THE PUBLIC may want an end to the battle between the government and pharmacists, but some in the pharmaceutical industry hope it will be a long drawn-out struggle.

The pharmacy strike is a godsend for the multinational drug companies that supply the bulk of this country's medicines, deflecting attention from their role in the state's spiralling drug spending.

If health minister Mary Harney had settled the issue of pharmacy fees last year as planned, it's likely the drug companies would now be facing awkward questions about the 43% rise in their prices between 2001 and 2007, which has increased the state's drug bill by over €350m a year.

Crucially, the dispute has limited coverage of a scathing EU competition report, which found that pharmaceutical companies were exploiting flaws in the drug pricing systems of some countries, including Ireland, to maximise profits.

The countries involved employ a system known as "cross-border reference pricing" to determine drug prices, where prices for medicines are set based on their prices in a range of other European states. The report found that many pharmaceutical companies were manipulating this system to their advantage by offering hidden discounts to the health authorities in some member states.

An industry document quoted by EU competition investigators explains how these discounts were used to inflate the prices in other states, such as Ireland.

"Only the official published list price is referenced to other countries. The respective ministry of health in the various EU countries only takes this official published list price for reference pricing," it said. "Further discounts such as free goods or any kind of rebates are given at the discretion of the respective companies and are not visible and not monitored by the ministries of health."

The Irish Pharmaceutical Healthcare Association (IPHA), which represents multinational drug producers, denies these claims. According to IPHA's director of commercial affairs, Brian Murphy, there is no evidence of invisible discounts having an impact here. "No reference is made to Ireland in this regard and IPHA is not aware of any such practices on the Irish market," he said.

Murphy said the cross-border reference pricing system had lowered drug prices, especially as the resulting prices were reviewed every two years. "The HSE has estimated that the price of new medicines will, as a result, be 10% less than would otherwise be the case," he said.

But one disputable conclusion of the report is that the IPHA's members have a stranglehold on the Irish medicines system which is unrivalled elsewhere in Europe. The European Commission found Ireland had the lowest penetration of generic medicines (cheaper unbranded versions of off-patent drugs) in the EU. Generics have a 12% share of the market here compared to almost 30% in Britain.

It also raised doubts over the effectiveness of the HSE's latest plan to cut drug prices: the introduction of therapeutic reference pricing, where the HSE would group drugs with similar characteristics into categories and cover the cost of only the cheapest one.

"The commission [takes] the view that member states' policies applying therapeutic reference pricing do not always realise the full potential savings which generics can offer," said the report.

This form of pricing also tends to attract litigation from drug multinationals seeking the exclusion of cheaper rivals from the categories in which their drugs are placed.

According to one generic drug maker which gave evidence to the EU inquiry, the result is that these "groups and reference pricings are automatically suspended for months by the simple fact that administrative preliminary injunctions are filed in court".

Despite these concerns, generic companies hope reference pricing will help promote the use of their products here.

"We welcome reference pricing but the HSE also has to consider why generics aren't prescribed in Ireland: there is absolutely no incentive for doctors to prescribe them. So we'll also need some requirement on them to prescribe generics or generic substitution at pharmacy level," said Tony Hynds, chairman of the Association of Pharmaceutical Manufacturers of Ireland (APMI).

Introducing reference pricing without either of these measures could hit patients as, unless doctors change their prescribing habits, they will continue to receive the more expensive medicines.

"A good example of this is pantoprazole [a common drug used for treating stomach ulcers], which came off patent at the start of May. There are already five cheaper generic versions of the drug on the market but 95% of prescriptions continue to be for the more expensive branded version," said Hynds. "This is because doctors haven't changed their prescribing habits and it means that the state will lose out on a potential annual saving of €2.4m on that drug alone."

Hynds added that such a system would also bring down the unusually high cost of generic medicines in Ireland.

"The price of generics for the HSE is quite high at the moment because of their limited market share and the low volumes involved as a result. If we got something to drive volumes, such as reference pricing, our operations would become more cost-effective and our prices would go down," he said.

But the attitude of the multinationals towards the HSE's reference pricing plans remains unclear. The IPHA said it could not comment until it saw specific proposals from the state. When these proposals will surface remains unclear, particularly as the pharmacy dispute has been a drain on resources at the HSE's Primary Care Reimbursement Service, which looks after drug payments.

This raises questions over whether patients, who are already suffering because of the pharmacy row, will lose out further because the HSE lacks the manpower to tackle a more significant driver of medicine costs: drug companies.