Consultation under the Financial Emergency Measures ... - IPU · addressed the most recent IPU National Pharmacy Conference on 5 May 2017 . 7. The IPU notes the commitment in the

Consultation under the

Financial Emergency Measures in the

Public Interest Act 2009

A Submission prepared by the

Irish Pharmacy Union

June 2017

IPU FEMPI Submission 2017

1

Executive Summary

1. The Financial Emergency Measures in the Public Interest Act 2009 (FEMPI Act) and the

regulations made under it were used to cut payment rates to pharmacists and other

professionals, which, if it were not for the emergency in the State’s finances, would have been

unlawful.

2. Since 2009, there has been a minimum of €1.3 billion in cuts to payments to pharmacies

under FEMPI. This comprises €456 million in cuts to dispensing fees and mark-ups and €776

million in cuts to the wholesale margin/ingredient cost. By any measure, the cuts in the

amounts and rates paid to community pharmacy contractors under the 2009, 2011 and 2013

regulations have been exceptionally severe in their effect on community pharmacy

contractors but have had a significant impact in achieving savings for the State.

3. Having come through a very difficult period, the economy has now recovered strongly, which

is having a very positive impact on all fiscal indicators and the international reputation of

Ireland as confirmed by the Minister for Finance's Financial Statement to Dáil Éireann on 11

October 2016. 2016 was again a year of strong growth for the Irish economy, with a broad-

based recovery and the underlying growth picture, which is solid on all fronts including in

healthcare, with Minister Harris confirming that Budget 2017 has delivered “the highest

health budget ever at €14.6 billion”. In this context, the proposed increased spend of between

€2.5 million and €5 million in this area is paltry and derisory.

4. There have been other significant changes in circumstances which mean it is no longer

justifiable for there not to be a substantial reversal of the cuts in payments to pharmacists

under FEMPI. Since 2009, €2.64 billion has been extracted from the community pharmacy

sector, €1.41 billion of which was not under FEMPI. For example, the savings achieved under

reference pricing alone amounted to an extraordinary €313 million by the end of July 2016.

5. The cost of the restoration of public pay under the FEMPI Act 2015 will be €844 million up to

September 2018, which is equivalent to 38% of the €2.2 billion savings made in the public pay

bill under FEMPI. By comparison, the amount promised in 2016 to be restored to community

pharmacists is miniscule.


2

6. Pharmacists expect a significant unwinding of FEMPI. This is due to consistent and repeated

statements from various Ministers including by Minister for Health Simon Harris when he

addressed the most recent IPU National Pharmacy Conference on 5 May 2017.

7. The IPU notes the commitment in the Programme for a Partnership Government to prioritise

safe, timely care, as close to patients' homes as possible. We also note the commitment that,

within two years, the role of the community pharmacist will be expanded. Community

pharmacists will continue to play a key role in delivering on these commitments through

working collaboratively with other health professionals, the Department of Health (DoH) and

the Health Service Executive (HSE). In addition to enhancing primary care services from this

perspective, the IPU recognises the potential efficiencies and savings which may be achieved

through initiatives such as a New Medicine Service for asthma patients, Medicine Use Reviews

for patients in nursing home settings and a Minor Ailment Scheme, which our members have

already begun achieving cost efficiencies in.

8. The IPU has and will continue to engage with the HSE and the DoH to develop and enhance

primary care services, improve the electronic interface between community pharmacy

contractors and the HSE and to ensure greater financial accountability and probity for all

parties.

Recommendations

1. The previous Minister for Health, Leo Varadkar, made a clear commitment to the community

pharmacy sector that a reversal of just €2.5 million would be ensured in 2016, which

represents a tiny proportion (0.021%) of the total savings of €1.2 billion resulting from FEMPI

directly attributable to rates paid to pharmacists. This is in addition to the other savings

effected by the State which the Minister is required to take into consideration. As a gesture of

good faith on behalf of the current Minister, this commitment made by the previous Minister

should be honoured and these payments should be immediately reinstated to pharmacy

contractors.

2. The process for the complete unwinding of FEMPI should see the implementation of the

Independent Body on Pharmacy Contract Pricing, established by the Minister for Health and


3

Children in 2008 and chaired by Sean Dorgan. The report recommended a tiered fee of €7.00

per item dispensed for the first 20,000 items, €6.50 for the next 10,000 items and €6.00 for

each other item dispensed per month.

3. The current dispensing fee structure is €5.00 per item dispensed for the first 1,667 items per

month, €4.50 for the next 833 items per month and €3.50 for each other item dispensed per

month. The IPU is of the view that the current fee structure should be abolished (and as a

consequence so should the threshold bands) and a standard fee of €5.00 be applied. It is

estimated this would return €60.6 million in additional annual fees to community

pharmacists. The Minister should engage with the IPU to agree a process and timetable for

the implementation of this measure.

4. At the very least, the Minister should increase the monthly threshold to which the €5.00 fee

applies from 1,667 to 2,000 items and the second band (to which the €4.50 fee applies) from

833 to 1,000 items as a first step to unwinding FEMPI in 2017 for community pharmacy

contractors. It is estimated that such an alteration to the bands would return €11.5 million to

community pharmacists.

5. It is the view of the IPU that the Minister should engage with the IPU to agree a process and

timetable for the implementation of these measures.

6. The Minister must also immediately provide for full reimbursement of all refrigerated

medicines, which are currently systematically under-reimbursed by 4.8% and therefore

impose an unfair cost on community pharmacy contractors and calls into the question the

sustainability of their continued supply on the community drug schemes.


4

1. Introduction

The FEMPI Act and the regulations made under it were used to cut payment rates to

pharmacists and other professionals, which, if it were not for the emergency in the State’s

finances, would have been unlawful.

Under the FEMPI Act, the Minister “may from time to time” and shall “every year after 2010

carry out a review”. We anticipate, given the correspondence between the IPU and the DoH

and following on from previous commitments, that the IPU is being consulted prior to the

Minister making regulations, having not made any variance to regulations following a formal

consultation process last year.

We expect, therefore, that, in accordance with the FEMPI Act, there will be a review in 2017

through which the Minister for Health, in exercise of his powers under the FEMPI Act, will

make regulations varying the payments to community pharmacy contractors.

