does not relate to the small number of patients on high-tech drugs. It involves the antibiotics, antidepressants and, like those I am on, cholesterol drugs many people are taking.

From a health economics point of view, we have to understand one other reality. There is a bigger picture here. We must look critically at how we spend money on health care. Drugs are an easy target. One of the reasons drugs are an easy target is that people like me who do trials with drugs generally report our results meticulously. One can see in black and white that drug A gave a person three months and drug B gave them seven months. Health economists can then calculate what it costs to get that additional incremental benefit.

There are many things we do in medicine which are never subjected to that kind of analysis, and which are done very inappropriately. I will not go into all the details. There are many operations that have limited impact. There are many people in intensive care unit beds when it is not in their interest to be in that unit and where not only are resources not being used efficiently but also the patient's health care is not being managed appropriately from their own perspective. In looking at figures such as the cost per quality year of life saved, it is critical that we think a little about it.

If one looks at something like cancer care, which in Ireland was historically pretty miserable and is pretty okay now, the one thing we had was good access to cancer drugs. The last problem we needed to fix was the over-prescription of cancer drugs, because we were under-prescribing drugs. There are countries that combat the over-prescription of cancer drugs very efficiently and they have the worst cancer survival rates of major developed countries. The UK has one of the worst cancer survival rates of any health service of equivalent size and sophistication. In New Zealand, no attempt is made to get most new drugs approved. It is important that we not look at problems like cancer drugs in isolation and that we understand that they are a very easy target when attempting to contain costs.

While I agree with the witnesses that the cost of drugs has come down, I am still concerned. I gave the example last week of someone who comes to my clinic in Cork. He is in receipt of an old age pension, he does not have a medical card and he has had two heart attacks. He travels to Northern Ireland, from Cork to Dublin to Newry, once every two months and is paying less in Northern Ireland for two months of his medication than he would for one month in Cork. I am concerned when I hear that. It is a genuine case where someone is slightly over the qualifying criteria for a medical card, he does not have a huge level of income coming into the house, and his wife does not qualify for the old age pension as she is not over 66. They get the additional allowance for her, but it is still much cheaper for him to travel to Northern Ireland to buy medication. I am not talking about travelling from Dublin or Monaghan but from Cork. That concerns me.

I will go through the figures presented on the €1.5 billion savings since 2006 that the witnesses mentioned. The Oireachtas Library and Research Service presented figures to us showing that savings of €765 million have been made since 2006. It gave a breakdown. In 2006 to 2010, €250 million was saved; in 2010-2011, another €250 million was saved; in 2013, €120 million was saved; and in 2014, €148 million was saved, giving a total of €768 million. We are being told here that it is €1.5 billion. I am a bit concerned about the presentation of figures. The current expenditure level for 2014, according to the witnesses, is €1.92 billion. Again, the Library and Research Service tells us that the total 2012 PCRS expenditure was €1.92 billion. We are, therefore, coming up with the same figures in a two-year period. We might go through the figures a little more closely in respect of where we are making savings because I am not convinced that we are making the inroads we should.

It was mentioned that the figures for generic drug use are now up to around 68% for the fourth quarter of 2014. We were told last week that the figure was 48%. Why are we getting all these confusing figures on generics? It was the pharmaceutical industry itself that made a presentation to us last week saying that the figure for generic usage was 48%, but we are now talking about a figure of 68%. Perhaps we might get some clarification on this.

The other issue that was raised goes back to the ESRI report in 2013. When we talk about the negotiating price, we are talking about the basket of nine countries and we are coming out with the average. Deputy Ó Caoláin asked why we cannot be the lowest of the nine, rather than the average. We are not making enough progress on this matter. It is a huge cost factor. The Library and Research Service refers to the overall cost in 2012. Total PCRS expenditure for all schemes was €2.56 billion in 2012. Those are the figures the service is giving to me. We seem to be getting different figures from different people. I want to see by the end of 2015 some real change in cost. I am not convinced we are making enough progress in this matter. Legislation was brought in on the use of generic drugs and we are making substantial progress, but could we make much more progress and do we all need to do much more, from hospitals to general practitioners across the board? Are we doing enough and can we do much more? It is not that we do not want to use the money for health, but we could use that money far more effectively in other areas if we could save on the cost of drugs.

I agree with Senator Burke and Deputy Ó Caoláin. I still have neighbours, families and friends crossing the Border or going to England to get cheaper drugs, or coming back from Spain with drugs they cannot even buy in this country without a prescription. That needs to be addressed quickly. I heard Senator Crown speak before about generic drugs, but why are patients less willing to take generic drugs? Is there any evidence that when patients are on generic drugs there is a longer recovery time? That is what I hear. I am only going by family and friends. When they are on generic drugs it takes them longer to get better.

