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National Health Amendment (Pharmaceutical Benefits) Bill 2015



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ISSN 1328-8091

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BILLS DIGEST NO. 121, 2014-15 16 JUNE 2015

National Health Amendment (Pharmaceutical Benefits) Bill 2015 Alex Grove Social Policy Section

Contents

Purpose of the Bill ............................................................... 3

Structure of the Bill ............................................................. 3

Background ......................................................................... 3

About the PBS .......................................................................... 3

Cost of the PBS ........................................................................ 3

Price disclosure ...................................................................... 4

Pharmaceutical Benefits Scheme Access and Sustainability Package ............................................................. 4

The Sixth Community Pharmacy Agreement ........................... 5

Pharmacy location rules ........................................................ 6

The GMiA Agreement .............................................................. 6

Committee consideration .................................................... 7

Senate Standing Committee for the Scrutiny of Bills .............. 7

Parliamentary Joint Committee on Human Rights .................. 7

Policy position of non-government parties/independents ..... 7

Australian Labor Party ........................................................... 7

Australian Greens .................................................................. 7

Position of major interest groups ......................................... 7

Medicines Australia ............................................................... 7

Pharmacy Guild of Australia .................................................. 8

Generic Medicines Industry Association ............................... 8

Consumers Health Forum of Australia .................................. 8

Financial implications .......................................................... 8

Statement of Compatibility with Human Rights .................... 9

Key issues and provisions..................................................... 9

Date introduced: 27 May 2015

House: House of Representatives

Portfolio: Health

Commencement: Sections 1-3 on the day the Act receives Royal Assent. Schedule 1 commences on the day after the Act receives Royal Assent. Schedule 2 commences on 1 November 2015 and Schedule 3 commences on 1 January 2016.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website.

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PBS Pricing Reform .................................................................. 9

Five per cent price reduction for single brand drugs ............ 9

Removal of originator brand from price disclosure calculations ............................................................................ 9

Flowing on price disclosure reductions for combination medicines ............................................................................ 10

Allowing pharmacists to discount the PBS patient co-payment ................................................................................. 11

Extending sunset provisions for pharmacy location rules to 30 June 2020 ..................................................................... 12

Amendments relating to biosimilars ..................................... 12

Other provisions ................................................................ 14

Concluding comments ....................................................... 14

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Purpose of the Bill The purpose of the National Health Amendment (Pharmaceutical Benefits) Bill 2015 (the Bill)1 is to amend the National Health Act 1953 (the Act)2 to:

• reform pricing arrangements to reduce the cost of some Pharmaceutical Benefits Scheme (PBS) medicines

• allow pharmacists to discount the co-payment for PBS medicines

• extend the sunset provisions for pharmacy location rules until 2020 and

• revise membership arrangements for the Pharmaceutical Benefits Advisory Committee (PBAC).

The Bill also makes a number of minor and technical amendments to support the intended operation of the Act.

The measures contained in the Bill are part of a wider Pharmaceutical Benefits Scheme Access and Sustainability Package (the Package) which is outlined in the Background section of this Bills Digest.

Structure of the Bill The Bill is divided into three schedules:

• Schedule 1 contains amendments commencing the day after Royal Assent. Key measures in Schedule 1 include a five per cent price reduction for F1 (patented) medicines, further tightening of price disclosure to close the combination drug loophole and remove the originator brand from price calculations, and the extension of sunset provisions for pharmacy location rules until 30 June 2020

• Schedule 2 contains amendments commencing on 1 November 2015, which allow the Minister to determine that brands of medicines (including biosimilars) are equivalent for the purpose of substitution by a pharmacist and

• Schedule 3 contains amendments commencing on 1 January 2016. The key measure in this Schedule allows pharmacists to discount a patient’s co-payment by up to $1.

Background About the PBS The Pharmaceutical Benefits Scheme (PBS) provides subsided access to necessary medicines for Australians. Most of the listed medicines on the PBS are dispensed by pharmacists and used by patients at home. Patients pay a co-payment of $6.10 (for concession card holders) or up to $37.70 (for general patients) towards the cost of each PBS medicine, with the Australian Government paying any remaining cost.3 Families who spend more than their Safety Net amount on co-payments in a year receive further prescriptions for that year for free (if they hold a concession card) or for the concessional co-payment of $6.10 (if they do not).4

The listing of medicines on the PBS is subject to an assessment of clinical benefit and cost effectiveness by the independent Pharmaceutical Benefits Advisory Committee (PBAC), as well as pricing negotiations with the Health Minister or delegate. The decision to subsidise an item is also considered by Cabinet if the net cost to the PBS is greater than $20 million per year.5

Cost of the PBS The total cost of the PBS is uncapped, and can therefore increase as new drugs are added and demand grows.6 Total PBS expenditure grew at an average annual rate of 4.9 per cent from 2005-06 to 2013-14, although growth was slower towards the end of this period, and PBS expenditure actually contracted by 2.2 per cent in 2012-13.7 Government spending on pharmaceutical benefits and services is forecast to increase by 2.5 per cent

1. Parliament of Australia, ‘National Health Amendment (Pharmaceutical Benefits) Bill 2015 homepage’, Australian Parliament website, accessed 4 June 2015. 2. National Health Act 1953, accessed 4 June 2015. 3. Department of Health (DoH), ‘About the PBS’, Pharmaceutical Benefits Scheme (PBS) website, accessed 2 June 2015. 4. The Safety Net thresholds are currently $366.00 for concession card holders and $1,453.90 for all other patients. Ibid. 5. DoH, ‘The listing steps’, PBS website, accessed 2 June 2015. 6. DoH, ‘About the PBS’, PBS website, accessed 2 June 2015. 7. R Harvey and R de Boer, Growth in expenditure on high cost drugs in Australia, Research paper, 2014-15, Parliamentary Library, Canberra,

2015, p. 7, accessed 3 June 2015.