2. Background

Section 9 of the Financial Emergency Measures in the Public Interest Act 2009 (as amended)

(FEMPI Act) provided for the introduction of regulations to permit the Minister to make

reductions1 to the fees payable to community pharmacy contractors, “notwithstanding any other

enactment, contract, arrangement, understanding, expectation, circular or instrument or other

document”.

The justification for this is set out in the recitals to the FEMPI Act, which include the following:

“WHEREAS a serious disturbance in the economy and a decline in the economic circumstances

of the State have occurred, which threaten the wellbeing of the community.”

1 The FEMPI Act was amended in 2015 to allow the Minister to "vary" payments to health professionals (and not just reduce them).


5

“AND WHEREAS it is necessary to cut current Exchequer spending substantially to

demonstrate to the international financial markets that public expenditure is being

significantly controlled so as to ensure continued access to international funding, and to

protect the State’s credit rating and reverse the erosion of the State’s international

competitiveness.”

The regulations made under the FEMPI Act which affect community pharmacy contractors are S.I.

No. 246/2009 – Health Professionals (Reductions of Payments to Community Pharmacy

Contractors) Regulations 2009, S.I. No. 300/2011 – Health Professionals (Reductions of Payments

to Community Pharmacy Contractors) Regulations 2011 and S.I. No. 279/2013 – Health

Professionals (Reductions of Payments to Community Pharmacy Contractors) Regulations 2013.

These regulations introduced wide-ranging reductions to the payments to community pharmacy

contractors and the effect of these reductions is set out below:

• The 2009 Regulations resulted in the reduction of payments in respect of the wholesale mark-

up on medicines from 17.66% to 10%, the introduction of a common sliding dispensing fee

(€5.00 for the first 1,667 items, €4.50 for the next 833 items and €3.50 for any additional

items) for all schemes and a reduction in the retail mark-up on drug items paid in a number of

schemes from 50% to 20%;

• The 2011 Regulations introduced further reductions – a reduction in the payments in respect

of the wholesale mark-up/ingredient cost from 10% to 8%, a reduction in the wholesale mark-

up/ingredient cost on controlled drugs from 17.66% to 8%, a reduction in the wholesale mark-

up/ingredient cost on fridge items from 17.66% to 12%, a reduction in the retail mark-up on

non-drug items from 50% to 20%, a reduction in the High Tech non-dispensing fee from

€62.03 to €31.02 and a reduction in the allowance on stock-orders from 25% to 20%.; and

• The 2013 Regulations introduced even further reductions by the removal of the 20% retail

mark-up for drug and non-drug items under DPS/LTI Scheme payment entirely.

As part of his review the Minister is required to:

1. Review the operation, effectiveness and impact of the amounts and rates fixed by regulation;

and


6

2. Consider the appropriateness of those amounts and rates, having regard to any change of

circumstances and, in particular, any alteration of any of the matters in Section 9(5)(a)-(g)2.

We assume that, having completed his review, the Minister now considers that it is appropriate to

adjust the amount or rate of payment to community pharmacy contractors and is therefore

consulting with the IPU before then fixing the amounts or rate he considers to be fair and

reasonable in light of the purposes of the Act, including the matters listed at Section 9(5)(a) – (g)3.

3. The Operation, Effectiveness and Impact of the Amounts and

Rates Fixed

At the outset of this section, we wish to make two important points before discussing the

effectiveness and impact of the amounts and rates fixed under FEMPI:

1. The FEMPI Act requires the Minister to review the operation, effectiveness and impact of the

amounts and rates fixed under the regulations (e.g. the reduced dispensing fees per item of

€5.00, €4.50 and €3.50). The cumulative figure of fees paid to pharmacists by the PCRS under

the State schemes depends on a variety of factors, primarily the number of medical cards in

issue, and the figure is not relevant when considering the amounts and rates fixed under the

regulations.

2

a. The terms of any existing contractual arrangements or understandings with community pharmacy contractors or any expectation on their part;

b. The terms of any circular, instrument, or document which apply to community pharmacy contractors; c. Any submissions made and views expressed during the consultations; d. The nature of the services rendered by different classes of health professionals and the general nature of

expenses and commitments of the health professionals providing those services; e. The impact, if any, on the state’s ability to continue to provide health services at existing levels; f. The fairness and efficiency of any method of effecting any amendment to payments having regard to the

requirements of good and effective administration; and g. The need to retain firm control of current Exchequer expenditure so as to ensure ongoing access to

international funding and improve competitiveness, while taking into account the continuing risks to the public finances which remain, and the need to meet the State’s commitments to have a prudent fiscal policy under the Stability and Growth Pact and the Fiscal Compact.

3 We note that under Section 9(5) of the FEMPI Act, when making regulations to fix amounts or rates the Minister believes to be fair and reasonable, he may have regard to the matters listed at Section 9(5)(a) – (g), whereas in the review to be carried out by the Minister under Section 9(13), he is required to have regard to any alteration of the matters listed in Section 9(5)(a) – (g).


7

2. In recent years, the DoH has argued that cuts to the wholesale margin (defined as the

ingredient cost in the regulations) are not cuts to the income of pharmacists and it has not

considered these cuts as part of its analysis. However, under the review process in the FEMPI

Act, the Minister is required to "review the operation, effectiveness and impact of the

amounts and rates fixed by regulation" and "consider the appropriateness of those amounts

and rates".

The cuts to the wholesale margin/ingredient cost were cuts made under the FEMPI

regulations. Furthermore, Section 9(19) of the FEMPI Act specifically provides that payment in

respect of a service rendered includes payment in respect of goods provided as part of that

service. As such, there is a legal obligation to review the effectiveness and impact of the cuts

to the wholesale margin/ingredient cost in addition to reductions in dispensing fees and mark-

up payments.

It is calculated that, since 2009, there has been a minimum of €1.2 billion4 in cuts to payments to

pharmacies under FEMPI. This comprises €456 million in cuts to dispensing fees and mark-up and

€744 million in cuts to the wholesale margin/ingredient cost. By any measure, the cuts in the

amounts and rates paid to community pharmacy contractors under the 2009, 2011 and 2013

regulations have been exceptionally effective in achieving savings for the State.

The average value of State fee and mark-up payments has fallen from €6.21 per item in 2009 to

€5.05 per item in 2016. Table 3.1 applies these average annual reductions to total State-scheme

dispensing during the same period. A total of over €456 million has been saved in cuts to

pharmacy fees and mark-ups alone.