I love listening to people speak on television about medical science, new cures or people having an opportunity to live longer if they have cancer, arthritis or something like that, but I get nervous when I see figures such as that in six years time, 40% more people in this country will be over 65 and people are going to live longer. They may live into their 80s, but will they be healthier? Research shows that perhaps they will not. My mother died at 89. She had a great life. She was never in hospital, except for in the last six months of her life when she had dementia. We took her home and we had her at home for most of the six months. One thing that struck me was that this was a woman who had lived a long life, had a large family, who had worked at stages of her life and yet was not there at all in the last few weeks of her life. She was just somebody lying in a bed whom none of us knew and who did not know any of us. I wonder about the quality of life people have when we produce medication that makes them live longer. Everyone wants to see family members living longer, but they must have a quality of life. There must be meaning for them in living longer, and it is very sad when their quality of life no longer exists. Why sustain that natural process of life? I am not a medical doctor, but one of my favourite songs is "Who Wants to Live Forever". There is great meaning in that. I see someone putting up his hand. He wants to live forever. I do not want to live forever. I want to have a decent life in order that when I come to its last stages, I am still able to do little things for myself, even though they may be simple. Living longer and not having a certain quality of life serves no purpose. I might as well be honest.

Mr. Fergal Goodman

I have a couple of general comments to make in response to the issues around the agreements. HSE colleagues will be able to pick up on many of the other issues. As I alluded to at the outset, I am not so long in my current post that I have been present through the negotiation of the previous agreements with the pharmaceutical industry. However, all the officials present take their instructions from the Minister for Health and the Government.

The Minister is quite determined to continue to achieve further savings in pharmaceutical costs in order that we will be able to respond to the demographic pressures about which we spoke in terms of the emerging new drugs.

When one talks about previous agreements, how hard people drove at them and the question of how successful we were, one needs to recall that an agreement, by its nature, is the outcome of negotiations between parties with competing positions. Therefore, to reach any agreement, be it in industrial relations or any other business-type context, there must be a compromise, presumably on both sides, somewhere along the line. Thus, the parties reach an agreement that delivers a result for each. Obviously, successive agreements have delivered further benefits and changes incrementally. A current agreement is due to expire towards the end of this year, but consideration is already being given to the objectives and details of what we will be seeking in successor talks. I do not particularly want to elaborate on them today because we are formulating positions.

The other factor that has changed on this occasion is that we now have the benefit of the 2013 Act which gives the HSE significant statutory powers regarding price adjustment. Where it is not deemed possible to reach an agreement through negotiation that is acceptable to the State side, we have the option of using these powers. Obviously, the preferred approach is negotiation. The term "agreement", by definition, represents agreement between parties with a compromise. We are quite clear on the instructions we have received from the Minister. They are quite clear and very much focused on the benefits for the health service, particularly on maximising what we can do with the health budget provided for us by the Government and the Oireachtas.

Mr. John Hennessy

There were quite a few questions and some key themes which I will try to address with the help of my colleagues. They concern the basket of countries used in making a determination on price. I will ask colleagues to address that issue. The cross-border issue was raised in quite a few of the questions asked. Issues of currency arise in that context that I believe we will be able to deal with and clarify. Professor Barry will address for members the prescribing patterns, the use of generics and the quality adjusted life year issues.

I will go through the list of questions quickly and ask colleagues to comment, as necessary. I will begin with Deputy Billy Kelleher's questions on why savings were possible or even achieved in the period after 2006. There are a number of key reasons. First, there was exponential growth in costs from 2004 onwards. Much of this growth was attributable to a population increase and new products and also the expansion of eligibility. That was the period in which the over-70s became entitled to medical cards automatically. This gave rise to a considerable additional cost.

A factor to which I am sure colleagues will be able to allude further was early adoption of new products in Ireland as part of the nine country basket approach. The approach is subject to the original agreement of 2006. I will ask Mr. Flanagan to speak about who decided on the nine countries and why they were decided on.

I understand Soliris is available, but colleagues will confirm this. I believe there were four additional patients registered on it. Obviously, we are still not happy about the price being charged for the product and the process of seeking an improved price for Irish patients continues.

Mr. Hennessy might revert to us on the use of Fampyra.

