The Health Service Executive will today announce that it is to introduce significant reductions in the margins allowed to wholesalers providing drugs to community pharmacies and hospitals.
It is understood that the plans will see the existing 15 per cent margin reduced by up to half. The measure is expected to be strongly resisted by wholesalers and could lead to legal action.
Industry sources said yesterday that the wholesalers were likely to maintain that any reduction in the margin could lead to job losses in the sector, which employs about 1,300 people.
Wholesalers are also expected to argue that they would be forced to reduce their existing twice-daily delivery services to pharmacies - a move which could affect patient services.
They are also expected to maintain that if the margins are reduced wholesalers would be forced to cut back on the level of discounts provided to pharmacies, and this could threaten the viability of some outlets. The HSE is expected to contend that the move could save up to €100 million and lead to cheaper drug prices for patients.
A review of wholesaler margins has been on the cards for some time and ministers have been subject to intensive lobbying over recent months.
Minister for Health Mary Harney is expected to issue a statement of support for the HSE plan today.
The HSE has invited officials from the three main wholesalers - United Drug, Uniphar and Cahill May Roberts - as well as representatives of pharmacists to a meeting today on its plans to reduce the margins.
The three main wholesalers supply about 90 per cent of medicines to community pharmacies and hospitals.
Industry sources maintained that, of the current 15 per cent margin, wholesalers made a profit of about 2 per cent, that costs accounted for a further 5 per cent and that discounts to pharmacists made up the remaining 7 to 8 per cent, on average.
The announcement today forms part of the Government's plans to review drug costs from the manufacturer to the patient.
A price agreement with manufacturers last year is expected to save about €300 million in the years to 2010.
Ministers were told by the Department of Health in recent weeks that the 15 per cent margin for wholesalers was very high by EU standards.
The State initially intended to reach an agreement with wholesalers regarding the supply of drugs to community pharmacists and hospitals and to put in place a fair, transparent and accountable cost structure.
However, the body representing the wholesalers indicated, following legal advice, that it could not negotiate a new margin.
Subsequent legal advice obtained by the State agreed that, under competition law, the representative body could not negotiate fees.