4 These figures have been prepared by the Chartered Accountants Fitzgerald Power based on published PCRS data and an in-depth two-year study of the sector. As published PCRS information only runs to 2015, State savings for 2015 and 2016 are estimated based on historical results.


8

Table 3.1: Reductions in Fees and Mark-ups Paid to Pharmacists by the State

Year Pharmacy

fees & mark-

ups

No. of items

dispensed

under State

schemes

Mark-up &

fees per item

Reduction

per item

since 2009

State savings

2016 (estimate) 73,500,000 €5.05 €0.91 €66,885,000

2015 €389,740,000 73,542,223 €5.30 €0.91 €66,923,423

2014 €381,070,000 72,715,536 €5.24 €0.97 €70,534,069

2013 €393,930,000 74,378,504 €5.30 €0.91 €67,684,438

2012 €403,860,000 75,724,736 €5.33 €0.88 €66,637,767

2011 €386,630,000 72,023,261 €5.37 €0.84 €60,499,539

2010 €372,990,000 69,251,377 €5.39 €0.82 €56,786,129

2009 €420,960,000 67,825,991 €6.21

Total €455,934,014

4. Appropriateness of Amounts and Rates having regard to any Change of Circumstances

4.1 Reference Pricing and Other Non-FEMPI Cuts to Medicine Prices

Following an analysis of published PCRS data, Fitzgerald Power calculated that by December 2016,

the State, through both FEMPI and non-FEMPI related measures, had extracted a total of

approximately €2.64 billion from the community pharmacy sector in both reduced medicine

reimbursements and cuts to pharmacy fees and mark-ups between 2009 and 2015.


9

Table 4.1: Reductions in Medicine Reimbursements Paid to Pharmacists by the State

Year PCRS payments

for medicines

No. of items

dispensed

under State

schemes

Cost

per

item

Reduction

per item

since 2009

FEMPI

reductions

State savings

2016

(estimate)

73,500,000 €13.01 €5.77 €85,500,000 €424,095,000

2015 €956,750,000 73,542,223 €13.01 €5.77 €85,461,329 €424,338,627

2014 €979,010,000 72,715,536 €13.46 €5.32 €87,449,695 €386,846,652

2013 €1,053,290,000 74,378,504 €14.16 €4.62 €94,084,728 €343,628,688

2012 €1,161,460,000 75,724,736 €15.34 €3.44 €103,746,972 €260,493,092

2011 €1,114,610,000 72,023,261 €15.48 €3.30 €99,562,113 €237,676,761

2010 €1,191,880,000 69,251,377 €17.21 €1.57 €106,464,227 €108,724,662

2009 €1,273,770,000 67,825,991 €18.78 €113,779,020

Total €776,048,083 €2,185,803,482

As detailed in Section 3, the cuts to payments to pharmacies under FEMPI have amounted to €1.3

billion. This means that, in the period from 2009 – 2016, an additional €1.41 billion in savings has

been realised by the State in reduced payment for medicines, as well as cuts already imposed

under FEMPI. These further reductions are undoubtedly a very significant change in circumstances

and must be taken into consideration by the Minister.

Since reference pricing was introduced in November 2013, it has had an egregious effect on

pharmacies. Until recently, there has been very little, if any, concrete data showing the effect it

has had on the retail pharmacy market. However, the IPU recently launched a project to collect

anonymised data from its member pharmacies and this data shows the real effect reference

pricing has had on pharmacies.

Table 4.2 shows the monthly revenue impact for each month from December 2013 to July 2016

and the revenue loss for each month. On average, during this period, the revenue lost to an

average individual pharmacy was €173,000.


10

Table 4.2: Reference Pricing Estimated Impact on Average Pharmacy (HMR Data)

By July 2017, 52 molecules will have been reference priced. One year ago, that number stood at

38. Table 4.3 lists all 38 molecules and the cumulative savings they had already delivered to the

State over the previous 32 months. This shows that the reduction in value does not result from a

reduction in the units dispensed. In two and a half years, close to €313 million of savings have

been generated for the State.

The Minister has said previously that reference pricing was expected to deliver approximately €25

million in savings in 2015, on top of €47 million in savings in 2014. Objective analysis of real

aggregated data from hundreds of pharmacies indicates that the HSE has achieved a multiple of

its targeted savings through the continued implementation of this policy. The effect of reference

pricing on pharmacy has been substantially higher than even the Minister envisaged.


11

Table 4.3: Reference Pricing Impact on Individual Molecules 2014 – 2016

The cumulative effect of all of these cuts is worrying. Fitzgerald Power estimates that 300

pharmacies have a turnover of €650,000 or less and are in the 'at-risk' category. €650,000 is a


12

significant watershed as it is the point below which a pharmacy business is loss-making if average

gross profit margins and overhead expenditure levels are applied.

4.2 Dispensing at a Loss and Medicine Shortages

The reimbursement model is dependent on the ability of pharmacists to negotiate terms with

their suppliers to subsidise payments from Government. However, in many cases, this is not

possible and pharmacists can find themselves dispensing at a loss, a phenomenon which is

increasingly frequent. In order to ensure that patients have timely access to vital medicines,

pharmacists are increasingly paying wholesalers more than the HSE reimburses them.

When pharmacists dispense most fridge items to patients, they are doing so at a loss of 4.8%. In

order to provide healthcare services to their patients, pharmacists are being forced to purchase

these medicines at 100% but are reimbursed 95.2% of the purchase price. In addition, due to the

implementation of a stringent pricing policy by one of the two remaining full-line wholesalers,

which now charges pharmacists 9% above the reimbursement price on the first €2,000 of monthly

purchases, each pharmacy is effectively subsidising the HSE to the tune of thousands of euro each

year. This situation is only going to get worse in the future

The IPU has consistently argued that, although lower medicine prices are important when

healthcare resources are limited, setting prices excessively low in an open market can lead to

medicine shortages. That point was acknowledged by the Oireachtas Joint Committee on Health

and Children in its Report on the Cost of Prescription Drugs in Ireland, which recommended that

the HSE and the DoH “maintain strong surveillance on the impact of national drug price policy on

the drug supply and should put in place a contingency plan for when drug shortages arise”.

