A Fair Price for Wholesale Services Means Lower Medicine Prices

February 25 2008

The HSE is placing advertisements in tomorrow's (Tuesday February 26th) national newspapers advising patients who have concerns regarding threats from some pharmacists to cease dispensing medicines to medical card holders from March 1st.

The HSE is seeking to introduce fairer prices for medicines that will benefit everyone and bring Ireland into line with many other European countries. There is no reason why Irish people should pay more for their medicines and in turn, there is no reason why the HSE should pay millions extra of taxpayers' money for the medicines it buys for its patients.

Why the HSE wants to pay a fair price for wholesale service in line with European norms

FAQ - A Fair Price for Medicines

HSE Advice to patients

Why the HSE wants to pay a fair price for wholesale service in line with European norms
  • The existing wholesale services mark up of over 17% on medicines paid for by patients and the HSE is not reasonable
  • The Europe-wide industry norm for wholesale services is 7-8% (In Ireland this is broken down as 5% for operating costs and 2-3% for profit)
  • This situation where patients and the HSE pay more than twice the European cost for medicine wholesale services is unsustainable
  • The HSE commissioned an extensive independent economic analysis during the past 2 years, which included engagement with stakeholders and public submissions. This found that 7% is a fair and reasonable rate for wholesale services
  • This initiative will NOT affect the dispensing fees paid to pharmacists by the HSE (€320 million in 2007)
  • The cost of wholesale services to the HSE is completely separate from the dispensing fees it pays Pharmacies under the pharmacy contract
  • The HSE is committed to ensuring that dispensing fees paid to pharmacies should be fair and transparent. These fees should be re-examined and remain separate from the myriad of hidden supports (over which the HSE has no control) which include varying arrangements between wholesalers and pharmacies where larger pharmacies receive higher discounts than smaller ones and where small pharmacies subsidise multiple daily deliveries to large pharmacies
  • Dispensing fees are governed by the pharmacy contract. This contract will be revised through a separate process with public consultation, a facilitator and independent pricing body
  • The HSE is not allowed to directly negotiate fees with the Irish Pharmacy Union - this would be against the law (Competition Act)
  • The profitability of pharmacies is high. That is why the number of pharmacies has increased by 26% during the past 5 years
  • The HSE has agreed to introduce an independently priced interim pharmacy contract to address concerns raised by some pharmacies which are heavily reliant on medical card customers and which have genuine concerns about the effect of the new wholesale prices on their businesses
FAQ - A Fair Price for Medicines

1. What exactly is happening on March 1st 2008?
Manufacturers make medicines, wholesalers deliver them to pharmacies and pharmacies provide them to patients. Like the manufacturers and pharmacies, Ireland's wholesalers are paid for their services, such as distributing medicines to pharmacies.

The HSE has been paying up to 18% of the medicine costs for this wholesale service - twice the European cost.

Following public consultation and economic analysis, and the fact that the industry norm for wholesale charges is 7-8%, the HSE is reducing this to what it believes is a fair and reasonable rate - 8%, reducing to 7% after one year.

The changes will apply to all medicines dispensed under the various HSE community schemes such as the Medical Card Scheme and the Drugs Payments Schemes.

2. Why is the Health Service Executive targeting Pharmacies?
We're not. This latest initiative involves a reform of the wholesale cost of medicines. It involves bringing the amount the HSE pays for wholesale services in line with the Irish and European value of wholesale services.

We are not changing the dispensing fees paid to pharmacies. These will be considered as part of a wider process to introduce a new Pharmacy Contract which govern dispensing fees. It will involve a facilitator and independent body appointed by the Minister for Health and Children and designed to make sure that pharmacies receive a fair and reasonable dispensing fee for provision of pharmaceutical services.

3. Why does the HSE need to reform what it pays for wholesale services?
The HSE is responsible for spending taxpayers' money allocated to it by the Government. It must ensure that it at all times it pays a fair and transparent price for all the services it purchases. Patients should also be allowed to pay a fair price for medicines.

The HSE spends in the region of €2 billion annually on medicines for patients - 15% in hospitals and 85% in the community. Since 1997 there has been a 370% increase in these costs, which is two and a half times ahead of medical inflation.

4. Why are you reforming wholesale prices now?
The Indecon Report, an independent and detailed analysis of the market, showed that the current medicine wholesale mark-up in Ireland is more than double what the retail pharmacy sector pays and double the EU average.

In other words, in Ireland the wholesale service adds 15% -17% to the final cost of medicines, yet the retail market in Ireland and Europe values it at about half that (7-8%). This mark-up is neither reasonable nor sustainable.