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in real terms between 2014-15 and 2015-16, mostly as a result of new and amended drug listings on the PBS.8 The PBS is predicted to cost $9.77 billion in 2015-16, although this figure excludes expected savings from the PBS Access and Sustainability Package (the Package), which is outlined below.9

Price disclosure One mechanism that the Government has used to contain PBS costs in recent years is known as price disclosure. Price disclosure requires the suppliers of certain PBS listed brands of medicines to disclose information to the Department of Health (the Department) relating to the price at which their brands are sold. The Government uses this information to move the price paid by the Government under the PBS closer to the price at which the medicines are supplied in the market.10 Price disclosure arrangements were introduced in 2007 to allow the Government to reap the savings from generic medicines being offered to pharmacists at discounted prices.11 The arrangements were expanded in 2010 and again in 2014.12

Under section 85AB of the Act, most PBS listed drugs are assigned to one of two formularies: F1 or F2. F1 is for single brand drugs (generally innovative medicines that are still on patent) and F2 is for drugs that have multiple brands listed on the PBS (typically the off patent originator medicine and its generic competitors). There is also an administrative ‘Combination Drugs List’ for drugs that are not allocated to either formulary.13 Current price disclosure arrangements apply to all drugs on the F2 formulary (unless they are exempt).14

Reducing the approved price for F2 medicines via price disclosure has delivered significant savings to the Government, estimated at almost $2.1 billion in 2014-15.15

Pharmaceutical Benefits Scheme Access and Sustainability Package On 27 May 2015, the Government announced a Package of pharmaceutical reforms to deliver ‘cheaper medicines, a more competitive pharmacy sector and greater investment in new medicines and patient support services’.16 The five year (to 2020) Package comprises:

 $18.9 billion Sixth Community pharmacy Agreement.

 A Strategic Agreement with Generic Medicines industry Association (GMiA).

 $6.6 billion worth of proposed efficiencies throughout the PBS supply chain.

 $2.8 billion additional direct investment across the pharmacy sector

 Note: This $2.8 billion investment is in addition to PBS investment that will occur over the next five years, including the $2.5 billion worth of new drugs currently being considered by the Government for listing.

 An in-principle Strategic Agreement with Medicines Australia is also being progressed. 17

The Package aims to reduce the price that the Government (and in some cases consumers) pay for many PBS medicines, in order to keep the PBS sustainable and support the listing of new drugs into the future. The Package

8. Australian Government, Budget strategy and outlook: budget paper no. 1: 2015-16, p. 5-24, accessed 3 June 2015. 9. Australian Government, Portfolio budget statements 2015-16: budget related paper no. 1.10: Health Portfolio, p. 57, accessed 3 June 2015. 10. DoH, Pharmaceutical Benefits Scheme Price Disclosure Arrangements: Procedural and Operational Guidelines, DoH, Canberra, July 2014, p. 8, accessed 3 June 2015.

11. R de Boer and S Scully, National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, Bills digest, 13, 2010-11, Parliamentary Library, Canberra, 2010, p. 5, accessed 3 June 2015. 12. DoH, Pharmaceutical Benefits Scheme Price Disclosure Arrangements: Procedural and Operational Guidelines, op. cit., p. 8. 13. DoH, ‘Formulary Allocations - 1 June 2015’, PBS website, accessed 4 June 2015; T A Faunce, ‘Challenges for Australia's Bio/Nanopharma

Policies: trade deals, public goods and reference pricing in sustainable industrial renewal’, Australia and New Zealand Health Policy, 4(9), June 2007, p. 6, accessed 3 June 2015. 14. DoH, Pharmaceutical Benefits Scheme Price Disclosure Arrangements: Procedural and Operational Guidelines, op. cit., p. 9. 15. Australian Government, Portfolio budget statements 2015-16: Health Portfolio, op. cit., p. 60. 16. S Ley (Minister for Health), Pharmaceutical Benefits Scheme to be reformed, media release, 27 May 2015, accessed 1 June 2015. 17. Ibid.

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seeks significant savings across the pharmaceutical supply chain and provides additional funding for pharmacies.18 For this reason the Package has been described as ‘a huge victory for the Pharmacy Guild at the cost of manufacturers’.19

The Package has more than 20 measures in total. Key components are:

• new PBS pricing policies to reduce costs for innovative (F1) and generic (F2) medicines

• increasing pharmacy competition by allowing pharmacies to discount the co-payment

• removing some over-the counter medicines from the PBS

• changing the structure of pharmacy remuneration to remove the link to PBS prices, and

• providing for pharmacies to expand their role in the community. 20

A summary of measures contained in the Package is available on the PBS website.21 The focus of this Bills Digest is on elements of the Package which require amendments to the Act. Of the five key components listed above, only the PBS pricing policies and allowing pharmacies to discount the co-payment require amendments to the Act.22 Measures that are in the Package but not contained in the Bill are outside the scope of this Bills Digest, although key measures contained in the Sixth Community Pharmacy Agreement (6CPA) and the Strategic Agreement with the Generic Medicines Industry Association (the GMiA Agreement) are briefly outlined below.

The Sixth Community Pharmacy Agreement Beginning in 1990, the Australian Government and the Pharmacy Guild of Australia (the Guild) have signed a succession of five year agreements known as community pharmacy agreements.23 The agreements set out remuneration for pharmacists to dispense PBS medicines, as well as other matters:

While the main purpose of the agreements has been to set out remuneration arrangements for the owners of retail pharmacies that dispense PBS prescriptions, the scope of agreements has progressively broadened to establish a range of government funded professional programs (such as medication reviews), and a funding pool for pharmaceutical wholesalers that meet the requirements of the Community Service Obligation (CSO), which generally requires participating wholesalers to be able to supply PBS items to any retail pharmacy in Australia within 24 hours. Community pharmacy agreements have also referenced the Australian Government’s Pharmacy Location Rules (Location Rules), which regulate where new pharmacies that dispense PBS prescriptions may open and where existing pharmacies may relocate.