Research conducted by the IPU in August 2016, confirmed that there is a significant level of

medicine shortages, with 99% of pharmacists confirming that they have experienced medicine

shortages in the last 12 months, 95% saying shortages have increased in the last year and almost

half (46%) believing that the health of their patients has been adversely affected or put at risk as a

result of these medicine shortages. As such, we believe that a mechanism for price modulation

needs to be implemented to balance the legitimate desire of the HSE to achieve lower prices

against the need to ensure continuity of supply for Irish patients. The IPU has highlighted this

issue as an area of concern in previous submissions and is now calling for an immediate review

and an appropriate upwards adjustment in reimbursement prices of affected products.


13

There is clear evidence that the current dispensing fees are inadequate; pharmacists previously

cross-subsidised an unsustainable dispensing business using resources which are no longer

available. As we have pointed out in previous submissions, the €4.50 and €3.50 fee bands are no

longer viable or sustainable and need to be abolished.

4.3 Economic Improvement

In 2009, the Irish economy and its financial system were in a very difficult place. That year, gross

domestic product (GDP) contracted by 5.6% and gross national product (GNP) contracted by 8%5.

Ireland’s international reputation and, consequently, the ability of the Government to borrow at

realistic borrowing costs were starting to come under serious pressure. By contrast, 2016 was a

year of strong growth for the Irish economy.

For 2016 as a whole, initial estimates suggest that gross domestic product (GDP) expanded by

5.2%; gross national product (GNP) expanded by 9%; consumer expenditure expanded by 3%;

investment expanded by 45.5%; imports of goods and services expanded by 10.3%; and exports of

goods and services expanded by 2.4%. The investment outturn is distorted by the shifting of items

such as intellectual property rights into Ireland but notwithstanding such accounting transactions,

the underlying growth picture was solid on all fronts and the recovery was broad based.

Having come through a very difficult period, the economy is now recovering strongly, which is

having a very positive impact on all fiscal indicators and the international reputation of Ireland.

The unemployment rate declined to 6.9% of the labour force in December 2016, down from 8.5%

at the beginning of the year, and the total number of people at work in the economy reached two

million in June for the first time since 2008. The unemployment rate declined to 6.4% of the

labour force in May 2017.

The public finances have improved in line with the economy. The General Government Balance

(GGB) showed a deficit equivalent to 5.5% of GDP in 2013; 3.7% in 2014; 1.9% in 2015 and 0.6% in

2016. Gross Government Debt (GGD) outstanding declined to 75.5% of GDP by the end of 2016.

5 The figures and analysis in this section have been provided by economist Jim Power.


14

As we approach the mid-way point of 2017, the economic growth background remains positive.

The Department of Finance6 is now forecasting GDP growth of 4.3% and GNP growth of 4.2% in

2017. The medium-term forecasts for the economy are also projected to be strong. Between 2017

and 2021, real GDP growth is forecast to average 3.3% per annum and real GNP growth is forecast

to average 3%. Employment is projected to reach 2.225 million by 2021 and the unemployment

rate is projected to average 5.5% in 2021.

The GGB is forecast to move into modest surplus in 2019, with a surplus equivalent to 1% of GDP

projected by 2021. The GGD is projected to decline to 62.9% of GDP by 2021.

The medium-term economic and financial forecasts are very positive but there are challenges and

risks to the outlook. The key challenges for Irish policy makers over the coming years will be

Brexit-related uncertainty; growing pay pressures in the public sector; pressure to increase

expenditure on public services; and the imbalance in the housing market. Prudent management

will be required to manage these issues. However, it is clear that the ‘crisis’ situation that lead to

the introduction of the FEMPI legislation has passed and the future now looks considerably

better.

Ireland’s international reputation was seriously damaged from 2008 onwards, with all of the

major ratings agencies downgrading Ireland’s sovereign debt. However, the ratings have

improved steadily since 2013. Ireland’s long-term debt now has an A+ rating from Standard &

Poor’s; an A rating from Fitch Ratings; and an A3 rating from Moody’s. Ireland’s short-term debt

has an A-1 rating from Standard & Poor’s; an F1 rating from Fitch Ratings; and a P-2 rating from

Moody’s. The overall outlook from Standard & Poor’s and Fitch Ratings is described as ‘Stable’

and is described as ‘Positive’ by Moody’s.

At the beginning of 2009, Ireland’s 10-year bond yield stood at 6.02% and in July 2011 it stood at

14%. In May 2017, the 10-year yield stands at 0.886%. This compares to a 10-year yield of 2.327%

in the US and 1.13% in the UK. These yields bear testament to the regained reputation of the Irish

economy and its fiscal solvency.

There has been a monumental change in the finances of the State and the state of the economy, 6 Stability Programme Update, Department of Finance, April 2017.


15

the disastrous state of which were of course the underlying rationale and justification for the cuts

in the first instance. The justifications set out in the recitals of the FEMPI Act (see Section 2 of this

submission) no longer apply. In fact, the recitals to the FEMPI Act 2015 spell this out:

“WHEREAS economic growth has resumed and the State’s international competitiveness has

improved and a significant improvement in the fiscal circumstances of the State has

occurred."

“AND WHEREAS the reductions in the remuneration and superannuation of public servants

and former public servants effected by legislation enacted in the last 6 years have contributed

substantially to improvements brought about in the public finances and it is equitable to

implement a partial and phased reversal of those reductions.”

4.4 Restoration of Public Sector Pay

According to economist Jim Power, FEMPI measures are estimated, in total, to have resulted in

over €2.2 billion in direct reductions in public service remuneration and pensions7.

Under the FEMPI Act 2015, the process of reversing the cuts to public sector pay and pensions has

been put in train. Specifically:

• Those earning salaries under €24,000 will be increased by 2.5% from 1/1/2016;

• Those earning salaries between €24,000 and €31,000 will be increased by 1% from 1/1/2016;

• Salaries up to €65,000 will be increased by €1,000 from 1/4/2017 (brought forward from

1/9/17);

• Those earning salaries between €65,000 and €110,000 will have the amount by which their

salaries were reduced under FEMPI legislation restored in two halves on 1/4/2017 and

1/1/2018;

7 Under the FEMPI Act 2009, a comprehensive pay cut for public sector workers was introduced at the beginning of 2010. That graduated pay cut yielded savings of €1.2 billion in the pay bill in 2010. A further reduction in pay, ranging from 5.5% to 10%, for those earning more than €65,000 was introduced in July 2013 under the FEMPI Act 2013.