There is no reason why members of the public and the HSE should pay twice as much as Irish pharmacies and other European countries for similar services.

5. Why did the Health Service Executive not discuss these reforms with the wholesalers and the pharmacies before introducing them?
Firstly, the rate the HSE pays for wholesale services is not a matter for pharmacies - it would not be appropriate or right for them to determine what the HSE pays for wholesale services.

With regard to wholesalers, in 2006 they refused to discuss these reforms with the HSE. The HSE was subsequently advised that direct negotiations on fees or margins with a representative body for undertakings, such as the Pharmaceutical Distributors Federation would breach competition law.

Therefore, the HSE engaged in a more appropriate approach, in line with published Competition Authority guidelines, to establish fair and transparent arrangements for wholesale pharmaceutical supply.

This process, over the last two years, included stakeholder consultation, public submissions and an extensive independent economic analysis - the aforementioned Indecon Report.

6. If this all about wholesalers, then why are Pharmacists involved?
There is considerable overlap of ownership between the three wholesalers and 1500 plus pharmacies.

For example, 400 pharmacists own the wholesalers Uniphar, the wholesalers Cahill May Roberts owns the Unicare Group of 72 shops and the wholesalers United Drug have invested €300 million in community pharmacies.

Wholesalers pass on part of the current 15%-17.66% wholesaler mark-up to pharmacies by way of discounts, with larger discounts given to larger pharmacies.

We wish to make it clear that the HSE has no control over these arrangements.

The varying commercial arrangements between wholesalers and pharmacies should remain completely separate to the dispensing fees paid to pharmacists by the HSE for the valuable pharmacy services they provide. The HSE is committed to engaging in a fair and transparent re-evaluation of the direct fees which pharmacists receive.

7. Pharmacies say they will be out of pocket under the new scheme?
This ignores the fact that extremely high wholesale mark ups are currently being passed on as generous discounts to pharmacies.

The HSE reimburses Community Pharmacies for each item that they dispense to patients under the various schemes. The reimbursement price (the list price) is meant to cover the cost price of the medicines. A 50% mark up on this reimbursement price is paid to pharmacists for the Drugs Payment Scheme, the Long Term Illness Scheme as well as some other patients with further dispensing fees paid for all patients under all Schemes. Because pharmacies receive generous wholesale discounts, the reimbursement price currently paid by the HSE and patients is actually far higher than the actual price that the pharmacy pays to the wholesaler.

It is important to remember that this is a reimbursement price for the cost of the medicine, not a fee. (Pharmacies are also paid a dispensary fee per item).

In short, Irish patients and taxpayers are paying over twice as much for wholesale services as the retail pharmacy sector and are subsidising an inefficient model that benefits the few over the greater good.

It is wholly inappropriate for the patient or the taxpayer to subsidise the trading arrangements between two parts of the supply chain whose commercial interests are becoming inextricably linked due to the sharing of ownership between both sectors which is an increasingly significant feature of the market.

It is important to note that the HSE has no control over these arrangements between wholesalers and pharmacies.

8. Pharmacies say that hundreds of pharmacies will close - is this true?
This has been claimed before on other occasions. Despite predictions by the IPU in 2002 and 2005 to the contrary, the number of pharmacies has increased by 26% during the past 5 years.

For example, on 31st January 2002, then Minister for Health and Children, Micheal Martin TD, announced that he was revoking the Health (Community Pharmacy Contractor Agreement) Regulations, 1996 to remove protective regulations.

On 6th February, 2002, the Irish Pharmaceutical Union (IPU) general secretary said:

"This could mean the end of the community pharmacy as we know it because many of these stores have a very marginal business already.".

The IPU emphasised that 400 small stores would not be able to survive competition from the big pharmacy groups who were planning to open a large number of stores here.

In fact, there followed a 26% increase (335) in the number of pharmacies from 2002 (1249) to 2007 (1584) - increasing on average 5% annually.

Yet again, on 30 June 2005, the IPU predicted large-scale closures. Then, the Minister for Health and Children, Ms Mary Harney T.D., announced that the Government had approved new pharmacy legislation which would increase competition and raise standards in the pharmacy sector.

The IPU said the new Pharmacy Bill would "hasten the demise of community pharmacy as we now know it and in particular put many pharmacies in rural and marginalized areas at risk of closure."

In fact, there followed a 10% increase in the number of pharmacies from 2005 (1430) and 2007 (1584).

