Senator FAULKNER (Minister for Defence) (4:58 PM) —The National Health Amendment (Pharmaceutical and Other Benefits—Cost Recovery) Bill 2008 [No. 2] amends the National Health Act 1953 to provide authority for the cost recovery of services provided by the Commonwealth in relation to the exercise of powers for listing medicines, vaccines and other products or services on the Pharmaceutical Benefits Scheme and the designation of vaccines for the National Immunisation Program. The aim of the PBS is to ensure that Australians have affordable access to high-quality medicines in the community. An initiative of a Labor government 60 years ago, the PBS is now accepted by both sides of politics as a success story. Access to high-quality medicines is maintained by subsidising the cost of the PBS medicines and limiting the amount that people pay for prescriptions at the point of sale. Medicines that are listed on the PBS are assessed by experts to be clinically safe and cost effective. The PBS serves Australians well and is justifiably regarded as one of the best systems of its kind in the world.

Similarly, the government is dedicated to ensuring that all Australians can continue to receive fully funded vaccines under the NIP. The NIP is a joint program of Commonwealth and state and territory governments which provides fully funded vaccines for major preventable diseases. The states and territories provide vaccines free of charge to health providers for them to administer to the community.

The cost of providing subsidised medicines and fully funded vaccines to the Australian community is a significant financial outlay to the Commonwealth and taxpayers. In 2007-08 the Commonwealth paid around $7 billion to approved pharmacists, hospitals and medical practitioners for the subsidised supply of medicines under the PBS. A further $543 million was provided by the Commonwealth to the states and territories for the fully funded supply of vaccines under the NIP within their respective jurisdictions.

In implementing a cost recovery fee for Commonwealth services, it is important to note that patient co-payments will not be affected. They are administered separately to the PBS and subject to annual review and indexation adjustment. In 2009 these co-payments are $5.30 for concession card holders and up to $32.90 for general patients.

Cost recovery is not a new policy. Cost recovery arrangements have been applied with success to many departments and agencies at state and federal level including, for example, the Therapeutic Goods Administration, TGA, the Civil Aviation Safety Authority and the Australian Prudential Regulatory Authority. The pharmaceutical industry is familiar with cost recovery—the industry has been paying for the pre-market evaluation of products by the TGA since 1991.

The trigger for fees will be the lodgement of a submission, which in the case of pharmaceutical companies is a purely commercial decision. Pharmaceutical companies are free to market their products in Australia independently of the PBS or NIP subsidies. However, financial returns from the PBS and NIP, especially in relation to high sales ‘prescription only’ items, are significantly increased by PBS listing.

The government first announced its intention to introduce cost recovery of the PBS listing process in the 2008-09 Budget and it is scheduled to start from 1 July 2008. It has, however, been delayed previously in this place and been subject to intense parliamentary scrutiny, including two inquiries in 2008 by the Senate Standing Committee on Community Affairs. The interest taken by stakeholders in the inquiries demonstrates how the PBS is valued by the Australian community. The government appreciates and values the contributions made during those inquiries, particularly concerns about access to medicines targeted for small patient populations groups such as medicines for palliative care and paediatric patients and medicines specifically listed to assist people from the Aboriginal and Torres Strait Islander communities.

The government will ensure that cost recovery is not a barrier to the continued listing of orphan and niche products within the PBS and that they will not be adversely affected by the introduction of fees. Applications relating to drugs designated orphan drugs under the Therapeutic Goods Regulations 1990 will be exempt from fees. The subordinate regulations will allow for the applicant to request a waiver of the fees when lodging their submission, where the application involves the public interest test and where payment of the required fee would make the application financially unviable.

After consideration of the committee’s findings and evidence presented to the committee, the government is re-presenting the bill. The delay in passing the bill has led to a loss of expected revenue to the government—at least $9.4 million in 2008-09. The government is pleased that the opposition now supports the thrust of the bill and has negotiated in good faith on amendments suggested by both the opposition and the Australian Greens. The government accepts the suggested amendments that will provide for an independent review of the operation of the cost recovery regime after it has been up and running for two years and for the report of that review to be tabled in Parliament. In addition the minister will be required to table an annual report on the processes leading up to the Pharmaceutical Benefits Advisory Committee’s, PBAC’s, consideration of applications.

The government guarantees the continued independence of the PBAC. The government will continue to directly fund all the activities of the PBAC and its subcommittees. The PBAC will have no role in setting fees and it will not receive any revenue from industry. All revenue collected from cost recovery will be paid directly into consolidated revenue. I would like to emphasise that the expertise, integrity and sense of propriety that PBAC members bring to their task will not change as a result of cost recovery.

Pharmaceutical companies receive much by way of benefits from the Australian taxpayer once products are listed on the PBS. It is not unreasonable that they contribute toward maintaining the architecture of the PBS. Achieving a product listing on the PBS provides a high level of commercial certainty to a company in relation to that product’s sales. It is time for the pharmaceutical companies to contribute something back to the system.

The bill provides for a commencement date of 1 July 2008. The government has no intention of introducing the cost recovery regime to allow for the retrospective collection of fees. It will be the regulations made under the power provided in the bill which will specify the actual date from which cost recovery fees will commence. No fees can be imposed until the regulations are made by the Governor-General. The regulations will be subject to parliamentary scrutiny and disallowance.

The Department of Health and Ageing has continued to consult with key stakeholders, including peak industry, consumer and healthcare provider bodies. The department has met with industry and agreed to establish a consultative mechanism with industry on cost recovery. In addition, a cost recovery impact statement will be finalised, reporting on compliance and consultations within the government’s cost recovery policy. In accordance with the cost recovery guidelines, the department will introduce ongoing monitoring mechanisms to ensure fees remain based on efficient costs and it will continue to liaise closely with key stakeholders.

Revenue from cost recovery will depend on the number and type of submissions brought to the PBAC for consideration. As a general rule, the more complex and time consuming the evaluation and price negotiation the higher the fees. Once fully operational, annual revenue from fees is expected to total about $14 million a year. In addition to the legislative reviews agreed to, a full review will be undertaken within five years, in accordance with the cost recovery guidelines.

The government has asked the Department of Health and Ageing to liaise with industry before finalising an implementation date. The minister will announce that date as soon as practicable to allow industry time to prepare. That said, the government does not anticipate that the implementation of these arrangements will be unduly delayed, and on passage of this bill the Department of Health and Ageing will work quickly to submit the proposed regulations to the federal Executive Council for the Governor-General’s consideration.

Cost recovery will be a simple system, recovering costs from parties that are in a position to gain financial benefit from the listing of their drugs or changes to listings within the PBS subsidy framework and from the designation of their vaccines for funding under the NIP. It is all about ensuring that the PBS continues to be able to provide reliable, timely and affordable access to a wide range of medicines for all Australians. I thank those who have contributed to the debate.

Question agreed to.

Bill read a second time.