The FEMPI 2010 Act introduced the Public Service Pension Reduction (PSPR), which came into effect on 1 January 2011. The 2010 Act introduced an income-graduated reduction applied to each gross annual public service pension in excess of €12,000, amounting to an average reduction of 4% to pensions in payment before 29 February 2012. Further reductions were applied to pensions of €32,500 and over from 1 July 2013, under the 2013 FEMPI Act. Both these measures were together expected to yield full-year savings of around €125 million.


16

• Those earning salaries in excess of €110,000 will have the amount by which their salaries were

reduced under FEMPI legislation restored in three equal parts on 1/4/2017, 1/4/2018 and

1/4/2019; and

• The pension reduction for public service pensioners will be ameliorated at an additional full-

year cost of €90 million in 2018.

The cost of the measures under FEMPI 2015 will be €844 million in the period to September 2018,

which is equivalent to 38% of the €2.2 billion savings made in the public pay bill under FEMPI. It is

clear that the €844 million contained under FEMPI 2015 represents the first phase of pay

restoration; eventually most, if not all, of the cuts to public service pay will be reversed. These

figures do not include the estimated €50 million cost of the Labour Court recommendations to

settle the dispute by An Garda Síochana in 2016.

Not only has the economy improved markedly and public sector pay under FEMPI been restored

to a far greater degree than is proposed in respect of pharmacists, there have been other

significant changes in circumstances, which mean it is no longer justifiable for there not to be a

substantial reversal of the cuts in payments to pharmacists under FEMPI.

5. Matters to be considered in Decision on Fair and Reasonable Amounts or Rates

In addition to considering the submissions of the IPU, when making the regulations, the Minister

is required to consider the following points.

5.1 Terms of Existing Contractual Arrangements and Understandings and Expectations

If FEMPI had not been implemented, community pharmacy contractors under existing

arrangements would be paid an average of 39.8% more per item dispensed. Given the increases

in public sector pay (and reduction in deductions for public sector pensions highlighted above), an

increase much greater than the €2.5 million proposed in 2016 is only fair and proportionate.


17

The expectation of pharmacists is that there would be a significant unwinding of FEMPI. This

expectation arises from consistent and repeated statements from Ministers, including the

following:

1. Alex White (then Minister of State in the Department of Health), answering questions in the

Oireachtas on Thursday, 3 April 2014, said, “I mentioned the wider context and the reduction

in pay in the public service. The clear stated position of the Government is that it does not

intend to further reduce wages in the public service. We can have the confidence to say that

this applies equally to the FEMPI cuts, which is the issue that has most concerned doctors. It is

my confident belief that the Government will not be going back to that well again and that

people can have some level of certainty in terms of where they are going in the future. That

is an issue of Government policy and I am simply reflecting what has been said by others in

that regard.”

2. Leo Varadkar (then Minister for Health), addressing the International Street Medicine

symposium on Friday, 10 October 2014, said, “The good news is, the cycle of cuts in

healthcare is over . . . Our spending ceiling is now rising again so it means any savings or

efficiencies we do make in our health services will go back into our health services and not

into deficits or to pay down debt.” This was reported in The Irish Times of 11 October 2014.

3. A letter from the Chief State Solicitor (following agreement to settle the case of J & J Haire

Company Ltd v Minister for Health and Children) dated 8 January 2016 stated, “It is the

intention of the Minister for Health to initiate a formal consultation process under section 9 of

the FEMPI Act 2009 before the end of January 2016 in relation to the regulations made

pursuant to section 9 in relation to payments to community pharmacy contractors. It is the

Minister’s intention to consider, determine and implement, as soon as possible following

the consultation process, regulations which, with the consent of the Minister for Public

Expenditure and Reform, will have the effect of varying, whether by formula or otherwise,

the amount or rate of payment to contracted community pharmacies under the powers

conferred on him by section 9(1) of the Act as amended in 2015.”

4. Paschal Donohoe (Minister for Public Expenditure & Reform) set out in paragraph 43 of the

Financial Emergency Measures in the Public Interest Act – Annual Review and Report 2016

that, “I also find that it is appropriate, taking account of the improvements brought about in


18

the public finances, the continuing risks which remain and the need to meet our

commitments to have a prudent fiscal policy under the Stability and Growth Pact, and subject

to the amendments effected in the measures through the FEMPI Act 2015 . . . to maintain

provisions in the legislation which provide for the reduction of payments to health

professionals but allow, subject to the considerations of the Minister for Health and other

Ministers of Government under sections 9 and 10 of the FEMPI Act 2009 and Government’s

priorities for the health service, for a gradual amelioration of the impact of payment

reductions”.

Pharmacists, therefore, a very clear understanding from the Government that FEMPI will be

unwound. It was understood by pharmacists that in unwinding FEMPI in its application to public

servants or to a specific class of health professionals, both the negotiation process and any

actions taken in this regard must be applied equally to all others impacted by the legislation.

There must be parity of application and of process and the unwinding must of course be fair,

equitable and proportionate to each profession in terms of the cuts suffered by each. This

understanding was expressed in correspondence from the IPU to the Minister for Health and the

Minister for Public Expenditure and Reform in March 2015 and May 2015, respectively, and again

in July 2016.

5.2 Terms of any Circular, Instrument or Document applying to Community Pharmacy Contractors

We have highlighted above in Section 4 the impact of reference pricing on pharmacists. The

Health (Pricing and Supply of Medical Goods) Act 2013, which introduced reference pricing, was

clearly an instrument and/or document which applies to community pharmacy contractors and it

should form part of the Minister's consideration.

5.3 Nature of Services and General Nature of Expenses and Commitments

Fitzgerald Power’s analysis indicates that, on average, pharmacy operating profit declined by 9%

in 2014. This was driven by falling State scheme turnover, which was not matched by savings in

overhead expenditure. Pharmacists have become extremely efficient over the last number of

years and additional overhead savings are now unlikely, particularly in the principal overhead

categories of employment and property costs.


19

5.3.1 Employment Costs

The analysis also shows that average pharmacy expenditure on wages/salaries rose from

€278,148 per pharmacy in 2015 to €286,810 in 2016, an increase of €8,662 or 3.1%. These

increases are being driven by improving economic conditions, with staff members expecting

higher levels of remuneration despite the fact that pharmacy revenues and profits are

contracting. As revenues continue to fall, rising employment costs will account for a greater

proportion of a pharmacy’s turnover base. In 2013, the average pharmacy spent 16.9% of

turnover on wages and salaries; by 2016, this had increased to 19.6%.