Mr. John Hennessy

Deputy Caoimhghín Ó Caoláin referred to rational prescribing. Professor Barry's programme is getting to grips with that issue. He will be able to allude to it further, in addition to the use of the nine country basket. These are issues that are subject to scrutiny in the context of a new and successor agreement, wherein we would not necessarily be working on the basis of the average. We will be looking for a better approach. Sometimes the pace of adoption has been an influence. Traditionally, Ireland has been one of the early adopters of new products and medicines which, again, reduces the number of countries involved in making up the average. That has now changed, subject to the 2012 agreement and the processes in place courtesy of Professor Barry's programme.

The quality adjusted life year and the maximum of €45,000 comprise a considerable debating point. The debate is occurring worldwide on health economics. The issue for us in that regard is that the measure is a tool. It is used for automatic qualification of a product. This is by no means the only issue, but it is a useful assessment tool to get business done and products into the reimbursement process. There are obviously bigger picture issues that have to be borne in mind. We saw examples recently of where the cost of products far exceeded the €45,000 threshold. We will try to address the cross-border issue and why drugs are cheaper elsewhere.

Senator John Crown's point on the size of the market was significant. It is part of the bigger picture issue in determining why companies locate in Ireland

Senator Colm Burke raised issues concerning Northern Ireland and the amount saved. We can clarify the discrepancies he is finding in his figures concerning what is reimbursed and total expenditure on pharmaceuticals. Any discrepancy between 2012 and 2014 will be addressed by Mr. Burke.

Generics were referred to. We have an explanation as to why last week companies were citing a figure of 48% and why we are at 68%. We will be able to clarify that issue. I will ask Professor Barry to answer the question on whether there is more we could do on drug prices in securing a better deal for taxpayers. As to why there is a reluctance to use generics, the quality of life issues Deputy Catherine Byrne raised are very important. Perhaps Professor Barry might address the issue of reluctance on the part of the public. It may still feature in respect of generics, but I believe the attitude is changing. We have seen evidence of change in the figures very recently.

Mr. Shaun Flanagan

To respond to Deputy Billy Kelleher's question on the period before 2009 and the changes that have occurred, it is important to note that there has been a series of framework agreements with the industry dating back to the 1970s. Prior to 2013, the HSE or the State had no statutory powers on the Statute Book it could use; therefore, everything had to be done by agreement. If there was no agreement, there was no alternative. To the best of my knowledge, the 2013 agreement represented the first time the State actually legislated and provided powers for the health service to set prices. That changed the dynamic.

On the rationale for using the basket of nine countries, the original basket contained five countries. In 2006 there was a long negotiation. I was not involved, but I understand the negotiators reported directly to a Cabinet sub-committee. At that point it was agreed that the basket would be increased from five to nine countries. Austria, Belgium, Finland and Spain were added and regarded as lower price countries — that is what is coming out in the recent data we have received — than the countries that had been included in the previous basket.

On the subject of the dynamics of the basket, there is no doubt that companies operate a process of what one might call waves of launches. Wave 1 features high price countries and is followed by waves 2, 3 and 4. The first in line are most expensive, about which there is no doubt. That is how companies operate and it is a rational way to operate. Twenty-five of the 28 countries in the European Union operate some form of basket system. To the best of my knowledge, there are three countries that operate what is called a free-pricing market. They are Germany, Denmark and the United Kingdom which are usually in an early wave. The position in the United Kingdom can vary, but the three countries are in our basket. From 2006 onwards, it was recognised that just relying on a basket would result in the same answer all of the time. This led to the requirement to put in place a health technology assessment process. Therefore, it is not a simple matter of companies coming to us with an average for nine countries and stating this represents the price. That is the absolute maximum price they can achieve.

If that is the absolute maximum price they can achieve, they are required to justify the price in the health technology assessment. If the health technology satisfies at a threshold of €45,000 per QALY, it is an automatically important point. It is not a line in the sand above which we will not reimburse. It is an agreed position and, if they satisfy it in their economic dossiers, they are automatically reimbursed.

If they do not satisfy it, we are into pricing negotiations. Those pricing negotiations are commercially confidential and non-transparent. Due to spillover effects into other countries, if the price in Ireland drops, the price in other countries drops. We have pricing reductions that range from 5% to 40% in various medicines. I cannot reveal them because most of the time companies will say they will provide the discount as long as it is regarded as commercially confidential and not revealed in a public forum. That leaves us in a difficult position when presenting to the committee. However, members should be aware that the basket is not the set point. The basket is the starting point and they are required to justify the price and bring it through a full assessment process. Having satisfied the assessment process, the price stands. If they do not satisfy it, difficult negotiations go ahead. As members are aware from recent times, we sometimes reach a stand-off position where companies are holding a line on a price that we feel is completely inappropriate. Where the companies are unwilling to move, decisions must be made on that basis.