24

The current agreement, the Fifth Community Pharmacy Agreement (the 5CPA), expires on 30 June 2015 and has delivered an estimated $15.6 billion in funding over five years for the above purposes.25 The Australian National Audit Office (ANAO) audited the administration of the 5CPA and identified ‘shortcomings in 5CPA costings, performance reporting and the evaluation framework’ with the result that the Department ‘is not well positioned to assess whether the Commonwealth is receiving value for money from the agreement overall, or performance against the six principles and objectives.’26 The Department has indicated that it has addressed the recommendations from the ANAO in the preparation of the new agreement, the 6CPA.27

18. Ibid.

19. The Pharmacy Guild is the national peak body representing community pharmacy owners. L Tingle and T Binsted, ‘Patients pay for guild’s win’, The Australian Financial Review, 28 May 2015, p. 7, accessed 3 June 2015. 20. S Ley, ‘Second reading speech: National Health Amendment (Pharmaceutical Benefits) Bill 2015’, House of Representatives, Debates, 27 May 2015, p. 7, accessed 3 June 2015. 21. DoH, PBS Access and Sustainability Package including the Sixth Community Pharmacy Agreement, fact sheet, DoH, 2015, accessed 9 June

2015.

22. Explanatory Memorandum, National Health Amendment (Pharmaceutical Benefits) Bill 2015, p. 1, accessed 27 May 2015. 23. Australian National Audit Office (ANAO), Administration of the Fifth Community Pharmacy Agreement, ANAO report no. 25, 2014-15, ANAO, Canberra, March 2015, p. 35, accessed 3 June 2015. 24. Ibid., pp. 35-36. 25. Ibid., pp. 16, 37. 26. Ibid., pp. 24-25. 27. F McNeill (First Assistant Secretary, Pharmaceutical Benefits Division, DoH), Senate Community Affairs Legislation Committee, Official

Committee Hansard, [proof copy], 2 June 2015, p. 4, accessed 11 June 2015.

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The 6CPA was signed on 24 May 2015 and provides for an additional $3.2 billion in remuneration and funding to community pharmacies and wholesalers over and above 5CPA levels.28 Key measures in the 6CPA that do not require changes to the Act include:

• the replacement of the pharmacy mark-up with a flatter Administration, Handling and Infrastructure fee (AHI fee). This is intended to de-link pharmacy remuneration from medicine pricing and insulate the community pharmacy sector from the effects of PBS reforms to medicine prices29

• a doubling of funding for pharmacy professional programs to $1.26 billion over five years, with all programs to be evaluated for clinical and cost effectiveness and

• an independent review of pharmacy location rules and remuneration.30

Analysis of these measures is outside the scope of this Bills Digest.

Key measures in the 6CPA that do require changes to the Act include allowing pharmacists to discount the PBS patient co-payment by $1 and continuing the operation of pharmacy location rules until 30 June 2020.31 The rules are outlined below and both measures are discussed in the Key issues and provisions section of this Bills Digest.

Pharmacy location rules Pharmacy location rules place restrictions on where pharmacies can be located.32 The current rules, as agreed in the 5CPA, are made by a Ministerial Determination under subsection 99L(1) of the Act.33 The rules are intended to support the equal distribution of pharmacies across the country. The rules are complex, but the basic principle is that a pharmacy will not be approved to supply medicines on the PBS if it is within 1.5 kilometres of an existing pharmacy.34 The rules also prevent a pharmacy from opening within a supermarket.35

Critics of the rules have argued that they are ‘anti-competitive, limit access and choice in rural and remote areas and prevent young pharmacists from owning their own business as a result of the high cost.’36 The Minister has acknowledged criticisms of the rules, as well as a number of recent reports that have recommended the revision or removal of the rules:

There has also been frequent criticism of the existence of Pharmacy Location Rules. Most recently, the National Commission of Audit, the Competition Policy Review by Professor Ian Harper, and the Productivity Commission Research Paper: Efficiency in Health have all suggested that the location rules affect competition and that they should be revised or removed.

37

As discussed above, the 6CPA provides for an independent review of pharmacy location rules, but also agrees to continue the rules in their current form until 30 June 2020.38

The GMiA Agreement The GMiA Agreement is the first such agreement between the Government and GMiA, the representative body of generic medicine suppliers in Australia.39 Signed on 24 May 2015, key measures in the GMiA Agreement include:

28. DoH, Sixth Community Pharmacy Agreement, DoH, Canberra, 24 May 2015, p. 7, accessed 3 June 2015. 29. Ibid., pp. 9, 11. 30. S Ley (Minister for Health), Consumers big winners from medicines deals, media release, 27 May 2015, accessed 4 June 2015. 31. DoH, Sixth Community Pharmacy Agreement, op. cit., pp. 8, 17. 32. L Buckmaster, Fourth Community Pharmacy Agreement, Background note, Parliamentary Library, Canberra, 2005, accessed 4 June 2015. 33. National Health (Australian Community Pharmacy Authority Rules) Determination 2011 (No. PB 65 of 2011), accessed 4 June 2015. 34. L Nissen and J Singleton, ‘Explainer: what is the Community Pharmacy Agreement?’, The Conversation, (online edition), 7 April 2015, accessed

4 June 2015. 35. National Health (Australian Community Pharmacy Authority Rules) Determination 2011, op. cit., item 211(d) of Schedule 3. 36. R de Boer, ‘Pharmaceuticals and pharmacy’, Budget review 2010-11, Research paper series, 2009-10, Parliamentary Library, Canberra, 2010,

accessed 15 June 2015. 37. S Ley, ‘Second reading speech: National Health Amendment (Pharmaceutical Benefits) Bill 2015’, op. cit., p. 8. 38. DoH, Sixth Community Pharmacy Agreement, op. cit., pp. 17, 20. 39. M Haggan, ‘New agreement recognises key role of generics: GMiA’, Australian Journal of Pharmacy (AJP) website, 27 May 2015, accessed 4

June 2015; Generic Medicines Industry Association (GMiA), ‘About GMiA’, GMiA website, accessed 4 June 2015.