5.3.2 Regulatory Costs

The IPU recognises the importance of effective and transparent regulation; however, the cost of

complying with new regulations and guidelines has increased significantly in recent years and

includes, for example, ongoing regulation costs, the cost of providing new consultation areas and,

in general, compliance with the Pharmacy Act 2007.

In his review, the Minister is required to consider the general nature of such expenses and the IPU

is of the view that the extraordinarily high level of regulatory fees in Ireland must be taken into

account by the Minister.

In their 2012 report, A Review and Audit of Licences Across Key Sectors of the Irish Economy,

Forfás, policy advisory board for enterprise, trade, science, technology and innovation, made the

following recommendation:

Recommendation 18

Licensing authorities and bodies need to examine and seek to reduce licence fees in the

sectors where the fees are considered to be most onerous. Fees in this category include

the annual registration fees for pharmacies, Court Fees for Special Exemption Orders,

Private Security Authority Licence fees and Table and Chairs Licence fee.

Despite this, the cost of registration with the PSI remains out of line with international

comparisons. The annual pharmacist registration fee is €380 (€540 on first registration) and each

pharmacy must pay €2,135 (€3,325 on first registration), per year, to register. In the UK, the


20

equivalent fees are £250 (£356 on first registration) for a pharmacist and £590 (£831 on first

registration) for a pharmacy premises. Other international comparisons are shown in Table 5.1.

Table 5.1: Regulatory Body Fees Comparison

Ireland Australia New

Zealand

UK Canada

Community

Pharmacies

1,800 5,250 900+ 13,850 8,870

Regulating

Body

Pharmaceutical

Society of

Ireland

Pharmacy

Board of

Australia

Pharmacy

Council of

New

Zealand

General

Pharmaceutical

Council

National

Association of

Pharmacy

Regulatory

Authorities

Registration

Fee for

Pharmacists

- Initial Fee

- Renewal Fee

€540

€380

€126

€248

€223

€326

€405**

€286**

Unavailable

€250-1,094

License to

Operate Fee

- Initial Fee

- Renewal Fee

€3,325

€2,135

€395 –

€,1057*

€237 –

€407*

€679 +

taxes

€679 +

taxes

€951**

€276**

€250 – €1,094

+ taxes

€508 – €1,094

+ taxes

Table data relates to registration for pharmacists of national backgrounds only (2015 figures). * Licence to operate a pharmacy retail business depends on the governing body over the

relevant jurisdiction. ** Currency conversion based on Central Bank exchange rates, 31 May 2017.

5.4 Fairness and Efficiency of Method of Effecting Amendment to Payments

There are any number of ways of varying the rates and amounts payable to pharmacists under

FEMPI. The IPU is of the view that the most appropriate fee to be varied is the dispensing fee in


21

Schedule 1 of the regulations. Schedule 1 from the Health Professionals (Reduction of Payments

to Community Pharmacy Contractors) Regulations 2013 is set out below.

SCHEDULE 1 Amounts payable for dispensing drug items and non-drug items (excluding drug items which are subject to extemporaneous preparation and compounding) under the General Medical Services Scheme, the Drugs Payment Scheme, the Long-Term Illness Scheme, the European Economic Area Scheme and the Health (Amendment) Act 1996 Scheme

Description (1) Amount (2) Standard dispensing fee payable to a community pharmacy contractor under the General Medical Services Scheme, the Drugs Payment Scheme, the Long-Term Illness Scheme, the European Economic Area Scheme and the Health (Amendment) Act 1996 Scheme per item dispensed under those schemes: — for each of the first 1,667 items dispensed by the community pharmacy contractor in a month — for each of the next 833 items dispensed by the community pharmacy contractor in that month — for each other item dispensed by the community pharmacy contractor in that month

€5.00 €4.50 €3.50

It has been indicated to the IPU in correspondence from the Chief State Solicitor’s Office in 2016

and in a meeting with the DoH in December 2015 that there is only in the region of €2.5 million

available for increases under FEMPI for community pharmacists. This figure is paltry and derisory.

No complete, objective and fair review which properly considers the matters required to be

considered under FEMPI could arrive at such a figure.

Fitzgerald Power has estimated the total items dispensed under State schemes in each band8. This

is set out in Table 5.2. Applying the same methodology, Fitzgerald Power has recalculated the fees

8 The methodology used is as follows. The calculation of applicable fees paid to pharmacists under State schemes:

• Total GMS fees to include methadone, hardship and dental prescription fees were extracted from the 2015 PCRS “Payments to Pharmacists” list for every contractor in the country.

• Total DPS fees to include HAA, EEA and LTI were extracted from the 2015 PCRS “Payments to Pharmacists” list for every contractor in the country. An adjustment was made for DPS deductions to calculate total fees earned by pharmacists under these schemes.

• High Tech and Pharmacy Vaccination fees were discounted.

The calculation of items dispensed under each fee band in 2014: • Items dispensed under each fee band were derived from the total applicable fees paid to pharmacists.

For example, a pharmacy contractor earning total applicable fees of €343,217 dispensed 20,004 items at €5.00, 9,996 items at €4.50 and 56,633 items at €3.50.


22

that pharmacists would have earned under two scenarios: (i) abolishing the €4.50 and €3.50

bands and (ii) increasing the €5.00 band to 2,000 items per month and the €4.50 band to 1,000

per month. These calculations are set out in Tables 5.3 and 5.4.

Table 5.2: Fees Paid to Pharmacists by the State under Existing Fee Bands in 2015

Items dispensed

under State

schemes as

calculated by FP

Less pro-rata

allocation to

agree to PCRS

Fee scale

band

Fees payable Commentary

34,308,571 (6,987,609) @ €5.00 €136,604,807.95 20,004 @ €5.00

14,083,452 (2,868,370) @ €4.50 €50,467,872.99 9,996 @ €4.50

43,129,256 (8,784,113) @ €3.50 €120,207,998.83 Balance @ €3.50

91,521,279 (18,640,092) €307,280,679.77

Less estimate for DPS deduction (€16,710,105.90)

Total fees under current

conditions, per FP estimate

€290,570,573.88

Actual fees per PCRS less Phased

Dispensing, High Tech and

Vaccination fees

€276,180,678

Difference €14,389,895.87

Margin of error 5.21%

Source: PCRS, as derived by Fitzgerald Power

• This analysis calculates a higher number of State scheme items than were actually dispensed as it

assumes that all items can only earn fees within these three bands (i.e. the analysis fails to account for higher fees that may be earned through Phased Dispensing, extemporaneous preparations etc.). The total number of items calculated in this way was 91,521,279 – the total number of items dispensed under State schemes in 2015 according to the PCRS was 73,500,000 (after subtracting High Tech and Pharmacy Vaccination items). Therefore the analysis calculated 18,021,279 additional items.

