Wednesday, November 18, 2009

Patent Nonsense!

The Health Minister, Mary Harney has mentioned a new proposal (likely to be included in the forthcoming Budget) regarding the making of a nominal charge (50c) for every prescription.

As well as providing some additional revenue to the Exchequer this would perhaps have the benefit of discouraging many freely availing of prescriptions (on the Medical Card) which they don't subsequently use. It is estimated that up to a quarter of the drugs dispensed by pharmacies in this way are wasted!

However there are more serious issues that need to be addressed.
A critical matter relates to the fact that the cost of drugs in Ireland is exceptionally high compared to other countries.

One important contributing factor relates to the excessive mark-up enjoyed by pharmacies for dispensing drugs. In fairness this was addressed earlier in the year by the Minister leading to a tentative compromise resolution with the pharmacies in August.

However the key factor has not yet been addressed which relates to the exorbitant amounts paid by the HSE (as the National Purchasing Agency) to the drugs companies.

Two reasons have been put forward for this problem.

1) The practice still predominantly exists in Ireland whereby medical practitioners prescribe patent drugs (which generally are much more expensive) rather than their generic substitutes (which become available after the initial patent period expires).

Apparently in the UK more than 50% of drugs prescribed are of the generic variety (whereas in Ireland it is down at around 10%).
So clearly much more should be done to persuade doctors here to prescribe generic rather than patent drugs whenever possible. (It should be borne in mind that generic substitutes are not inferior to the patent brands!)

However there is another problem here. Doctors will maintain - perhaps correctly - that in Ireland that often there is no appreciable price difference as between patent and generic varieties. Therefore in many cases they lack any real incentive to prescribe generics (even when available).

So the real problem in Ireland seemingly relates to the fact that the HSE pays far too much for its drugs (and especially for generic substitutes).
Indeed it appears that the cost to the HSE of buying some of these generics runs at 16 times the corresponding cost to the UK authorities (which is totally ludicrous).

Even more ludicrous is the attempted explanation by the drug companies of this vast price discrepancy on the grounds that they cannot obtain the same economies of scale (presumably in relation to distribution) with respect to Ireland as in the UK market.

Now the HSE say that their hands are tied as the current agreement will run till next next September.

However though some concessions on price will possibly be made by the drugs companies in new negotiations with the HSE, I would confidently predict that we will still be paying considerably more for the same drugs than our UK counterparts.

One would of course like to offer a real explanation here. On the face of it - presuming that the HSE's account is accurate - the drugs companies are in breach of competition law (as they are enforcing a clear case of blatant price discrimination with respect to two EU markets).

Why therefore has the HSE not asked the EU Commission to investigate this case which could have far reaching implications? I am aware that there is on-going case involving EU Competition Policy in relation to GlaxoSmithKline which was seeking to prevent discounters obtaining drugs from Spain (where prices are generally lower than in the UK). The pharmaceutical industry would maintain that such price discounting - it it were to become commonplace - could eventually erode justifiable profit margins on drugs. However, whatever the merits of this argument it cannot justify the blatant price discrimination they operate with respect to the Irish market.

One obvious remedy would entail that a Central agency (within the EU) in future would negotiate directly with the drugs companies purchasing on behalf of all EU countries. Then having afforded the pharmaceutical industry maximum "economies of scale" in this fashion (and with due regard to acceptable profit margins for the manufacturers), it could then distribute to national agencies in accordance with agreed allocations. Failing that, if manufacturers persist in their exploitation of the Irish market, authorities here could seek to purchase drugs from other EU markets (where prices are so much lower).

However precisely because these options have not been pursued in Ireland (despite such massive price discrimination) I suspect that another explanation must exist.

I have often argued on these blogs that the Government has effectively followed a policy of appeasing multinational investors at every turn. Because such investment has become so vitally important to the economy it is then loath to take any action that might incur possible disfavour.

In particular the chemical and pharmaceutical companies dominate the landscape in Ireland with over 60% of all merchandise exports now coming from this sector. As argued before, this sector offers special advantages with respect to tax diversion activities which perhaps explains the considerable extent of their presence. Indeed many of the drugs prescribed by the doctors are produced by subsidiaries of these same pharmaceutical companies located here in Ireland.

It is the very dominance of such companies with respect to the economy that gives them great bargaining power. And this power has been been apparently used to extract a far higher price for drugs here than in other markets.

Sooner or later we will have to recognise this elephant in the room i.e. multinational activity and how both directly and indirectly it is effectively determining so many of our economic decisions (greatly limiting in the process any genuine exercise of freedom).

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