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• changing price disclosure arrangements to remove the originator brand from the price calculation

• measures to encourage uptake of biosimilar medicines through the PBS and

• $20 million over three years for a national campaign to increase awareness and uptake of biosimilar medicines.40

The Bill implements the first measure, and also contains amendments to support the second measure. These two measures are discussed in the Key issues and provisions section of this Bills Digest.

Committee consideration Senate Standing Committee for the Scrutiny of Bills At the time of writing this Bills Digest, the Senate Standing Committee for the Scrutiny of Bills had not considered the Bill.41

Parliamentary Joint Committee on Human Rights At the time of writing this Bills Digest, the Parliamentary Joint Committee on Human Rights had not published any comments in relation to the Bill.

Policy position of non-government parties/independents Australian Labor Party At the time of writing this Bills Digest, it was reported that the Australian Labor Party was yet to publicly declare its position on the Bill.42 A spokesperson for Catherine King, the Shadow Minister for Health, told a pharmaceutical industry publication that Labor’s position would be disclosed when the Shadow Minister spoke during the second reading debate on the Bill.43 However, the Shadow Minister has publicly stated that Labor will support the existing pharmacy location rules.44

Australian Greens At the time of writing, it was reported that the Australian Greens were yet to publicly declare their position on the Bill.45 When the ANAO report into the 5CPA was released, the Greens called for a public inquiry into the 5CPA negotiations and a ‘more robust and transparent process’ for 6CPA negotiations.46 The Joint Committee of Public Accounts and Audit has subsequently resolved to review the ANAO report, but the inquiry ‘does not include a review of pharmacy location rules or pharmacy remuneration.’47

Position of major interest groups Medicines Australia Medicines Australia (MA) is the peak body for the innovative pharmaceutical industry in Australia.48 MA has expressed concerns that ‘arbitrary funding cuts’ to the PBS will jeopardise the listing of new medicines on the PBS in the future, making it harder for patients to access these medicines. They are also concerned that the cuts will impact on pharmaceutical companies and their ability to invest in future medical research.49

40. Australian Government, Strategic Agreement, Canberra, 24 May 2015, pp. 6-7, accessed 4 June 2015. 41. Standing Committee for the Scrutiny of Bills, 2015 Index of Bills considered by the Committee, Senate, Canberra, 13 May 2015, accessed 10 June 2015. 42. PharmaDispatch, ‘PBS changes could face Senate scrutiny’, PharmaDispatch website, 9 June 2015, accessed 10 June 2015. 43. PharmaDispatch, ‘Just eight days left’, PharmaDispatch website, 4 June 2015, accessed 10 June 2015. 44. C King (Shadow Minister for Health), Cancer Council Biggest Morning Tea; Abbott Government cuts to health; Budget night snub of health

organisation; Community Pharmacy Agreement, transcript, 13 May 2015, accessed 10 June 2015. 45. PharmaDispatch, ‘PBS changes could face Senate scrutiny’, op. cit. 46. R Di Natale (Greens Health Spokesperson), Damning audit report necessitates inquiry into flawed pharmacy agreement, media release,

6 March 2015, accessed 10 June 2015. 47. Joint Committee of Public Accounts and Audit, ‘Review of Auditor-General's Report No 25 (2014-15) inquiry homepage’, Australian Parliament website, accessed 11 June 2015. 48. Medicines Australia (MA), ‘Our role’, MA website, accessed 11 June 2015. 49. MA, Hasty cuts may make it harder to access the new medicines that patients need, media release, 9 May 2015, accessed 11 June 2015.

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Despite these concerns, MA has signed a ‘Letter of Intent’ for a five year agreement with the Government. MA CEO Tim James has stated that MA has ‘agreed to meet all of the Government’s savings targets’, and that in return for providing the majority of the $6.6 billion in savings, member companies have been given a number of concessions regarding future price-related savings for the life of the agreement.50

Pharmacy Guild of Australia Despite initially asking for an investment of more than $21 billion under the 6CPA, the Guild appears largely content with the $18.9 billion that they have secured.51 National President of the Guild, George Tambassis, has welcomed the AHI fee because it will insulate pharmacies from the impact of price disclosure measures such as those contained in the Bill. He has also hailed the extension of the pharmacy location rules for ‘ensuring that community pharmacies are highly accessible and well-distributed throughout Australia. ’The Guild notes that the extension will also provide five years of certainty for community pharmacies.52

More broadly, the Guild has indicated that it supports the wider PBS Package with the exception of the optional $1 co-payment discount to be absorbed by pharmacists, which it calls ‘a matter for Government’.53

Generic Medicines Industry Association GMiA also appears pleased with the agreement that it has signed with the Government. It has acknowledged that ‘GMiA and the Government have a common interest in the ongoing and reliable access to affordable generic medicines and biosimilars’. If there are any unintended consequences from the savings measures in the Bill, particularly in regard to the reliable supply of medicines, the GMiA Agreement states that the Department and GMiA will work together to identify and resolve the issues.54