• These additional items were subtracted from the calculation of total items dispensed under each fee band on a pro rata basis to marry our analysis to the PCRS data.

As noted in Table 5.2, this analysis calculates total pharmacist fees of €290,123,584 compared to actual fees paid to pharmacists per the PCRS of €276,180,678. Accordingly, there is a 5.21% margin of error in the analysis. High Tech, Phased Dispensing and Vaccination fees have not been included in either figure. These are the only additional fees payable to pharmacists that are broken down in the PCRS Annual Report: Statistical Analysis of Claims and Payments 2015.


23

The IPU is of the view that when the Minister considers all of the matters he is required to

consider under the FEMPI Act, the €4.50 and €3.50 dispensing fees should be abolished (and as a

consequence, so should the thresholds bands). As set out in Table 5.3, it is estimated that this

would return €60.6 million in additional annual fees.

Table 5.3: Abolishing the €4.50 and €3.50 Bands

Items dispensed under

State schemes as

calculated by FP

Less pro-rata

allocation to agree to

PCRS

Fee scale band Fees payable

91,521,279 (18,640,092) @ €5.00 €364,405,935

Less estimate for DPS deduction (€13,172,404)

€351,233,531

Total fees under current conditions per FP

estimate

€290,570,573.88

Increased fees payable €60,662,957.12


If, for some reason, the Minister is not inclined to abolish the €4.50 and €3.50 dispensing fees, it is

simply inconceivable that a return of only €2.5 million can be justified under FEMPI. The Minister

must at the very least increase the threshold to which the €5.00 fee applies from 1,667 to 2,000

and the second band (to which the €4.50 fee applies) from 833 to 1,000 as an interim first step

towards abolishing the €4.50 and €3.50 dispensing fees as part of the 2017 review. It is estimated

that such an alteration to the bands would cost €11.5 million in additional annual fees, as set out

in Table 5.4.

The Independent Body on Pharmacy Contract Pricing, established by the Minister for Health and

Children in 2008 and chaired by Sean Dorgan, in its report in June 2008 recognised “the

dichotomy between a remuneration model built around drug dispensing and a service provision

model that is, or needs to be, built around wider professional, retail and advice services in the

community pharmacy. Community pharmacists today provide extensive and valuable services, but

there is an apparent disconnect with the remuneration model.”


24

The report recommended a tiered fee, as set out below:

Proposed Dispensing Fees

Number of items dispensed per annum Fee per item

Up to 20,000 items €7.00

20,001 to 30,000 items €6.50

Over 30,000 items €6.00

The report also notes, “our strong view that a new contract is required urgently and that the

parties should move to achieve that." That was June 2008 and, despite an express willingness on

the part of the IPU, such negotiations have yet to commence.

It is the unequivocal view of the IPU that the long-term viability of community pharmacy requires

dispensing fees at this level at a minimum. By abolishing the €4.50 and €3.50 dispensing fees, the

Minister would be taking a first step toward securing the viability of community pharmacy.

Table 5.4: Increasing the €5.00 Band to 2,000 Items per Month and the €4.50 Band to 1,000

Items per Month

Items dispensed

under State

schemes as

calculated by FP

Less pro-rata

allocation to

agree to PCRS

Fee scale

band

Fees payable Commentary

40,239,012 (6,987,609) @ €5.00 €166,257,016.81 24,000 @ €5.00

13,188,327 (2,868,370) @ €4.50 €46,439,806.85 12,000 @ €4.50

38,093,940 (8,784,113) @ €3.50 €102,584,392.96 Balance @ €3.50

91,521,279 (18,640,092) €315,281,216.62

Less estimate for DPS deduction (€13,172,404)

Total fees payable per FP estimate €302,108,812.62

Total fees under current conditions

per FP estimate

€290,570,573.88

Increased fees payable €11,538,238.75



25

5.4 Need to retain Control of Current Exchequer Expenditure

Control of current Exchequer expenditure is largely unaffected by the minimal increase proposed.

It is estimated by the Department of Finance that the economy, as measured by GDP, will expand

at an average annual rate of 3.3% between 2017 and 2021. This would translate into an increase

of €52.7 billion in the size of the economy. Over the same period, net current expenditure is

anticipated to total €255 billion. These figures put the reversal of the €1.23 billion taken from the

community pharmacy sector under FEMPI into context.

6. Cooperating with Change & Modernity

The IPU notes the commitment in the Programme for Government to expand the role of the

community pharmacist. The Programme for Government has committed to a decisive shift of the

health service to primary care with the delivery of enhanced primary care in every community.

There is an extensive network of over 1,800 pharmacies already established across the country,

each with its own private consultation area. This provides an opportunity to expand access to

primary healthcare without significant additional capital expenditure. By expanding the services

that pharmacists provide, many of the healthcare needs of patients can be addressed in the

existing facilities and infrastructure already in place in pharmacies across the country.

In 2016, the IPU signed a Relationship Values Charter with the HSE. As signatories to the charter,

the parties agree to work together to maintain stable contractual relationships between the HSE

and the community pharmacy contractors participating in the Community Drugs Schemes. The

HSE and the IPU have agreed to cooperate towards advancing the shared objective of enhancing

the quality and cost effectiveness of the Community Drug Schemes and towards developing the

role of the community pharmacist within an integrated, primary care orientated healthcare

system, as part of the wider healthcare reform agenda.

The recent report, Future Pharmacy Practice in Ireland – Meeting Patient Needs, published by the

Pharmaceutical Society of Ireland (PSI) in November 2016, outlined the potential role of pharmacy

practice in patient care. As part of the development of the report, PwC looked at the potential

cost reduction that could be realised with the introduction of two community pharmacy services

(another potential service is hospital based).


26

1. New Medicine Service for asthma patients – A structured introduction to asthma medicine

regime via three structured consultations with the pharmacist in the first three weeks of

the regime. The service was found to provide cost avoidance of €1,466 over the lifetime of

every asthma patient taking part in the service. It is estimated that return (in terms of cost

avoidance) attributable to the scheme (as applied to asthma) achieves payback on initial

investment in a little over one year if the scheme is universally implemented, with an

estimated €2.3 million net saving (after the cost of conducting the structured

interventions) over a five-year period. The patient benefited by increased adherence,

better disease control, less hospitalisations and improved mortality.

