Price Reductions on Off-Patent Drugs

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?