With regard to the question on eculizumab or soliris, I can categorically say the reimbursement is progressing. However, the DG said in his press release that there was a screening programme. It is incumbent on the clinicians in question to complete a form, go through the screening process and reimbursement will continue from there. Some patients are through that process and we have applications from four patients. That is the turnover of a relatively quick process. Most of them have been turned around in 24 or 48 hours. If there has not been reimbursement, I assume it is down to the fact that the application form has just been received, has not been received or has not been completed.

Is there ongoing engagement with the four people concerned on their applications?

Mr. Shaun Flanagan

Consultants make an application to Professor Barry's programme and it is a relatively simple screening programme. Once they qualify, the consultant will be told that the HSE primary reimbursement service will carry the cost of eculizumab. I know one process patient has been through it and has definitively started therapy. There are four other applications. It is down to people completing forms and getting through the process. There is no attempt to slow it down, in case Deputies have concerns.

I have never been involved in a sweetheart deal, nor have I ever seen one.

I am sure Mr. Flanagan is referring to the industry.

Mr. Shaun Flanagan

On what Senator John Crown said about companies trying to represent it as such, we are in scenarios where companies enter commercial negotiations and try to say this and after listening to them, we say very politely that it is all very interesting but that the HSE is not entitled to include it. The Oireachtas has directed us in the legislation that the criteria have been set out, one of which is not foreign direct investment. It is not something we take into consideration, but that is not to say the companies do not include it in letters. However, it is not an issue in a decision.

In terms of parallel trade, Deputy Billy Kelleher made it clear that it was entirely legal across the European Union. If someone wants to parallel import or export, he or she is required to have a wholesale licence. Most countries have elements of parallel trade and in the past when prices were high, this was a parallel importing country when there was an arbitrage opportunity in importing. That parallel exporting is an increasing part of the commentary is an indicator that our prices are dropping and that we are starting to fall below other countries. As recently as 2012, a UK all-party parliamentary group issued a report on difficulties the United Kingdom was experiencing in maintaining supplies of stock as a result of parallel exporting. It is not that this is the only country that has had to consider these issues. As we drive prices lower, it will become an increasing concern. Sometimes a country does not have to be at the bottom of the EU market to engage in parallel exporting. We have become aware of a number of products where parallel exporting has happened and the export country is not at the lowest point in the basket. A country can be unfortunate enough that Germany or the United Kingdom is at a higher level. When this happens and there is a sufficient arbitrage opportunity, specialist wholesalers will export. There is very little can be done to prevent this. We work with the industry in putting in place controls for access to stock and preventing any of these wholesalers from gaining access to Irish stocks. We continue to work closely with the industry on this issue.

The HSE does not buy stock but operates a reimbursement model. We do not own the stock until the day the bill is presented to us - the day after the patient has it. We do not buy stock to be held in a major warehouse; we rely on the standard wholesale and distribution mechanisms the industry has in place to control supply chains. This is consistent with the position in every country in Europe.

Is Mr. Flanagan concerned about the supply side, given the remarks made last week?

Mr. Shaun Flanagan

In every reference price decision we make supply is one of the factors about which we are concerned. Why do we not go to the lowest in Europe? The reason is that experience tells us definitively that we will have supply issues. Why do we not go to the United Kingdom in terms of reference pricing? The United Kingdom is at the bottom of the off-patent market. It has been down this road for 30 years and is, by definition, lower than us. We can look good if we go to the United Kingdom, provided we can do the job and get out before the problem starts. In the Health Act there is a statutory requirement on us to worry about continuity of supply. We look at the UK price and every reference price across Europe and try to set a price that is at the average or median figure. I understand it is difficult for people to accept and that it must be very difficult for those who live near the Border. They can cross the Border and get something cheaper, but the United Kingdom is one of the least expensive off-patent markets in the European Union. We must remember that it is a market of 60 million people and that Ireland is a market of 4.5 million. Taking 20,000 packs out of the UK market and exporting them will not be noticed. In Ireland 20,000 packs could be the entire run for the year. As we are very open to losing these supports, we must be careful about it.

Pricing is not the only aspect that drives shortages. There are other reasons, including problems with raw materials, manufacturing difficulties, recalls and quality issues. Manufacturers may also have production difficulties. There can also be industry consolidation and unpredictable shifts in demand, including unexpected increases in demand. Parallel trade and pricing decisions are a minority of the reasons there is a shortage in the market. Most of the shortages pharmacists experience are not down to pricing and parallel trade issues but to other issues that happen in having a quality assured process. On occasion, regulators must intervene and state there is an issue about a factory. This can lead to a problem with the supply of a particular medicine. It is not as simple, therefore, as pricing and parallel trade. I think I have covered the issue of reference pricing and the United Kingdom.

