Hidden costs to cut drug deal savings by €200m

The net saving on the State’s drugs bill resulting from an agreement with the pharmaceutical industry will be less than half the €400 million headline amount announced by Minister for Health James Reilly.

Weeks after the agreement was concluded with the Irish Pharmaceutical Healthcare Association (Ipha) in October, it emerged that the cost of new drugs will wipe out more than 50 per cent of the savings projected.

An increase in demand for patented drugs, many of them hugely expensive, will further erode the savings forecast.

Little detail about the cost of a crucial provision in the deal – to fast-track approval for many new medicines – was provided when it was first announced.

According to the department, the deal will generate savings of “up to” €116 million in 2013, €136 million in 2014 and €150 million in 2015. It was only in mid-November, in a reply by Minister of State Alex White to a parliamentary question, that it was revealed that the cost of new drugs was expected to be €70 million in each of the three years covered by the agreement.

This means the net savings are at most €190 million.

By contrast, the HSE estimates the cost of new drugs this year is just €15 million.

Deal with companies

In return for making price concessions, the pharmaceutical companies won acceptance of the principle that new medicines will be approved under the HSE’s drug schemes once they have been proven to be cost effective.

“The net savings will be affected by the cost of new drugs and by any significant increase in the volume of drugs consumed under community drugs schemes,” Mr White said.

An increase in demand for drugs is considered inevitable given the rising number of medical card holders and the increased demand for drugs in areas such as cancer. Greater survival rates are also pushing costs up as patients require further treatment to deal with recurrences of cancer.

Under the deal, the cost of hundreds of commonly used medicines has been reduced by an average of 10 per cent.

No breakdown was provided as to how much was being saved on the cost of patented as opposed to generic drugs, but most of the price changes applied to older drugs that have gone off patent or are about to go off patent.

Savings this year will be just €16 million, well short of the €60-70 million forecast by the Minister. This is due to delays in finalising the agreement with the manufacturers.

International comparison

The prices paid by Irish consumers for medicines are among the highest in the world. Last month, a study found that commonly used medicines cost up to 24 times more in Ireland than in New Zealand. In another report, drug prices in Ireland were recorded as being 45 per cent higher than in Sweden.

An earlier deal with Ipha, in 2006, failed to make a significant dent in the cost of drugs, as most of the savings applied to older drugs rather than to patent medicines.

A separate agreement has been concluded with Irish manufacturers of generic drugs, which Dr Reilly says will save €15 million a year. Legislation currently before the Dáil is expected to lead to an increase in generic prescribing and a lower drugs bill for the State.