Under a 100m cost reduction plan launched by its chief executive Professor Brendan Drumm last month, the HSE will reduce the wholesale margin it pays on prescription medicine from 17.65% to 8% from January.

This margin is paid by the HSE to pharmacies, which then pass it on to wholesalers.

Difficulties have arisen with the plan in recent weeks, however, due to the wholesalers' refusal to cut their prices to accommodate the lower margin.

Industry observers estimate that between 300 and 500 pharmacies, mainly in rural areas, will close unless the HSE abandons its plans or persuades wholesalers to cut prices.

A HSE spokesman confirmed that, in recent days, it had sent letters to United Drug, Uniphar and Cahill May Roberts, seeking "clarification from the wholesalers on how they intend to align their price structures with the new reimbursement arrangements".

He said this reflected the fact that it was not the HSE's intention that "its pharmacy contractors should pay more for items [from wholesalers] than they are reimbursed".

A senior industry source said the move was an attempt to pressurise the three companies into changing their prices.

Liam Fitzgerald (above), chief executive of United Drug, refused to comment on the letter but said its prices would remain unchanged.

"To expect that we will change our conditions to allow them to change their reimbursement system is naive, " he said.

Fitzgerald said margins in the sector were low and that any price reduction would result in significant job losses in the drug wholesale sector, which employs around 3,000 people, and end its nationwide twice-daily deliveries to pharmacies.

"You can't halve the size of the margin for an industry and expect services to remain the same. It will cause a reduction in services, distribution depot closures and reduce access to medicines for the public, " he said.

The CEO of Uniphar, Jim Canavan, also said his company was unable to reduce its margins, particularly given the introduction of a 15% reduction on the wholesale price of off-patent drugs earlier this year, which was part of a previous HSE costcutting deal.

"Approximately 25% of the profitability of wholesaling was removed by that deal, " he said. "The HSE's new changes are savage in terms of their scope and timing."