In terms of numbers, the level of generic penetration must considered whether there is an off-patent market and a patent market. It is technically impossible for a generic to enter the patented market. The figure of 68% we quote is the last quarter reimbursement figure. In the off-patent market 68% of claims we receive are for generics. If we compare it to the figure in the United Kingdom, we must remember that the denominators are different. Senator John Crown may be able to confirm this point independently. Cancer drugs such as sutents are not distributed through the community pharmacy chain but through home care systems and hospitals. They are not included in the UK denominator in terms of UK pharmaceutical spending. They are also not included in the UK OECD figures. They are included in Ireland's OECD figures because we have a different model. We provide these high-tech drugs through the community pharmacy contract network. That means that 90% of high-tech drugs are on patent. By definition, our denominator is bigger; therefore, it is technically impossible at whole of market level, based on OECD levels Ireland produces, to get to 70%.

If the committee looks at it where we think it should, which is the proportion of the market where it is possible to compete, 68% of the claims are in generics.

In response to the question about people being uncomfortable about generics, the actual figures no longer bear that out. Increasingly we are seeing, as people become more comfortable with generics and get more used to them, they are becoming more comfortable. Prescribers are a key driver in providing reassurance to patients. As prescribers become more comfortable prescribing them, patients will often take their lead from the prescriber.

In terms of the reference pricing molecules, we are not 90% generic penetration for some. Atorvastatin is 90% plus generic and is the most common statin used. For the one Senator Crown mentioned, we are at 90% generic utilisation. One of the most expensive proton pump inhibitors is omerprazole, which is at 90%. In fact, all the proton pump inhibitors are at or above 85% generic penetration. Reference pricing has made a huge difference and in the generic substitution proportion of that.

Within the 32% portion where there is no substitution, one has to remember the areas concerned. People might be less comfortable about substitution which is something the Oireachtas discussed in detail when passing the Health Act. One must be careful because the further up one goes there are other drugs that one might be less comfortable about substituting.

Is the HSE continuing its campaign to educate people?

Mr. Shaun Flanagan

I shall let Professor Barry talk about the medicines management programme. We have continued campaigns on the HSE website. We are also aware that individual companies have media campaigns. The HSE tries to be prudent in the way it spends its money. If it has a big advertisement campaign that costs €500,000, and its message coincides with what we want to say, then it makes sense for us to allow it to spend that money, if it so wishes, and for us to step back. If we need to intervene in the future then we will do so.

We had a campaign for the implementation programme. Our press and comments people were intimately involved in an implementation group. We met loads of groups, including groups that were vehemently opposed to generic substitution. They seem to have come around in some of the areas. Osteoporosis drugs are now 75% substituted and there has been no evidence of significant difficulty, or any difficulty at all, reported to the Irish Medicines Board or the Health Products Regulatory Authority as it is now called.

I am sorry as I think I have taken possibly too much time.

That is fine.

Mr. Patrick Burke

I shall deal with the question on money raised by Senator Colm Burke. I am not going to reconcile the figures here. The figures that have been produced in the Department's material, and in Mr. Hennessy's statement, have come from the published audited figures which are figures that have been worked through with the troika as well. I can provide a summary of those figures.

The Senator mentioned that €2.6 billion was paid through the PCRS. I need to break it down and find out what was included. For example, in 2009 the figure was €2.633 billion but it included €491 million that was paid to general practitioners. As Mr. Hennessy said in his statement earlier, the figure for pharmacy includes ex-factory price, wholesale margin, fees and VAT. It depends on what actor presents what figure and at what point in time.

I can provide the committee and the Senator with a summary that is transparent about the figures we have produced. Then I can take any figure and attempt to reconcile it or let some other actor reconcile it because they may have compiled it in a different way. I hope I have simplified the matter for the committee.

I thank Mr. Burke.

It would be helpful if Mr. Burke was given a copy of the document that I have in order to correlate the figures.

Deputy Catherine Byrne has offered her apologies as she cannot be here to listen to the reply to her questions. She will return later.

Professor Michael Barry

In terms of prescribing, it is important for us to acknowledge the huge benefits that medicines afford us. We have seen this in areas such as peptic ulcer disease and coronary heart disease mortality which has experienced a three-fold reduction over the past 25 to 30 years.

