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Wednesday, 2 June 2010
Page: 4897


Ms ROXON (Minister for Health and Ageing) (9:01 AM) —I move:

That this bill be now read a second time.

The National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 will amend the National Health Act 1953 (the Act) to achieve a more efficient and sustainable Pharmaceutical Benefits Scheme (PBS), better value for money for Australian taxpayers, and policy stability for the pharmaceutical sector.

The bill underpins the Rudd government’s commitment to reform of Australia’s health system, by ensuring that every precious health dollar is used as effectively as possible.

The bill also embodies an historic level of cooperation and collaboration between the government and the pharmaceutical industry, represented by Medicines Australia. Through jointly negotiating these reforms, the government and the industry will help ensure the sustainability of the PBS for years to come.

The bill sets out new PBS pricing arrangements aimed at reducing growth in PBS expenditure, ensuring access to quality medicines at a lower cost to the taxpayer, and providing certainty to the pharmaceutical industry in relation to PBS pricing policy.

The PBS plays a vital role in Australia’s health system, particularly for the prevention and management of chronic disease, and for the treatment of life-threatening conditions. The PBS provides reliable and timely access to a wide range of medicines at a cost individuals and the community can afford.

In the coming years, medicines will continue to be a significant and growing component of health expenditure. Since the previous major pricing reforms in 2007, the growth rate for PBS expenditure has increased from 4.3 per cent in 2006-07 to an estimated 10.5 per cent for the 2009-10 financial year.

The report to parliament on the 2007 PBS reforms warned that the cost of the PBS is projected to grow significantly over the next few years. While those earlier reforms will provide more savings than originally estimated, these will be more than outweighed by higher growth in PBS costs. The PBS reform report estimates that PBS costs will reach $13 billion in 2018, compared to about $9 billion in 2010.

For the PBS to continue to provide access to medicines, increases in costs need to be managed. The viability of the medicines industry in Australia also needs to be maintained.

To this end, the government has entered into a four-year memorandum of understanding with Medicines Australia. Medicines Australia represents over 50 companies, which together account for 86 per cent of total annual PBS expenditure and nearly 60 per cent of sales of off-patent medicines.

The memorandum of understanding (MOU) sets out the negotiated pricing reforms which are the subject of the bill, and the policy innovations that will be introduced to improve the pathway for subsidy of medicines under the PBS.

Under the MOU, the government will provide the industry with pricing certainty over the next four years. In return for implementing new pricing arrangements that are the subject of this bill, the government will undertake not to introduce further new policy to generate price related savings from the PBS over the life of the MOU. This will provide stability to the industry, helping to foster investment and availability of new and innovative drugs in Australia, such as the $50 million biotech investment in Queensland recently announced by Eli Lilly.

Further process and policy changes for the listing of PBS medicines under the MOU will reduce red tape and further foster the availability of new medicines in Australia.

Under the MOU, the PBS will continue to support access to subsidies for new and innovative products. Price reductions are achieved as a result of competition between brands in the market, within a framework of policy certainty. These are good outcomes for all sectors of the medicines industry and for the Australian community in general.

The amendments in this bill propose a significant broadening of current pricing arrangements which were originally introduced as part of the 2007 PBS reforms.

The proposed changes to pricing policy recognise that competitive pricing already exists in the market for many PBS subsidised medicines. The changes acknowledge that Australian taxpayers should be benefiting from that competition and the lower prices that result from it.

The principles which underpin existing price setting and maintenance mechanisms for PBS medicines will continue. In particular, the general separation of medicines between the pricing formularies for single brand drugs (F1), and drugs where there is competition (F2), will be maintained.

The application of price disclosure will be accelerated and expanded to include all drugs in the F2 formulary.

Price disclosure allows market forces to play a part in PBS pricing. Competition between pharmaceutical companies to gain market share for their products can result in significant discounting to pharmacies. The actual price of a brand of medicine may be much less than the government PBS subsidy price.

Under price disclosure arrangements, pharmaceutical suppliers are required to advise the government of the price at which PBS medicines are sold into pharmacies. The information is used as the basis for possibly adjusting the price for all brands of a medicine to the weighted average price. Price disclosure ensures that, over time, government prices reflect more closely actual market prices. This is a fairer deal for taxpayers.

Since it was first introduced in 2007, price disclosure has only been applied to medicines after a new brand lists.

Under these further pricing reforms, price disclosure will become mandatory from 1 October 2010 for all drugs on the F2 formulary. This will increase the number of brands subject to price disclosure from 162 to over 1,600 brands.

The bill also provides that, for the cycle commencing on 1 October 2010, an average price reduction of at least 23 per cent is to be achieved across all the brands in that cycle. These price reductions will occur on 1 April 2012 and represent a very large saving in PBS costs. In the event that the price reductions delivered under the normal operation of price disclosure do not yield an average of a 23 per cent price reduction across the formulary, prices for medicines in this cycle will be further reduced to achieve the required 23 per cent reduction overall. However, this provision will only apply to the price disclosure cycle commencing on 1 October 2010, and no medicine will be reduced to less than the lowest disclosed price for a brand of that medicine.

