Health minister Mary Harney: costing the state €640m to distribute €1bn worth of drugs to patients

AFTER AN embarrassing court defeat last year, health minister Mary Harney seems intent on maximising the pain felt by the country's pharmacists and drug wholesalers as she battles to cut the state's €1.6bn annual drugs bill.


In less than a week's time, the country's 1,500 pharmacies will see their income from dispensing medicines slashed by more than a third after the minister used emergency powers to cut their state payments with just two weeks' notice.


Although the move was hardly surprising – Harney had earlier attempted to slash their fees by 30% before being frustrated by the High Court – the scale and nature of the cuts caught the industry by surprise, particularly as pharmacists had signalled their willingness to reach a compromise with the minister.


The cuts have angered pharmacists, with their industry body, the Irish Pharmaceutical Union (IPU), arguing that the emergency savings which will be imposed on the sector are four times greater than those placed on other groups.


"Other groups who have been hit by this measure, such as GPs, barristers and government contractors, have only had their fees cut by 8%, whereas we estimate that our members will take a 34% hit as a result of the minister's actions," said IPU treasurer Dermot Twomey.


Harney's approach towards pharmacists' fees may be inspired by the fact that, unlike most other sectors of the economy, the medicine market does not operate on free market principles.


The state sets prices and profit margins throughout the system, effectively giving her the ability to impose cuts at will. Whereas contractors or barristers who feel aggrieved by state cutbacks can simply opt to ply their trade in the private sector, pharmacists' and wholesalers' only alternative to accepting the state's trading terms can be closure.


This is reflected in Harney's fees order, which comes into effect on Wednesday and will see wholesalers' margins slashed by 43% and the mark-up paid to pharmacists under most state schemes fall by 60%. The department believes the measures will generate savings of €133m per year.


Announcing the move, Harney said that it was currently costing the state €640m to distribute €1bn worth of drugs to patients and that, in many cases, mark-ups paid to pharmacists stood at 50% of the drug's value.


Twomey said that pharmacists accepted that the mark-up system had to change but the current measures "are a beheading, not a haircut".


"The 50% mark-up is a historic legacy. On the flipside, in the medical card scheme, we get paid €3.60 for each item dispensed. But the average cost of dispensing medicines is around €8 to €9 per item. So there is a lot of cross-subsidisation in the system," he said.


"The IPU isn't trying to stop cuts, our dispute is about the quantum of cuts. Since 2001, we have been writing to the Department of Health about rebalancing the schemes but our requests have fallen on deaf ears. Recently, we made a submission handing them savings of €80m per year on a plate but they weren't interested."


In the absence of any compromise between the two sides, leading industry players are already bracing themselves for the worst. Although the country's leading wholesaler, United Drug, would not comment on the impact the measures will have on its business, its main rival, Uniphar, said its future trading prospects looked bleak. "The company expects to come under severe financial pressure and is particularly concerned about exposure to bad debts resulting from pharmacy closures," said a spokesman.


The company, which also holds stakes in 150 pharmacies, said the changes would create a "major shock" to the healthcare system, which would reduce services for patients, trigger widespread job losses and increase pressure on the HSE.


"If these changes proceed, they will result in a large number of closures. Many of these pharmacies are in rural locations and provide vital services to their communities. We do not understand how the minister plans to fill this gap."


Another oddity in the minister's cost-cutting scheme is the absence of any cuts in payments to multinational manufacturers, such as drug giants Pfizer, AstraZeneca and GlaxoSmithKline, which account for the bulk of the state's annual drug spend.


Industry sources told the Sunday Tribune that the government hasn't even approached their representative body, the Irish Pharmaceutical Healthcare Association (IPHA), about potential cost-cutting initiatives.


Their current deal with the government, struck at the height of the boom in 2006, still has over a year to run and sources said the industry didn't anticipate any negotiations on drug prices to start until autumn 2010.


Although there have been industry whispers that the HSE wants to make wider use of cheaper generic alternatives to brand-name medicines, the same rumours indicate that such a move is being resisted by Harney's department.


Despite repeated contact from this newspaper, the Department of Health was unable to provide a comment on the issues raised by the cutbacks at the time of going to press.


...And The NTPF Is Next


IT'S NOT just pharmacists and wholesalers who are in Harney's sights, private hospital operators have been left reeling by the scale of planned cuts to the National Treatment Purchase Fund (NTPF), one of their main sources of state income.


The biggest recipients of NTPF funding are Dublin's Blackrock Clinic, the Galway Clinic, the Bon Secours Group and the Mater Private Hospital in Dublin. In total, private hospitals received €88m from the fund in 2008.


But, according to newly released Department of Health figures, the number of patients treated under the NTPF looks set to fall by 27% this year to around 26,500 patients.


Those waiting for outpatient treatment will be particularly badly hit, with only 5,600 of those patients likely to be funded by the NTPF this year, compared with more than 12,300 in 2008. The NTPF, which was established in April 2002, aims to remove patients from public waiting lists by providing them with free private treatment.


The cutbacks to the scheme are more severe than originally expected, given that health minister Mary Harney had only reduced its budget by 10%. Speaking to the Sunday Tribune last month, Fergus Clancy, the chief executive of the Mater Private, said that any cutbacks in the NTPF would have a dramatic impact on patient care.


"A reduction in the NTPF's budget would inevitably cause reductions in the number of people being treated and the number of patients languishing on waiting lists will rise," he said.