The amount the State pays for medicines is to be cut by at least €775 million over the next four years, under a deal reached with pharmaceutical manufacturers.

Revised rules on the approval of expensive new drugs, which take account of the budget impact involved, are also to be introduced as part of the agreement between the Government and the Irish Pharmaceutical Healthcare Association.

The State has also agreed to withdraw the threat of introducing unilateral price cuts as part of the agreement in principle reached by the two sides late last week.

Announcement

A formal announcement of the agreement is expected in a week’s time, once the exact details of some aspects of the deal have been finalised.

In a statement, the Department of Health said the "State's negotiating team and IPHA have reached agreement in principle on a new drug pricing and supply agreement. Work will continue between the parties over the coming days to finalise the terms of the agreement."

The effect of the deal will be to ensure there is no increase in the State’s €1.2 billion annual drugs bill over the next four years. This will allow for extra funding to be spent on new drugs currently in the pipeline, many of them very expensive.

The cost of drugs in Ireland relative to other countries will fall, through the expansion of the basket of countries in which Ireland is grouped for price-setting purposes. Irish prices are pitched at an average of nine countries, but under the new agreement this basket is being increased to include at least 14 countries.

The Department of Health, spurred on by the European Commission and other critics of high Irish drug spending, has sought for prices to fall to the bottom of the current basket.

Under current arrangements, a new medicine is approved if it is judged to be cost effective. However, some drugs, while cost effective, have a large budget impact, while others not considered cost effective would not cost that much overall because, for example, low numbers of patients were involved.

Final decision

Under the agreement, both cost effectiveness and budget impact will be factors that determine whether a new drug is approved. Where these criteria are met, the HSE will make decisions on reimbursement, but where a medicine is expensive and has been judged not to be cost effective, the final decision will rest with the Minister for Health.

Earlier during negotiations, drug companies faced the prospect of price cuts being imposed by the HSE using powers it acquired under recent legislation.

However, a stay was put on the move and letters to that effect will now be withdrawn after agreement was reached.