Consumers Health Forum of Australia The Consumers Health Forum of Australia (CHF) is the peak body representing the interests of Australian healthcare consumers.55 The CHF has evaluated the 6CPA and the wider Package, and believes that pharmacy and the Government are bigger winners than consumers.56

With regard to specific measures in the Bill, the CHF has welcomed the potential for some medicines to be cheaper for consumers as a result of the five per cent price reduction for F1 medicines and the changes to price disclosure. It has also welcomed the optional $1 co-payment discount, but expressed concern that pharmacists may only offer the discount in areas of high pharmacy concentration where there is intense competition. The CHF has also expressed concern that pharmacy location rules are not to be changed before 2020, despite the proposed review of location rules and pharmacy remuneration being scheduled to conclude in 2017.57

Financial implications The Explanatory Memorandum states that the Bill will enable net savings to the Government from the broader Package of more than $3.7 billion over five years.58 Specific measures in the Bill are forecast to deliver the following savings over five years:

• $2 billion from removing originator brands from pricing calculations

• more than $360 million from allowing pharmacists to discount the PBS co-payment

• $880 million from the increasing use of biosimilar medicines

• $1 billion from the five per cent price reduction for single brand drugs

50. MA, Medicines Australia agrees to Federal Budget savings to secure a 5-Year Strategic Agreement, media release, 27 May 2015, accessed 11 June 2015. 51. F McNeill, Senate Community Affairs Legislation Committee, Official Committee Hansard, op. cit., p. 11. 52. Pharmacy Guild of Australia, Sixth Community Pharmacy Agreement delivers for patients, media release, 27 May 2015, accessed 9 June 2015. 53. Ibid.

54. GMiA, Strategic agreement recognises the important role of generic and biosimilar medicines in delivering affordable healthcare, media release, 27 May 2015, accessed 11 June 2015. 55. Consumers Health Forum of Australia (CHF), ‘What we do’, CHF website, accessed 11 June 2015. 56. CHF, ‘CHF Appraisal of the Sixth Community Pharmacy Agreement (2015-2020) and the wider PBS Access and Sustainability Package’, CHF

website, accessed 11 June 2015. 57. Ibid.

58. Explanatory Memorandum, National Health Amendment (Pharmaceutical Benefits) Bill 2015, op. cit., p. 3.

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• $610 million from closing the combination drug pricing loophole and

• $475 million from extending early supply rules.59

The savings itemised above sum to more than $3.7 billion, as there are other saving and spending measures in the Package that are not contained in the Bill.60

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.61

Key issues and provisions PBS Pricing Reform

Five per cent price reduction for single brand drugs As discussed, PBS price reform in recent years has focused on price reductions for multiple brand (F2) medicines. For the first time, the Government is proposing statutory price reductions for single brand innovative (F1) medicines. The Government argues that F1 medicines are the fastest growing part of the PBS by cost, and that it is reasonable for these medicines to take a small price reduction after five years on the PBS, in order to support the listing of new (and often expensive) F1 medicines.62

Item 25 in Schedule 1 inserts new section 99ACHA which provides that if an F1 drug has been listed on the PBS for more than five years, there will be a one-off five percent reduction in the approved ex-manufacturer price (AEMP) of the drug on the reduction day.63 Reduction days are scheduled every 1 April from 2016 to 2020, but each drug will only take the five per cent reduction once.

Phillip Clarke, Melbourne University professor of health economics, notes that once prices for F1 drugs are negotiated, there tends to be very little subsequent change in price. He does not believe that the five per cent discount after five years would lead to significant job losses for pharmaceutical companies, as long as the savings from the measure are reinvested in future PBS listings of innovative medicines.64

Removal of originator brand from price disclosure calculations The Government is proposing to make further savings from price disclosure by removing originator brands of drugs from price calculations after three years on the F2 formulary.

Originator drugs move from F1 to F2 once they come off patent and at least one generic competitor brand of the same drug is listed on the PBS.65 Currently, all brands that contain the same F2 drug with the same manner of administration are included in the calculation of price disclosure outcomes.66 The weighted average disclosed price (WADP) of each brand forms the basis for any reduction in price.67 Originator brands tend to maintain higher market prices than their generic competitors, which has the effect of holding the WADP up and reducing the size of any reduction in price.68

Currently, subsection 99ADB(4) of the Act allows the Minister to determine the WADP of a brand of a pharmaceutical item in accordance with the National Health (Pharmaceutical Benefits) Regulations 1960 (the

59. S Ley, Pharmaceutical Benefits Scheme to be reformed, op. cit. 60. Ibid.

61. The Statement of Compatibility with Human Rights can be found at page 5 of the Explanatory Memorandum to the Bill. 62. S Ley, ‘Second reading speech: National Health Amendment (Pharmaceutical Benefits) Bill 2015’, op. cit., p. 7. 63. The approved ex-manufacturer price (AEMP) is negotiated between the Pricing Section of the DoH and the supplier of the drug at the time of listing on the PBS. DoH, ‘Fact sheet - Setting an approved ex-manufacturer price for new or extended listings’, PBS website, accessed 4 June

2015.

64. J Lambert, ‘Big Pharma vital to health savings goal’, Medical Observer Weekly, 22 May 2015, pp. 2-3, accessed 15 June 2015. 65. Section 85AB of the National Health Act 1953, op. cit. 66. DoH, Pharmaceutical Benefits Scheme Price Disclosure Arrangements: Procedural and Operational Guidelines, op. cit., p. 9. 67. Ibid., p. 17. 68. Explanatory Memorandum, National Health Amendment (Pharmaceutical Benefits) Bill 2015, op. cit., p. 2.