9. Were these changes not planned to come into effect in December 2007?
Yes they were. However in response to concerns from pharmacies that it may create difficulties, for pharmacies highly dependent on GMS as well as rural based pharmacists, the HSE drafted a voluntary interim contract and issued it to each community pharmacy in early January for their comments and feedback.

10. Pharmacies are claiming that a "contract" is being imposed on them - is this the case?
This is a reference to the above offer of an interim fee arrangement pending the conclusion of a new Pharmacy Contract. This is an offer on a purely voluntary basis.

No contact is being imposed. This is a voluntary offer - the existing contract remains in place, with existing professional payments, for all pharmacies who choose to retain it.

The HSE has attempted to flexibly meet the concerns of a number of pharmacists who rely heavily on GMS patients as this interim flat fee will be higher than the fee they currently receive under the GMS scheme.

Pharmacies have argued for some time that the discounts offered by the wholesalers subsidise the dispensing fee available under the GMS scheme.

An interim contract has been offered by the HSE to address the possible impact of the new reimbursement prices (with the reduced wholesaler mark up and reduced opportunity for discounting) on certain pharmacies, through the offer of a higher flat fee of not less than €5 for all schemes dispensing. This is an increase of 50% in fee payments as it compares to a current fee of €3.27 per item.

This would directly benefit those pharmacies with a greater number of medical card patients. This is a voluntary offer - the existing contract remains in place, with existing professional payments, for all pharmacies who choose to retain it.

On February 18th 2008, to ensure that this current interim fee is fair and reasonable and appropriately validated, the Minister for Health and Children and the HSE agreed that it should also be assessed and recommended by the same independent body which will price a new Pharmacy Contract.

While this independent body is determining its recommendation, the provisional flat dispensing fee of €5 per item will still be on offer to pharmacies.

11. Why not just introduce a new contract to cover all of these issues at the same time?
The HSE also wishes to put in place a new Pharmacy Contract. For competition law reasons, it is not possible for the HSE to discuss fees collectively with the IPU, but it is possible to negotiate the features of a new contract, which will then be priced by an independent body.

At a meeting on 5th December 2007, the HSE offered a two-stage process that sought both to address the immediate impact of the new wholesale prices on certain pharmacies with a high proportion of medical card patients, and to allow for discussion on a substantive contract which could be referred to a new independent body for pricing. The IPU rejected this offer.

The role of the independent body will be to price an entirely new contract in due course, and it is a method of setting a fee level of which the Minister and the HSE are fully supportive.

12. If a higher fee is recommended by the independent body, and accepted by the Minister, will it be applied with retrospective effect to 1 March 2008?
Yes. Any pharmacist who wishes to opt for the Interim Pharmacy Contract - immediately or after the independent body has reported - may do so.

13. Pharmacists say that if the HSE is really interested in drugs budget savings then it should tackle the manufacturing costs - why not?
We already have. In 2006, the HSE reached an agreement with manufacturers which has already reduced the prices of new medicines, has reduced the price of over 600 drugs by 20% and which lead to a significant reduction in prices over the next four years. This agreement will save around €260m up to 2010.

The agreement also contains provisions to guarantee the continuity of supply of medicines and an agreed price freeze on all items covered by the agreement over the next four years.

14. Can you reassure Medical Card Holders that they will still be able to get their drugs at their local pharmacy after March 1st?
Pharmacies are bound by contract to give three months' notice of withdrawal from the community pharmacy scheme. We have not received any such notices.

The HSE would expect that no pharmacy will deny a customer the medicines they are entitled to under various state schemes. Nevertheless, the HSE is putting in place contingency arrangements to respond to any instances where this may happen.

From March 1st, all patients will continue to be entitled to all their drugs and medicines under the various schemes, in the normal way, and can avail of this service at any community pharmacy of their choice. If a pharmacy indicates it will not supply medicines to a patient, the patient can go to another pharmacy. The original pharmacy must give the patient any repeat prescriptions it holds and a copy of the patient's dispensing record.

HSE Advice to patients

If your pharmacy has told you that they will not supply medicine under the Medical Card or Drugs Payment Schemes from March 1st, what should you do?

  • Go to your Pharmacist and ask them if they will be filling your prescription March 1st
  • If they say no, then you should ask them to return your prescription to you along with records of any other medicine you have had
  • Call the HSE info-line on 1850 24 1850, open from 8am to 8pm Monday to Saturday
  • We will give you details of pharmacies in your area that will fill your prescription, or make alternative arrangements to ensure that you can get the medicines that you need



Last updated on: 25 / 02 / 2008