The main focus for the medicines management programme is the safe, effective and cost effective prescribing of medicines. Safety is an important element to mention. We must remember that medicines are the most common form of preventable patient injury in the health service. Safety is a big issue for us, regardless of the money which we have spoken an awful lot about today. A lot of our work is advising practitioners on the safer prescribing of drugs. The ones that particularly concern me are the new oral anti-coagulants and we have issued detailed guidance on them to prescribers.

I shall return to the money side of things. Even with reference pricing, there is a significant number of things we as prescribers do but can do better. That has been part of our thrust and I shall give a few examples. In this country inhaled medications for asthma and COPD costs over €100 million every year. I refer to the combination of two inhalers, of steroid plus a long acting beta agonist, which accounts for €50 million a year. There is a new one out, which is 35% cheaper. Our message to prescribers is very clear - when prescribing one of these new inhaled medications to opt for a product called Bufomix. These are simple things that we can do but we can do better. As Senator Crown has said, we should save where we can. If one looks at statins, proton pump inhibitors, blood pressure lowering medications and anti-depressants, there are 12.5 million prescription items issued for these every year. Can we do better? Yes, we can.

We have looked at each of these therapeutic areas, we are developing them as we go along and we indicate to prescribers what we see would be the drug of choice or the preferred drug. I mean what we would see as the first choice medication. For example, when choosing a statin today one has five choices. We are very clear on the choice that we would advise prescribers to take. We can also highlight the ones that cost us the most. We work down through all these therapeutic areas and we can make significant savings above and beyond what we have heard today about reference pricing. The programme is safe, effective and cost effective and prescribing is what we are all about. We know from the past that this programme has got to be sustained. One cannot just do so for six or 12 months, otherwise people return to their old habits in due course. Therefore, we need a sustained programme to ensure quality prescribing.

The next issue is cost effectiveness. It is important to state that when we talk about thresholds and qualities, we are trying to put a value on the health benefit that a drug will deliver for us. That is where one gets the cost per quality adjusted life. Earlier we heard about the importance of quality of life. That is why we include quality of life in these calculations. It is because one can get a duration of life but the quality of that life is important as well.

I shall now discuss the question of viewpoints. Companies submit their dossiers on cost effectiveness to us, so they put the case together. We will accept a number of viewpoints and one of them is by the health service. As has been rightly suggested, we also accept the societal viewpoint as well which one includes care costs, travel costs, out of work costs, etc. Economic dossiers incorporate all of those factors. In fairness to them, the presentations are of a very high quality. We do capture all of those aspects in regard to the cost per quality of life.

In the vast majority of cases, we do not see any difference in terms of clinical outcomes for generic drugs. It is part of our remit in the medicines management programme to promote generic prescribing and we are happy to do so. It is well accepted that it is not only the most cost effective prescribing but is also safer prescribing. We instill in our junior doctors that generics is safer prescribing. There are many examples that when people read the name of a branded product, they will not recognise it but when they are told the pharmacological name they will recognise it. There is a safety issue in that regard.

I seek three clarifications.

The meeting has run over time.

I shall be brief. Can a prescribing audit be carried out in pharmacies? Audits would allow us to see trends, for example, of local GPs prescribing expensive drugs. The audit could be done in a general practice. Is an audit carried out on a random basis? Is scientific data pulled from the reimbursement figures?

I wish to mention parallel trading but shall not go into too much detail. If the HSE, the Department or whoever makes an agreement with a company to supply a product at a certain price, is supply guaranteed? Is it just the price that is guaranteed? When one enters a contract to sell something one normally agrees to supply the product as well.

I am just wondering because wholesaling obviously suits pharmaceutical companies. Basically, it is transferring from a cheap to a dear state, so it suits them to have that going. If they are producing a product, would the witnesses not think that in the price contract there would also be an agreed supply contract, which is the normal course in any other business? If I am selling milk, I must supply it at the agreed price.

I am only guessing because I do not know a lot about this but I assume that there are very few launches of patented products in Spain. I am guessing most of them are in Germany and other high-cost markets, or am I wrong? If that is the case, surely that is almost market manipulation in a way. It is a system tied into a minimum of three countries. One launches a patented product and it is in the high-cost country, and it works out from there. Is there any way that the EU or any other organisation or entity could assess or address this issue? That is the obvious one we are all looking at here and which we should talk about.

In regard to that matter, I took Mr. Goodman's response as indicating an awareness of this situation and that it will be factored into the new negotiations. All these matters are informing the approach of the negotiators in the course of this year. We must have faith in the negotiators. We have offered our respective perspectives on all of these. We have been taking notes, as have the witnesses. I hope that our highlighting of different areas is of help to the witnesses in their job. We will have to wait and see how good a job they do based on the results that will present. I wish them every success with it.