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Regulations).69 Subsection 99ADB(6) of the Act states that the Regulations may prescribe a method or formula for calculating the WADP, and that the method or formula prescribed may take into account information that has been provided under price disclosure requirements. The WADP then feeds into Section 99ADH which provides for price reductions based on price disclosure information.

Item 27 in Schedule 1 inserts new subsections 99ADB(6A) to (6D). Proposed subsection 99ADB(6A) provides that the Regulations regarding the WADP calculation may also prescribe information that may not be included, such as information relating to originator brands. Proposed subsections 99ADB(6B) to (6D) deal with the determination of an originator brand by the Minister. Exclusion of the originator brand from price disclosure calculations after three years on F2 will also require amendments to the Regulations:

It is proposed that the regulations would provide that any weighted average disclosed price calculated by a method which excludes the originator brand would not be determined until the drug has been on the F2 formulary for three years. In addition, there will be safeguards in the regulations such as including the originator brand in the calculations if there is no other brand, and if inclusion of the originator results in a greater price reduction.

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Subitem 40(1) in Schedule 1 provides that the originator brand measure applies to price disclosure data collection periods ending on or after 31 March 2016. This means that the first price reductions under the measure would take place on 1 October 2016.71

The Government is expecting significant savings from this measure, as some of the affected F2 drugs are frequently prescribed and have a high total cost to the PBS.72 For example, the two section 85 PBS drugs with the highest cost to the Government in 2013-14 were the cholesterol-lowering drugs rosuvastatin ($287.9 million) and atorvastatin ($279.2 million).73 It was reported in June 2013 that the originator brand of atorvastatin, Lipitor, was being sold into pharmacies at $39 compared to $9 for the generic brands of the same drug.74 Lipitor has been subject to further price reduction from price disclosure since that time, but removing Lipitor’s price from the WADP calculation could cause it to fall further.75 The Government believes that the cost of prescriptions for some F2 drugs could fall by up to 50 per cent by 2017 when the measure is fully implemented.76 This would benefit general patients in cases where the new lower price was below the general co-payment.

Flowing on price disclosure reductions for combination medicines The Bill also changes the way that combination medicines are treated under price disclosure. The measure is intended to address the current inconsistency between the pricing of combination medicines and their component drugs by ‘ensuring appropriate price reductions are applied to combination items on the PBS’ and ‘that the PBS pays the right amount for the same drug treatment’.77

A combination product contains more than one active drug. The initial approved price for combination products on the PBS is usually based on the sum of the prices of the individual component drugs. As previously discussed, a single brand combination product is not included on F1 or F2, but rather is set out in the administrative Combination Drug List (CDL). Price changes to one or more component drugs are generally ‘flowed on’ to the price of the combination drug on the CDL. However, if a second brand of the combination product is PBS listed, the original and competitor combination products move to F2, and component drug price changes are no longer flowed on to the combination products.78

69. National Health (Pharmaceutical Benefits) Regulations 1960, accessed 9 June 2015. 70. Explanatory Memorandum, National Health Amendment (Pharmaceutical Benefits) Bill 2015, op. cit., p. 11. 71. Ibid., p. 16. 72. A Probyn and A Tillett, ‘Cheap drugs: big savings expected for cholesterol, depression and reflux pills’, The West Australian, 7 May 2015, p. 1,

accessed 9 June 2015. 73. DoH, Expenditure and prescriptions twelve months to 30 June 2014, PBS Information Management Section, Pharmaceutical Policy Branch, DoH, 2015, p. v, accessed 9 June 2015. 74. S Dunlevy, ‘Patients hit on drug cost’, The Courier Mail, 11 June 2013, p. 13, accessed 9 June 2015. 75. D Quilty, ‘Price disclosure impact confirmed’, Forefront, 4(23), 25 June 2014, accessed 9 June 2015; S Dunlevy, ‘Patients hit on drug cost’,

op. cit.

76. A Probyn and A Tillett, ‘Cheap drugs: big savings expected for cholesterol, depression and reflux pills’, op. cit. 77. S Ley, ‘Second reading speech: National Health Amendment (Pharmaceutical Benefits) Bill 2015’, op. cit., p. 8. 78. DoH, ‘Fact sheet - Setting an approved ex-manufacturer price for new or extended listings’, op. cit.

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The insulation of combination products on F2 from changes in their component drug prices has been described by Philip Clarke as ‘one of the greatest loopholes of all time’.79 In 2014, he estimated that the cost of listing diabetes and cardiovascular combination therapies was around $120 million more per year, compared to the total cost of their individual component drugs. He cited the example of the anti-clotting medicine clopidogrel plus aspirin, which was initially PBS listed for one cent less than the cost of clopidogrel alone. One month before the PBS subsidy for clopidogrel was due to reduce by 18 per cent due to price disclosure, the manufacturer of clopidogrel plus aspirin introduced a new brand of the combination product, causing it to move to F2 and avoid the price cut taken by clopidogrel alone.80

Section 99ACC of the current Act provides for the flow on of statutory price reductions from component drugs to single brand (CDL) combination items.

Item 28 inserts a new section 99ADHB which provides for the flow on of statutory price reductions from component drugs to multi brand (F2) combination items. It is possible that a combination drug might qualify for two statutory price reduction on the same day: one under proposed section 99ADHB and one under the existing provision in subsection 99ADH(3) relating to price disclosure for F2 medicines. In this case, proposed subsection 99ADHB(4) provides that the price reduction must be at least as great as it would have been under subsection 99ADH(3), but that subsection 99ADH(3) does not apply. This has the effect of applying whichever price reduction would have been greater.