2. Medicine Use Reviews (MURs) for patients with five medicines or more in a nursing home

setting – An annual multidisciplinary pharmacist-led structured medicine use review to

identify and reduce inappropriate prescribing and limit associated potential adverse drug

events. For every €1.00 spent on MURs, it was estimated that €4.30 could be saved, with

an estimated €2.74 million savings potential due to a reduction in inappropriate

prescribing and adverse drug events, resulting in potential reduced hospitalisations.

The report also outlined the resource that the pharmacy sector provides within the health system,

which should be capitalised on for the enhancement of patient care, enabling the management of

patients at the lowest level of complexity and as close to home as possible – a key Government

priority.

The report highlighted the benefit of community-based support for the management of minor

and self-limiting health conditions to patients. The paper recognised the benefit of pharmacy in

supporting the health service by reducing pressures on this system by delivering appropriate care

in the pharmacy and providing accurate referral pathways.

The IPU collaborated with the DoH and the HSE on the piloting of a Minor Ailment Scheme with

the final report shortly due to be forwarded to the DoH. A Minor Ailment Scheme allows medical

card holders to obtain treatments from the pharmacist without the requirement of attending

their GP for the GMS prescription. Pharmacists manage minor ailments and self-limiting

conditions each day for private patients attending the pharmacy and have the required


27

knowledge and skillset to enable safe supply of treatment and advice. A roll-out of the scheme

would provide equity of access to the same service for GMS patients and would alleviate under-

pressure GP services by avoiding unnecessary consultations.

Speaking at the IPU National Pharmacy Conference in May this year, the Minister for Health

stated that the Future Pharmacy Practice report was “a key document for yourselves and for state

policy. We are very keen, as I have said on more than one occasion, to expand community

pharmacy services to our patients, particularly with the challenges we are facing, such as an

aging population, the need for earlier hospital discharge and the increasing range of community-

delivered treatment”.

Internationally, there is a very strong recognition of the role that community pharmacies play in

the primary healthcare service. The potential to expand the role of community pharmacists in the

Irish health service appears to be very significant. This demand will be driven by an aging

population, with consequent age-related illnesses; growing levels of obesity and smoking-related

illnesses; and the potential for pharmacies to become much more involved in medicine use

reviews and health screening. However, the economics of the sector have become very difficult in

recent years. The risk now is that, due to these pressures, unless additional resources are made

available, existing levels of access to clinical knowledge will be lost to disadvantaged

communities; if community pharmacies reduce in number, increased pressures will be put on

other elements of the primary healthcare system that are already under considerable strain.

6.1 Probity

Community pharmacists have cooperated with the State in implementing FEMPI; promoting a

significant increase in the use of generic medicines, thus ensuring savings of over €300m to the

State; and delivering significant growth in the overall number of items dispensed with no increase

in cost. Significant savings were extracted from the sector during a period of very negative

economic and trading conditions.

In the past year, the IPU has engaged with the DoH and the HSE on a number of wide-ranging

issues including requirements for probity and sound corporate governance.


28

Community pharmacists have cooperated with the introduction of new validation arrangements

for the dispensing of phased medicines. These new arrangements will ensure greater probity and

financial transparency to account for State spending. Pharmacists have also taken on the task of

ensuring all GMS prescriptions are signed for at the point of collection. With over 58 million items

dispensed on almost 20 million GMS prescriptions (PCRS, 2015), this is a massive and time-

consuming addition to the administrative workload of each community pharmacist to ensure

increased probity.

Community pharmacists are also working collaboratively with the HSE to agree new arrangements

for the management of ‘owings.’ A memorandum of understanding agreed as part of the

Pharmacy Interface Project introduced a mechanism whereby the ingredient cost would be

reimbursed to the pharmacy only if, and when, the patient actually collects the medicine, and the

amount reimbursed would relate to the exact quantity of medicine supplied at the time the claim

is submitted. There are significant but unquantifiable potential savings for the State in that the

medicine costs will now only be reimbursed in circumstances where the medicine is collected by

the patient.

The IPU has engaged with the DoH and the HSE and agreed to new obligations for pharmacists to

ensure that public funds and resources are managed to good effect, are properly accounted for

and are contributing to an improvement in public administration. These new standards satisfy the

audit and validation arrangements for the HSE and ultimately the Comptroller and Auditor

General. The increased administrative workload in pharmacies, which has come at significant cost

to community pharmacy contractors in terms of time and resources, while being of no direct

material benefit to pharmacists or their patients, meets the requirements of the HSE to

administer its resources economically and efficiently.

7. Recognising the contribution made by Community Pharmacists through FEMPI

Now that the financial emergency has passed and the economic and fiscal situation has improved,

the Government has committed to almost fully reversing the FEMPI measures as they related to

public sector pay and pensions. In contrast, it was proposed that the community pharmacy sector

would see a reversal of just €2.5 million in 2016, which represents a tiny proportion (0.021%) of


29

the total savings of €1.2 billion taken by FEMPI from amounts and rates paid to pharmacists, not

to mention the other savings effected by the State, which the Minister is required to take into

consideration, but even this small sum failed to be remunerated to pharmacy contractors. Such a

tiny reversal does not give due recognition to the role that community pharmacies play in the

overall health system.

In circumstances where the previous Minister for Health, Leo Varadkar, committed to commencing

the unwinding of FEMPI, where talks on public sector pay now appear imminent (having already

had some pay cuts reversed) and GPs are in contract negotiations with the Government, it is only

fair and equitable that the Minister now begins to reverse the savage cuts that were imposed upon

community pharmacy contractors.

The IPU has participated fully and constructively in all statutory consultation processes and has

worked collaboratively with the DoH and the HSE in developing patient services and in improving

financial accountability and probity.

The IPU expects that the Government will now honour its commitments and commence the

unwinding of FEMPI for community pharmacy contractors in recognition of the contribution they

have made to achieving significant savings for the State during the recent financial crisis.

Consultation under the Financial Emergency Measures ... - IPU · addressed the most recent IPU National Pharmacy Conference on 5 May 2017 . 7. The IPU notes the commitment in the

Documents