I wish to ask about the availability of the Fampyra drug. We had the community pharmacists here last week to discuss mail orders, so is there any news on that issue?

Mr. John Hennessy

I will ask Professor Barry to deal with the first issue of prescribing audits. Mr. Flanagan will be able to handle the other elements.

Professor Michael Barry

In response to Deputy Kelleher's point, there should be a reassurance that we do audit prescribing. Part of our remit is the ongoing monitoring of utilisation and expenditure across all the major groups. As an example, I highlighted the issue of the new oral anti-coagulants. I felt that was a safety and, indeed, a cost issue. We did monitor the GMS database and were able to examine this and see that there were dosing issues. There were also issues concerning poor prescribed medicines that may not be safe and may increase the bleeding risk. This time last year, this very month, I wrote to all practitioners throughout the country highlighting the issues. We went back to re-analyse the data later and I am glad to say there has been a huge change for the better in prescribing these medications.

What was the response to that letter, as a matter of interest?

Professor Michael Barry

It is interesting. One may have thought it would not be pleasant but it was very positive. We got many calls from people who said they looked at their panel of patients and made the appropriate changes. We have seen over 1,150 GPs at this stage and we are getting a positive response from them about prescribing matters. The Irish College of General Practitioners has been excellent in facilitating this. It should come as a reassurance. We are monitoring these and are also monitoring trends in products that may not cost a lot. They suddenly come onto our radar and we then decide whether we need to look at them more carefully, and maybe subject them to health technology assessment. We are looking at it, therefore. It has always been my aim to have an ongoing scrutiny of the pricing and reimbursement of medicines. That is what we are doing now.

Mr. Shaun Flanagan

On the question of guarantees, it is important to point out that it is not actually the pharmaceutical companies which are exporters but third parties in the process.

It does occur, obviously.

Mr. Shaun Flanagan

No. I genuinely do not think it does because these companies are globalised and they have made predictions of what they will sell into each market. On rare occasions we have had scenarios where, with individual shortages, companies have put two or three times what they were predicting into the Irish market and they cannot keep the stock in the market. That can cause knock-on effects into other countries. These companies have single factories around the world. They have their supply chain mapped out six or eight months in advance. If something unexpected happens in the supply chain, they do try to flex their muscles and move things back into stock.

While we are often in combat with pharmaceutical companies in terms of security supply and people reacting to pressures, in general, our experience is good. Companies genuinely want to ensure their stocks are available, if only because it is bad for their corporate otherwise. If Pfizer has a shortage it is not good for its corporate reputation. These companies jealously guard their corporate reputations, so I would not put any blame on the pharmaceutical companies for being involved in exporting. They do their best to prevent it.

They often also put in place lock-downs on stock where individual suppliers can only get so many packs per month commensurate with what they have bought historically. One will often find third parties in the market complaining about it. The reason for that, however, is that if one had only bought ten packs a month for two years, why does one suddenly need 200? They therefore put locks into their stocks to ensure that people cannot get involved in those processes. There is a sophisticated supply chain operation behind it all trying to control things.

If one is shifting from cheap markets through parallel trading to dear markets, surely that is going to help the pharmaceutical companies eventually.

Mr. Shaun Flanagan

No, it does not. The Deputy should remember that they have sold the stock into Ireland. Once they sell it into Ireland in the wholesale chain, they have sold it at €10 and no longer own the stock. It has gone into the distribution chain. A third party takes it at that €10 price and exports it to another market at €20. The pharmaceutical company gets no benefit. In fact, if one thinks it through, the pharmaceutical company loses. That is because if it is a higher-price market, they could have sold it in the other market for €15, so it is the third party which benefits.

The next time in, they are saying that they do not have that.

Mr. Shaun Flanagan

I can genuinely only give the Deputy the benefit of my experience.

Mr. Shaun Flanagan

As regards the three, six, nine issue, companies do enter the market in waves. I have explained throughout how we use HTA. I should also probably have said that in 2008, 2010, 2012 and 2013 there were price realignments on the basis of what the baskets were in those countries. Those were many years after the launch. I have no doubt our expectation is that in the next agreement there will be an automatic realignment in various things. In the last agreement the decision was made to take all the savings we can up front, and we realigned everything at the start of the agreement, as opposed to doing it on a phased basis. I think, however, that in the next agreement there will be an automatic realignment.