Subitem 40(2) in Schedule 1 has the effect of making the first price reduction day under the measure 1 April 2016. Proposed subsections 99ADHB(10), (11) and (12) also provide for a back-capture day on 1 October 2016 to allow price reductions in component drugs that occurred prior to 1 April 2016 to be flowed on to the combination product.

As well as producing savings for the PBS, the measure is expected to make some combination products cheaper for general consumers.81

Allowing pharmacists to discount the PBS patient co-payment As discussed above, patients currently pay a co-payment of $6.10 (for concession card holders) or up to $37.70 (for general patients) for PBS medicines, until they reach their safety net for the year.82 Allowing pharmacists to discount this co-payment is intended to increase competition between pharmacies and reduce out-of-pocket costs for patients.83

Subsection 87(2) of the current Act specifies the co-payment amounts that an approved pharmacist or dispensing doctor may charge a general or concessional patient.

Items 7 and 8 in Schedule 3 amend subsection 87(2) to insert the words ‘(less any allowable discount)’ after each specified amount. Item 9 of Schedule 3 inserts new subsection 87(2AAAA) which defines an allowable discount as an amount of not more than $1. Together, these items permit an approved pharmacist or dispensing doctor to discount the patient’s co-payment by up to $1.

Paragraph 99(2)(b) of the Act provides that an approved pharmacist is entitled to be paid, by the Commonwealth, the difference between the Commonwealth price of the item and the co-payment charged.

Item 11 in Schedule 3 amends paragraph 99(2)(b) to ensure that the pharmacist cannot recover the allowable discount from the Commonwealth, but must absorb the cost.

The measure is expected to deliver savings to the Government because it will increase the time (but not the out-of-pocket costs) for concessional patients to reach their safety net threshold for the year (after which they receive PBS medicines for free). The majority of concessional patients do not reach the threshold under the current system, and the discount would represent a direct saving to them.84 However, the extent to which

79. S Dunlevy, ‘$200m pill rort crushed’, The Daily Telegraph, 6 May 2015, p. 15, accessed 9 June 2015. 80. P Clarke and A Avery, ‘Evaluating the costs and benefits of using combination therapies’, Medical Journal of Australia, 200(9), 19 May 2014, pp. 518-520, accessed 9 June 2015. 81. S Dunlevy, ‘$200m pill rort crushed’, op. cit. 82. DoH, ‘About the PBS’, op. cit. 83. S Ley, ‘Second reading speech: National Health Amendment (Pharmaceutical Benefits) Bill 2015’, op. cit., p. 9. 84. F McNeill, Senate Community Affairs Legislation Committee, Official Committee Hansard, op. cit., p. 17.

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pharmacists will offer the discount is not clear. The Guild has stated that it supports the wider PBS Package ‘with the exception of the discounted co-payment which is a matter for Government’.85 The Minister has also admitted that pharmacies in rural and regional areas may not be well placed to offer the discount due to higher costs.86

Extending sunset provisions for pharmacy location rules to 30 June 2020 The Bill implements the agreement in the 6CPA that the current pharmacy location rules (discussed in the Background section of this Bills Digest) be continued until 30 June 2020.87 The 6CPA also sets out the terms of an independent review of the location rules and pharmacy remuneration, but the review is not provided for in the Bill.88

Section 90 of the current Act deals with the application process for pharmacists to be approved to supply PBS medicines at a particular premises. With certain exceptions, subsection 90(3A) requires the Secretary to refer applications to the Australian Community Pharmacy Authority (ACPA). Subsection 90(3B) requires a positive recommendation from the ACPA before the Secretary can approve an application. Subsection 90(3C) provides that all subsections from 90(3A) to 90(3B) sunset on 30 June 2015. Division 4B of the Act, which establishes and provides for the operation of the ACPA, and compels the Minister to determine the rules that the ACPA must follow in making recommendations, also sunsets on 30 June 2015 (section 99Y).

Item 5 in Schedule 1 amends subsection 90(3C) to allow the referral of applications to the ACPA to continue until 30 June 2020. Item 32 in Schedule 1 amends section 99Y to continue the operation of the ACPA and the Minister’s power to determine the rules until 30 June 2020.

Commentators have criticised the continuation of the pharmacy location rules, questioning ‘the need for another long review and five more years of anti-competitive regulation’, as well as the ‘closed-shop’ arrangement that will prevent ‘pharmacies opening in supermarkets until at least 2020’.89

Amendments relating to biosimilars The GMiA Agreement includes ‘the substitution of biosimilar medicines at the pharmacy level based on clinical recommendations of the PBAC’ on its list of Package measures, but not on its list of measures that are contingent on the passage of this Bill. 90 Despite this, the Bill contains amendments that appear to support the substitution of biosimilar medicines by pharmacists, as well as amendments to support the application of statutory price reductions to biological medicines and their biosimilar competitors. These amendments are outlined below.

Biological medicines are derived from living organisms using biotechnology. They are usually larger and more complex than traditional, small-molecule medicines made through chemical processes. Examples include insulin to treat diabetes and blood coagulation factors to treat haemophilia. Biological medicines are expensive, accounting for 15 per cent of PBS expenditure in 2013. When a biological medicine comes off-patent, other companies can develop competitor products known as ‘biosimilars’.91 Measures to encourage the use of biosimilars in place of branded biological medicines can reduce the financial burden of these medicines. 92

Biosimilar regulation is a complex and emerging area. The Therapeutic Goods Administration (TGA) Guideline on biosimilars (which is itself under review) stresses that biosimilars are not generic biological medicines:

By their nature biotechnological products are not composed of a single, pure substance, but are invariably complex, microheterogeneous mixtures of isoforms of the desired substance.

