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 €400m.

The deal between the Irish Pharmaceutical Healthcare Association, the Department of Health and Health Service Executive 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 today it 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% of the original price, and a year later it will be cut to 50% of the original price.

For existing expired medicines, the price to the wholesaler will be cut to 60% of the original price from 1 November and a year later it will be cut to 50% 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, 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.

The HSE will be able to attach conditions to the supply or reimbursement of items based on cost-effectiveness, patient safety and other factors.

'Good deal' for patients and taxpayers

Minister for Health James Reilly has said it is a very good deal for patients and a very good deal for the taxpayer.

Speaking on RTÉ’s News at One, Mr Reilly said the saving is "significant".

He accepted that negotiations were difficult, but he said the deal "was worth waiting for" because it will make medicines more affordable for patients without undermining the pharmaceutical industry.

IPHA President Dave Gallagher also said the agreement was a good deal for patients and taxpayers, but that it will be "a very painful deal" for the industry.

The Department of Health and the HSE will also shortly finalise talks with the Association of Pharmaceutical Manufacturers in Ireland, which represents the generic drugs industry, to get more savings in the cost of these medicines.

The Irish Pharmacy Union welcomed the new drugs deal but says the short lead-in time will mean that pharmacists with existing stocks will be financially hit.

IPU President Rory O' Donnell said his members were concerned at the short notice of the introduction of the changes, which come into force from the start of November.

He said medicines that pharmacists stock on their shelves on behalf of the HSE will now be paid for by the executive at the new lower rates, despite having been purchased by pharmacists at the higher prices.