The other thing that happens is that when a company makes an application there may well be only three baskets on it. They go through the HTA process and we end up in a commercial negotiation. One of the things we always do is go back to companies and say, "Show us your basket of nine now, guys". Often at that stage one will have seven, eight or nine in the basket. As soon as that happens, one is usually in a better position for leverage.

In addition, while companies submit the basket of three to us, it does not mean that we stop on that day. We have relations with other reimbursement agencies across Europe. When we see an opportunity where somebody has launched at a lower price, that gives us a commercial opportunity to negotiate with a company. We do go back and do that.

I asked about where products get launched.

Mr. Shaun Flanagan

Products are launched in Spain. In the unpatented market, Spain is not necessarily any cheaper than elsewhere. Companies have very tight pricing windows that they try to apply across the whole of Europe as far as they can, particularly at launch. Spain is not in the first wave but it is one of the earlier wave countries. I am not too sure we have data that are readily to hand.

They could be launched in Germany, too, I would imagine.

Mr. Shaun Flanagan

Yes, absolutely. There are three markets that are free-priced, in Denmark, Germany and the UK. One can take it that if one is entitled to name one's price in countries, those countries are early launch places.

I am conscious of time because we are running over.

Mr. Shaun Flanagan

I have two more questions to address. Will I keep going?

Mr. Shaun Flanagan

As regards fampridine, that has been a difficult assessment process. We have gone back and renegotiated with the company. We have also re-engaged with clinical specialists. We are working to try to agree a protocol that might allow us to extend reimbursement. The particular difficulty with fampridine is that about one third of patients get a good response, one third get a partial response and one third get no response. Clearly, if one could be certain that one was only paying at a reasonable price for the people who get a very good response, one would be more eager to reimburse. We are trying to work towards that outcome. We are hopeful of progress on that in the near future.

The last question concerned the healthwave type of scenario.

Mail order in general, yes.

Mr. Shaun Flanagan

I cannot talk about mail order in general because there is a policy around changing legislation. In terms of healthwave, however, the HSE would welcome any price competition in the market. We have made it clear that we set prices for reimbursement and for the schemes, but we do not set prescription prices. Any competition is welcome but we would want to be cognisant that there is a completely different model. We have a population of 4.6 million with 1,800 pharmacies.

If one takes it that the average pharmacy probably covers a population of 2,500 people, such a pharmacy might have 1,000 patients. The Healthwave model, as reported by itself, involves 10,000 patients paying a fee of €25 upfront. Members can see clearly that it is a different model and there is a choice for society in this regard. If one needs 10,000 people to run that model, then perhaps one only needs one tenth of the number of pharmacies and that is not a model the HSE necessarily would support 100%. I know myself that with children, if one needs a prescription late at night and one is in Cork, west Clare where I am from or wherever, one will want a local pharmacy at which one can get a prescription for that child and get it quickly to avoid a hospital admission. If one is in the unfortunate position of having a family member who is coming home to spend his or her last few days with one and if one needs access to opiates of whatever, one will not be going to a pharmacy in south Dublin with a huge population around it. That model is built on chronic patients with no changes whatever and our pharmacy model delivers a great deal more than does the other type of model.

However, I reiterate there is nothing wrong with competition. We welcome the pricing competition and people can then make their choices.

Mr. John Hennessy

Before the Chairman concludes, I hope we have assisted the committee in addressing some of the questions on this important issue. It is a huge area of expenditure and is of considerable public interest as well. Our approach has seen significant progress because, as the joint committee has heard, a balance must be struck between reducing price and maintaining supply, which is critical. As for the future, a key priority for the HSE is Professor Barry's programme in respect of rational prescribing. One other point I might add is in the area of information and transparency and pertains to providing a lot more information in the public domain on price and costs and helping the debate on this important area through greater transparency on the figures. The points Mr. Flanagan has just made on competition, choice and well-informed consumers are highly pertinent in this regard.

I thank the witnesses for their attendance at a lengthy and highly informative meeting. I thank them for their time and involvement.

I believe Mr. Goodman also wished to make a point.

Mr. Fergal Goodman

I have one brief point to make on mail orders. We all are cognisant that online purchase of all sorts of services and products now is becoming a reality. In the Department of Health's national policy and regulatory oversight role, it is an area at which we are looking to scope out and ascertain what, for example, is emerging by way of practice in other countries and whether there are things for which we need to forward plan and about which we must think, while highly cognisant of the issues Mr. Flanagan raises in terms of continuity and accessibility of supply. Nevertheless, it is an area at which we are having an initial look from a policy perspective and is something the Minister has asked us to examine.

I again thank the witnesses.

Sitting suspended at 11.45 a.m. and resumed at 11.50 a.m.