85. Ibid.; Pharmacy Guild of Australia, Sixth Community Pharmacy Agreement delivers for patients, op. cit. 86. L Tingle, ‘Pharmacy plans may hit the bush’, The Australian Financial Review, 29 April 2015, p. 7, accessed 15 June 2015. 87. DoH, Sixth Community Pharmacy Agreement, op. cit., p. 17. 88. Ibid., pp. 20-21. 89. A Mitchell, ‘Supermarkets offer prescription for pharmacy pain’, AFR Weekend, 23 May 2015, p. 22, accessed 9 June 2015; P Syvret, ‘Closed-

shop guild agreements prove a bitter pill to swallow’, The Courier Mail, 9 June 2015, p. 20, accessed 9 June 2015. 90. Australian Government, Strategic Agreement, op. cit., pp. 5-6. 91. GMiA, Guide to Biosimilars, GMiA, Canberra, February 2015, pp. 2-3, accessed 9 June 2015. 92. PharmaDispatch, ‘Department of Health responds on biosimilars’, PharmaDispatch website, 5 June 2015, accessed 10 June 2015.

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While biosimilars have some conceptual parallels with generic versions of medicines containing chemically-derived small molecules as the active substances, this complexity and microheterogeneity mean that the principles relevant to the evaluation and use of generic medicines cannot be simply extrapolated to biosimilars. 93

Following a request from the Minister, the PBAC has recently stated that its default position will be to recommend biosimilars as ‘suitable for substitution at the pharmacy level, where the data are supportive of this conclusion’.94 The Department has advised that this is in keeping with the treatment of biosimilars in some other countries:

Use of biosimilars as substitutes for brand name biological medicines is becoming established in a number of markets around the world. The decision whether to substitute may rest with either the prescriber or, in some countries, with the pharmacist. Both France and the United States have recently introduced measures to permit pharmacists to substitute a biosimilar in place of the branded product (the 'originator'). In all cases where substitution of a biological is permitted by the pharmacists, a doctor may still mark the prescription as not for substitution. This is the same as current rules around small molecule medicines prescribing in Australia.

95

Subsection 103(2A) of the current Act allows pharmacists to substitute the prescribed brand for another brand, so long as the brands are listed as equivalent on the Schedule of Pharmaceutical Benefits, and the prescriber has not stipulated that a particular brand be used. This ‘Schedule equivalence’ is the basis of brand substitution at the pharmacy level.96

Item 1 in Schedule 2 inserts new subsections 85(6A), (6B) and (6C) which provide for the Minister to determine (having regard to any advice from the PBAC) that brands are Schedule equivalent for the purposes of substitution at the pharmacy level. The Explanatory Memorandum notes that in addition to advice from the PBAC, the Minister may also consider information provided by the TGA, such as submissions supporting bioequivalence or biosimilarity between products.97 This amendment appears to support biosimilar substitution at the pharmacy level, where it has been recommended by the PBAC.

The Bill also contains a technical amendment that is relevant to the pricing of biological medicines.

The statutory price reductions in Division 3A of the Act and the price disclosure reductions in Division 3B of the Act are triggered by competing brands on the PBS which have the same drug and the same manner of administration as the listed brand.98

Item 3 in Schedule 1 inserts new subsection 85(9) which provides that a brand of pharmaceutical item which is bioequivalent or biosimilar to a listed brand is taken to have the same drug as the listed brand. The amendment supports the application of existing PBS price reduction mechanisms to biologic medicines and their biosimilar competitors.99

The Government expects significant savings from the increased use of biosimilar medicines on the PBS.100 Questions have been raised about patient safety if biosimilar substitution by pharmacists is permitted.101 The Department has provided assurances that the TGA will continue to assess biosimilars for safety and similarity, and that the PBAC will also take patient safety information into account (if provided by the pharmaceutical company) when assessing biosimilars for substitutability on the PBS.102

93. DoH, ‘Evaluation of biosimilars’, Therapeutic Goods Administration (TGA) website, 20 April 2015, accessed 10 June 2015. 94. DoH, ‘Reimbursement of biosimilar medicines’, Recommendations made by the PBAC - April 2015 PBAC Special meeting, PBS website, accessed 10 June 2015. 95. PharmaDispatch, ‘Department of Health responds on biosimilars’, op. cit. 96. Explanatory Memorandum, National Health Amendment (Pharmaceutical Benefits) Bill 2015, op. cit., p. 17. 97. Ibid., pp. 17-18. 98. See for example subsections 99ACB(1)(c)(iii) and 99ADB(6)(c) of the National Health Act 1953, op. cit. 99. Explanatory Memorandum, National Health Amendment (Pharmaceutical Benefits) Bill 2015, op. cit., p. 7. 100. F McNeill, Senate Community Affairs Legislation Committee, Official Committee Hansard, op. cit., p. 26. 101. C Brown, Senate Community Affairs Legislation Committee, Official Committee Hansard, [proof copy], 2 June 2015, p. 28, accessed 15 June

2015.

102. F McNeill, Senate Community Affairs Legislation Committee, Official Committee Hansard, op. cit., pp. 26-28.

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Other provisions The Bill also:

• makes changes to the membership of the PBAC

• extends early supply rules and

• amends the Act to recognise pricing deeds. 103

These measures are adequately described in the Explanatory Memorandum.

Concluding comments Most of the key measures in the Bill are designed to increase price competition and deliver significant PBS savings to the Government. In some cases they should also result in cheaper medicines for consumers. However, the Bill also continues the operation of the highly criticised pharmacy location rules for another five years, which could be considered an anti-competitive measure. The measures in the Bill and the wider Package appear largely positive for pharmacies and the generic medicines industry, more negative for the innovative medicines industry, and somewhere in between for consumers.

103. Explanatory Memorandum, National Health Amendment (Pharmaceutical Benefits) Bill 2015, op. cit., pp. 2-3.

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