A three-year agreement has been reached between the pharmaceutical industry and the state on drug prices, which is expected to yield savings of over €400 million.

The deal between the Irish Pharmaceutical Healthcare Association (IPHA), the Department of Health and Health Service Executive (HSE) will reduce state spending on medicines in various schemes.

It also provides for cuts in prices for patients who pay for drugs.

The IPHA represents the research-based pharmaceutical industry, and said the deal would also ensure new medicines are made available to patients.

Under the agreement, when a patent expires on a medicine, the price to the wholesaler will be reduced to 70 percent of the original price, and a year later it will be cut to 50 percent of the original price.

For existing expired medicines, the price to the wholesaler will be cut to 60 percent of the original price from November and a year later it will be cut to 50 percent of the original price.

A once-off price reduction will also apply to patent and off-patent medicines.

Proposed legislation is currently before the Oireachtas (government) which will see a system of generic substitution, reference pricing and a HSE list of reimbursable medicines and other items.

Under the Health Pricing and Supply of Medical Goods Bill 2012, a pharmacist will be able to dispense a generic version of a medicine when a specific brand has been prescribed.

If the patient wants a more expensive branded version, they will pay the difference.

Not all medicines have generic versions so reference pricing will also set a common reimbursement price for a group of interchangeable medicines.

If a patient chooses a brand that is more expensive than the reference price, they will pay the difference. This will apply to people who get their drugs free and those who pay for them.

The bill also allows the HSE set up a list of medicines or other items that are to be provided under the medical card or drug payment scheme.

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