The Irish government has been told to show how it plans to cut health spending, after the Health Service Executive (HSE) revealed that its financial deficit hit 281.6 million euros in the first five months of this year.

The requirement has come from Ireland's bailout "troika" - the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF)  - following their seventh review of the government's compliance with the bailout programme, half-way through its four-year run. They have given Ministers until the end of September to present measures aimed at rectifying the HSE's runaway deficit.

According to the Executive, reasons for its overspending  - which increased by 80 million euros in one month alone - include slow progress in implementing savings of more than 100 million euros on pharmaceutical costs and 140 million euros from health insurers. And the Minister for Public Expenditure, Brendan Howlin, has pointed out that the deficit accounts for just 2% of the HSE's annual budget of 13.4 billion euros.

Following a meeting of the cabinet subcommittee on health, held to discuss the HSE's overspend, Minister for Health James Reilly said that all doctors employed by the state, and pharmacists, were being asked to supply patients with generic drugs.

"As a result of the financial pressures that we are experiencing and will experience in the future, more cost-effective prescribing by doctors and pharmacists is clearly in the patient's interest and the national interest," The Irish Times reports Dr Reilly as stating. 

Also, the government has now published its Health (Pricing and Supply of Medical Goods) Bill 2012, which provides for the introduction of a system of generic substitution and reference pricing,  

The bill would permit pharmacists to substitute cheaper generic versions for prescribed branded drugs, if they have been designated as interchangeable by the Irish Medicines Board (IMB) and if it is safe to do so. It would also set reference prices for groups of interchangeable medicines, and require patients who want a particular brand that costs more than the reference price to pay the additional cost out of pocket.

Official estimates put potential savings to the state resulting from the introduction of reference pricing as high as 100 million euros a year.

"Generic substitution coupled with reference pricing provides patients with an incentive to opt for the cheapest available product, but does not impose any unavoidable additional costs on patients," says the Department of Health.

The bill also sets out statutory procedures governing the supply, reimbursement and pricing of medicines and other items to patients under the General Medical Services (GMS) and community drugs schemes. It would allow the HSE to attach conditions to the supply of certain items, provided that any restrictions are evidence-based and in the interests of patients and ensuring value for money, the Department adds.

The bill has been introduced into the Seanad, the upper house of the Irish Parliament (Oireachtas) this week, and is expected to become law by the end of the year.

Also this week, the cabinet approved the Health Service Executive (Governance) Bill 2012, which will abolish the HSE board structure and replace it with a directorate as the new governing body. The aim is to make the Executive more directly accountable to the Minister for Health and the Oireachtas and help prepare for the next phase of the country’s health reforms and, ultimately, the introduction of universal health insurance.

"This government inherited a two-tier health system which is inherently unfair to many citizens," said Dr Reilly.  The bill "is a significant step on the road to the abolition of our two-tier health system and its replacement with a system that responds to our needs and not our financial means," he added.