Category: Fiscal Policy

Price Reductions on Off-Patent Drugs

Post author By Karl Whelan
Post date February 2, 2010

The news that the government has negotiated a 40% reduction in prices with the Irish Pharmaceutical Healthcare Association for 300 off-patent drugs (announcements here and here) got the warm fuzzy feel-good treatment on last night’s RTE News at 9 (the word patent did not make its way into the two-minute report).

This is, of course, undoubtedly good news, particularly for those with regular prescriptions for these drugs. Being a dismal scientist, however, I’m always looking for the catch: Is asking nicely for price reductions the way to tackle our budget deficit or are these cuts just an indication that we’ve been paying too much for drugs all along?

The Irish Times newspaper piece by Eithne Donnellan reports about the negotiations between the Minister and the IPHA and then poses a pointed question:

Very quickly the IPHA – which represents all the major drug firms such as Pfizer, Roche, GlaxoSmithKline and Merck Sharp & Dohme – agreed to cut prices of its off patent drugs by 40 per cent if the State didn’t touch the cost of their proprietary or branded drugs for another 18 months. The new deal takes the IPHA up to March 2012, replacing the one due to expire this September.

But if prices could be reduced this much, were the manufacturers of 90 per cent of the drugs on the Irish market just ripping us off all along?

Indeed, this deal comes after another deal struck in 2006 to reduce the prices of these drugs by 35%. So another version of this story is that these deals expose how much money the state has been losing over the years by paying high prices for branded off-patent drugs instead of purchasing generics.

I don’t claim to be an expert in this area, so I’d like to hear from those who know it better. Is this the best we can do or could the state find further savings in this area?

Categories In Fiscal Policy
Tags Drug prices
27 Comments on Price Reductions on Off-Patent Drugs

External Imbalances and Fiscal Policy

Post author By Philip Lane
Post date January 29, 2010

In this new IIIS Discussion Paper, I discuss the potential role of fiscal policy in stabilising the external account. The main focus is on the management of imbalances within the euro area; I pay particular attention to the Irish situation.

You can download the paper here.

Categories In Economic Performance, EMU, Fiscal Policy
Tags fiscal policy and external imbalances
2 Comments on External Imbalances and Fiscal Policy

Civil Servant U-Turn Explanations Getting Worse

Post author By Karl Whelan
Post date January 28, 2010

I noted a few days ago that the government’s justification for the U-turn on pay cuts for senior civil servants was to cite the international benchmarking carried out for the Review Body report that recommended the cuts in the first place. This seemed an unsatisfactory defence of this controversial decision.

Yesterday in the Dail, the Tanaiste put forward a new justification for the decision (link to Dail transcript here). The Tanaiste said “With regard to the pay and conditions of assistant secretaries, the review body on higher level pay indicated that the bonus was indicatively part of their salary.”

If I understand the argument correctly, the Tanaiste is saying that the Review Body’s report indicated that the salary that it was recommending be cut included the bonuses, in which case the government was not actually implementing the report’s recommendations in the first place but that policy was now consistent with the report because of the U-turn.

Well, here’s the Review Body’s report. It’s not that long and I’ve read it a couple of times. And as far as I can see, the Tanaiste’s claim is, well (… looking for polite term for it) not correct. I can’t find anywhere in the report where it says that the bonus was explicitly, implicitly, or, indeed, indicatively included in the baseline salary recommended to be cut.

In fact, there’s pretty solid evidence that the Review Body was explicitly excluding bonuses from the salaries being considered: The “current rate” salaries cited on page 5 of the report are base salaries excluding bonuses. This doesn’t seem to leave much room for the idea that the Review Body was including bonuses as part of the salary to be cut, whether indicatively or otherwise.

Is it really too much to ask for a for a simple and honest explanation for this decision, i.e. one that doesn’t rely on misrepresenting the report that recommended the cuts in the first place?