I propose to take Questions Nos. 230, 231, 240, 243, 246, 254, 258, 273 and 293 together.
My Department and the HSE have been reviewing the pharmaceutical supply chain, with a view to seeking value for money in the State's drugs bill in order to better fund existing and innovative therapies without compromising continuity of supply or patient safety. An HSE-led negotiating team, including officials from my Department, engaged with the Irish Pharmaceutical Healthcare Association (IPHA) and the Association of Pharmaceutical Manufacturers of Ireland (APMI), representing the proprietary and generic supplier representative bodies, and completed new agreements with these bodies in mid-2006. These agreements are in place.
As wholesale margins are not addressed in the new IPHA and APMI Agreements, it was intended to negotiate direct formal arrangements with the wholesale sector. Following completion of the manufacturer agreements, the negotiating team entered talks with the wholesaler representative body, the Pharmaceutical Distributor's Federation (PDF).
Early in discussions, PDF refused to negotiate a new margin for community supply, based on its own legal advice that this was a contractual matter between individual wholesalers and retailers. Subsequent legal advice to the HSE, confirmed by legal advice to my Department, indicated that, under section 4 of the 2002 Competition Act, PDF as an association of undertakings may not collectively negotiate fees, prices or margins on behalf of its members. Given the fact that the Irish Pharmaceutical Union (IPU) is also an association of undertakings, it is not possible for the State to negotiate with PDF or the IPU on fees or margins as such negotiations would place these bodies at risk of prosecution.
In light of the legal position arising from the wholesaler legal advice, the negotiating team re-considered how best to address the review of pharmaceutical supply. Based on the legal advice, a consultation process accompanied by independent economic analysis was considered the most appropriate means to allow for the determination of new reimbursement arrangements. The consultation process involved direct discussion with wholesaler companies and a call for public submissions, published on 20th December 2006, in response to which a total of 161 submissions (including 143 from community pharmacy contractors) were received.
Following the completion of public consultation, and informed by independent economic analysis, new reimbursement arrangements were announced by the HSE on 17th September 2007. The new price arrangements involved revised rates for community and hospital supply as follows:
Community supply — existing 17.66% wholesale margin reduced to 8% from 1st January 2008 and 7% from 1st January 2009;
Hospital supply — new interim margin of 5% from 1st January 2008 with further discounts for efficient ordering and supply in that sector.
The new arrangements apply equally to the GMS (medical card) and the community drugs schemes (DPS, LTI). The new arrangements do not apply to the Methadone scheme, which is a separate dispensing arrangement with pharmacists for the treatment of a particularly vulnerable group of patients. No formal notifications have been received that individual pharmacists are terminating either their GMS/community pharmacy contracts or their agreements under the Methodone scheme.
In its examination of the issues involved, the negotiating team considered a reimbursement level that reflects the market value of pharmaceutical wholesale services, and security and continuity of supply at current levels to patients. The evidence on which the decision is based, following examination of the issues, direct consultation and independent economic analysis, all indicates that the State is currently paying a premium for the services in question. It is possible and necessary for revised arrangements to be put in place without a substantial impact on the delivery of such services.
Information available to the negotiating team indicates that small and rural pharmacies typically receive discounts of 2-3% on the existing wholesale margin, while larger urban pharmacies and chains typically receive discounts of up to 12%. Therefore, smaller and rural pharmacies would be proportionately less affected by the revised arrangements.
In the light of the legal advice received, and following consultation with the IPU, a separate procedure was also agreed to examine available options for advancing contractual negotiations in compliance with Irish and EU competition law. This process is being chaired by Mr Bill Shipsey, SC.
The negotiating team met with the IPU on the 3rd October to discuss implementation issues arising from the recent announcement of new wholesaler arrangements. Both sides agreed to continue to meet under the auspices of Bill Shipsey SC, to discuss the IPU's concerns on contractual matters, within the legal constraints.
The negotiating team also had a constructive meeting with PDF on 8th October to discuss implementation issues arising from the new wholesaler arrangements.