The mark-up which the Health Service Executive (HSE) pays wholesalers for drugs is to be more than halved in a move expected to save about €100 million a year.
But as the State's drugs bill soars year on year, HSE chief executive Prof Brendan Drumm warned yesterday that a cost-benefit analysis will have to be done more often on drugs before they are made available free or at subsidised rates to patients.
Since 1997 there has been a 370 per cent increase in the cost of the health service drugs bill, up from €332 million in 1997 to €1.5 billion in 2006.
Prof Drumm said it was a challenge "as to how a society can afford to pay for that type of increase".
He said pharmoeconomic assessments - looking at the value for money of drugs before they are made available free to patients - will therefore have to become part of the Irish system in future.
"We are going to have to be much more careful going forward to ensure that these drugs do carry the type of benefit that justifies the actual money we pay. There is absolutely no doubt in the past we have run a remarkably open policy in terms of allowing drugs access without carrying out those analyses," he added.
But he said new and costly drugs for conditions such as cancer had led to better outcomes for patients and spending on these was therefore justifiable.
The carrying out of cost-benefit analysis on new drugs in the UK has proved controversial and resulted in some breast cancer patients being denied access to well-known drug herceptin.
Prof Drumm admitted it could be controversial here too and suggested the analysis should ultimately be done on a pan-European basis.
Meanwhile, the mark-up wholesalers get for supplying community pharmacies will be reduced from 17.65 per cent to 8 per cent on January 1st, 2008 and it will be reduced further to 7 per cent on January 1st, 2009, the HSE said.
The mark-up for wholesalers supplying hospitals, which up to now was 15 per cent on orders of less than €635, will be reduced to 5 per cent.
The move is aimed at cutting the HSE's rocketing bill for drugs for medical card patients and private patients entitled to get refunds once they spend more than €85 a month on medicines.
The HSE last year, in a separate move, reached a deal with drug manufacturers to cut the cost of patent-expired drugs by 35 per cent, which it expects will yield savings of about €260 million by 2010.
It now plans to try to reach agreement with community pharmacists on the mark-up they are paid for dispensing drugs. However, it cannot negotiate with the pharmacists' representative body - the Irish Pharmaceutical Union (IPU) - on this as it says this would be in breach of competition law.
Bill Shipsey SC was appointed in March to chair talks aimed at finding a new way of negotiating with pharmacists but there has been little if any progress.
The IPU criticised the amounts which the HSE would now pay wholesalers saying it would result in deliveries to pharmacies being decreased and could therefore result in drugs required by patients not being available when they need them.
It also said that up to now pharmacists made their own deals with wholesalers and these subsidised the medical card scheme which, it claimed, was now no longer viable.
Two of the main wholesalers - United Drug and UniPhar - also criticised the new mark-ups saying they could lead to the closure of some pharmacies.