A new drug savings agreement between the State and the pharmaceutical industry said to be worth in excess of €750m over four years has been announced.
The deal, which will reduce the price the Health Service Executive pays for medicines, comes into effect from 1 August.
Minister for Health Simon Harris said the new drug price deal will bring stability and certainty to prices for new and existing medicines paid for by the State.
Nine different criteria will be considered for new drugs, one of which relates to cost, he said.
Under the deal, some new, high-cost drugs will be referred to Cabinet for a funding decision for the first time.
Mr Harris said he still did not think Cabinet should be making decisions on drugs, but said it would only be involved after the nine criteria are dealt with and there is still an issue for the HSE.
The last drugs pricing agreement with the pharmaceutical industry ended last autumn and the Government recently threatened to impose price cuts. It was due to deliver around €400m in savings.
The State spent €1.7bn on medicines last year.
In the new deal, the countries against which Irish drug prices will be benchmarked is being expanded to 14, to include Greece, Portugal, Italy, Sweden and Luxembourg.
The HSE drugs unit will decide on approval for new drugs deemed effective and costing €20,000 a year, per patient.
Medicines costing over €40,000 will go to the top level in the HSE for a decision.
Mr Harris said there will be annual price referencing, where the pricing can only go downwards, and much more clarity and transparency when a new drug is being assessed, giving him a degree of confidence that the savings will be realised.
Speaking on RTÉ's News At One, he said the benchmarking process will be done based on the average of "all of the countries in the basket", presuming the drug being referenced is available in all of those countries.
The health minister said he does not believe the deal will lead to savings for patients buying drugs in pharmacies, but the savings will help ensure that new and innovative drugs will become available to Irish patients.
He said the savings are worth €750m in total, with €600m from Irish Pharmaceutical Healthcare Association companies and €150m from other companies.
HSE Director General Tony O'Brien said the deal will help to improve access for patients to essential existing and new drugs on a more reliable and sustainable basis.
He also said it would mean value for money.
The Healthcare Enterprise Alliance has claimed that the agreement blocks competition and prevents new, better value drugs, which are up to 30% cheaper, from entering the Irish market.
It represents three major drug companies Teva, Krka and Mylan Pharmaceuticals which supply generic and rival medicines to companies in the IPHA group.
Today's deal does not relate to the cost of medicines for private patients.