Expanding price disclosure is a fair and equitable way of achieving value for money for PBS medicines. It allows competition to play a real part in pricing for the PBS and allows taxpayers to benefit from discounting practices in the market. Companies can continue to compete for market share for their products as prices are generally reduced to the weighted average price, and not the lowest price.

In addition, under the further pricing reforms being introduced today, all medicines on F2 will experience a price reduction of two or five per cent on 1 February next year, 2011. The level of price reduction for each medicine reflects the level of discounting the medicine has been experiencing in the market.

In a further reform, the price reduction that occurs when the first new brand of a PBS medicine is listed will increase from the current 12.5 per cent, to 16 per cent as of 1 February 2011. Medicines that have already taken a 12.5 per cent price reduction will not be required to take the balance of the 16 per cent price reduction.

It is also important to note that the reforms embodied in this bill preserve features of the PBS that make it such a valued part of Australia’s health system.

Under the new pricing arrangements, medical practitioners will continue to be able to prescribe PBS medicines that are clinically appropriate. The robust process for listing new medicines on the PBS will continue. Only medicines recommended by the Pharmaceutical Benefits Advisory Committee, or PBAC, will be considered for listing by government.

There will be no extra costs for patients. Some nonconcessional patients may pay less, for example, where price reductions cause the price of a medicine to fall below the general co-payment amount. My report to parliament on the 2007 PBS reforms estimated that consumers will benefit from those reforms via direct reductions in prices for some prescriptions by $600 to $800 million over the ten years to 2018. The additional direct saving to consumers from these new measures is independently estimated to double this previous estimate and to save general patients on average almost $3.00 per prescription.

To support awareness of brand choice under the PBS, the government will invest $10 million, through the National Prescribing Service, to provide factual information to inform consumers that generic medicines are an equal choice in terms of quality and effectiveness, and that some brands of a medicine may cost less than others.

The bill does not prevent the generic medicines industry from competing for a growing share of PBS scripts. In 2008-09, member companies of the Generic Medicines Industry Association had a share of 33.8 per cent of PBS scripts, up from 27 per cent in 2005-06. Generic manufacturers will also benefit from some $2.3 billion worth of medicines coming off patent over the next 12 years.

The proposed amendments to the act will also streamline the way drugs are listed for supply under section 100 arrangements. Section 100 of the National Health Act applies to certain specialised medicines with specific supply arrangements, such as chemotherapy or HIV-AIDS medicines. The amendments will make clear how general PBS provisions apply to drugs supplied under those arrangements. The power to make special arrangements under section 100 will be clarified and broadened.

The wider scope of section 100 will mean arrangements such as the revised Intravenous Chemotherapy Supply Program announced in the 2010-11 budget can be made. Under the new chemotherapy arrangements, the method for supply and pricing of combinations of vials required for single infusions will reduce unnecessary wastage of these expensive chemotherapy drugs. As a result, savings of around $75.4 million are expected over the next four years.

In addition, the bill contains provisions that address gaps in the current PBS prescription data captured by Medicare Australia. Currently, community and hospital pharmacies supplying PBS medicines only provide data for PBS prescriptions for which the Commonwealth pays a subsidy. The changes being introduced will result in data also being provided for prescriptions when a subsidy is not paid—that is, under co-payment data. For these ‘under co-payment’ prescriptions, the cost to patients is below the co-payment amount, currently $33.30 for general patients. The collection of this information, in common with all other PBS prescription data, will give the PBAC and others a more complete picture of PBS medicine prescribing, dispensing and usage. Provision for this change is also included under the Fifth Community Pharmacy Agreement announced in this year’s budget.

This bill also makes explicit price reductions related to the 25 per cent staged reductions that were put in place at the time of the 2007 PBS reform. Price reductions required on listing of a new brand of a drug affected by staged reductions are currently occurring administratively and through serial amendments to regulations. Including these reductions in the act will make the provisions clearer for industry and easier to administer.

In conclusion, the reforms in this bill provide a firm basis for achieving a more efficient and sustainable PBS while, at the same time, providing a period of certainty to industry in relation to medicines pricing policy.

The reforms have been collaboratively and closely negotiated with the pharmaceutical industry to provide benefits for taxpayers and stability for the sector. I would like to acknowledge the important role of Medicines Australia in developing this package of reforms for the benefit of all Australians.

Consumers will pay no more for their medicines, and some may pay less. A choice of medicines and brands will still be available. Medical practitioners will be able to prescribe medicines that are clinically appropriate.

Australians will benefit as consumers and taxpayers from a more sustainable PBS through lower prices for medicines and access to new medicines sooner.

I commend the bill to the House.

Debate (on motion by Mrs Gash) adjourned.