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Wednesday, 17 November 2010
Page: 1433


Senator CAROL BROWN (11:38 AM) —The aim of the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 is to deliver a more efficient and sustainable PBS, better value for money for Australian taxpayers and policy stability for the pharmaceutical sector. The bill seeks to implement initiatives agreed between the Minister for Health and Ageing, Ms Roxon, and Medicines Australia by amending the National Health Act 1953 in relation to price reductions for certain drugs listed on the PBS, price disclosure arrangements, the collection of under-co-payment data and section 100 medicines, and other consequential amendments. The Pharmaceutical Benefits Scheme was created in 1948, and we have a world-class PBS that provides timely access to medicines for all Australians. In the coming years medicines will continue to be a significant and growing component of health expenditure. The reforms in this bill will guarantee that the PBS continues to provide this essential service to Australians while at the same time ensuring that every precious health dollar is spent effectively.

It is currently estimated that the PBS will cost $13 billion in 2018, compared to where we are now: around $9 billion in 2010-11. The PBS expenditure will need to be managed if it is to be sustainable in providing affordable access to essential medicines for all Australians. This bill gives effect to further PBS pricing reforms that were announced in the 2010-11 budget and that are a subject of a memorandum of understanding with Medicines Australia, the peak body for the pharmaceutical sector. The reforms will result in savings for the PBS of around $1.9 billion over five years. The amendments in the bill focus on medicines where there is competition in the market. Over time the changes will mean that PBS prices more closely match the price at which the medicines are actually sold. Australians will benefit in terms of lower prices and timely access to innovative treatments. Price disclosure will be accelerated and expanded. Price disclosure requires pharmaceutical companies to advise government of the price at which PBS medicines are sold to pharmacies. This information is used to adjust the PBS price across all brands of a medicine to the weighted average price which is actually being charged in the market, which means the industry, not government, is setting the level of price reduction based on prices already operating in the market. As outlined in the Community Affairs Legislation Committee report into the legislation, the main provisions of the bill are price reductions, merging the F2A and F2T subformularies, price disclosure and collection of under-co-payment data. The government report sets out these provisions and their purposes.

I will now address some of the issues raised during the inquiry. With regard to price disclosure, we heard in the inquiry that there is significant discounting of off-patent medicines in Australia. Pharmaceutical companies give big discounts to pharmacists to get them to stock their products over their competitors’ items. Price disclosure was originally introduced as part of the 2007 PBS reforms. We know that 45 medicines currently participate in price disclosure. If this bill is passed the program will be expanded to encompass all medicines that are subject to brand competition. Those are what are known as F2 medicines. This means that we will go from 45 to around 220 medicines participating in the program. The proposed changes to pricing policies recognise that competitive pricing already exists in the market for many PBS subsidised medicines but that Australian taxpayers should be benefiting further from market competition and the lower prices that result from it.

Let’s be clear on price disclosure: these reforms will result in no extra costs for patients. In fact, patients will benefit from price reductions where the price of a medicine falls below the general co-payment amount. The direct saving to consumers from these new measures is independently estimated to save general patients on average close to $3 per prescription. Without price disclosure consumers and taxpayers will continue to pay for medicines well above what they are being sold for. The aim of these measures contained in the bill is to achieve PBS prices that more closely match the prices at which companies sell their medicines to pharmacies.

Another issue raised was industry representation and consultation. Both Medicines Australia, or MA, which represents about 50 companies, and the Generic Medicines industry Association, or GMiA, which represents five companies, were involved in discussions with the government and were asked, as I understand it, to provide proposals to enhance the sustainability of the PBS. Evidence given from the Department of Health and Ageing submits that MA, representing their members—around 50 organisations—represents 86 percent of the total cost of PBS expenditure and nearly 60 percent of the sales of off-patent medicines annually, though this figure is disputed by GMiA. Discussions with Medicines Australia proved positive and resulted in a memorandum of understanding between Medicines Australia and the government.

Consultations with GMiA on options to ensure the sustainability of the PBS were also held. Unfortunately it seems that these discussions with GMiA were not equally positive. GMiA argued that they did not have a good hearing, but in my view this does not seem to be the case. Coalition senators have expressed the view that GMiA were excluded from the negotiations so let us look at the facts. In their submission, the department listed a number of opportunities GMiA had to discuss options for reform to the PBS, including with the senior officials from the Department of Health and Ageing, since November 2009 and prior to the budget. The department’s submission listed these as:

  • 18 November 2009 - Meeting between First Assistant Secretary of the Pharmaceutical Benefits Division and GMiA;
  • 21 January 2010 - Meeting between First Assistant Secretary of the Pharmaceutical Benefits Division and GMiA;
  • 4 February 2010 - Senior Departmental meeting (including the Deputy Secretary) with GMiA;
  • 16 March 2010 - Meeting between the Minister for Health and Ageing and GMiA;
  • 30 March 2010 - Senior Departmental meeting (including the Deputy Secretary) with GMiA; and
  • 22 April 2010 - Meeting between the Minister’s Office and Alphapharm.

To further illustrate the opportunities GMiA were given to engage in discussions on the PBS, I will outline the Minister for Health and Ageing’s view on this matter:

On multiple occasions, GMiA was able to discuss options for reforms to the PBS with the government, including with me, as the minister, in my office and with senior officials of the Department of Health and Ageing. GMiA had a good hearing and the government valued the exchange of views. However, I do need to note here that GMiA’s key proposal to the government in these discussions was that patients should be made to pay some $5 more for off-patent medicines made by originator companies compared to the same drugs made by generic companies. This proposal would have resulted in concessional patients paying nearly twice as much as they currently do for some off-patent medicines. The government could not support this proposal. Notwithstanding these differences of view, the government continues to work closely with the industry on how these reforms will be implemented, through a working group which includes GMiA, pharmaceutical wholesalers and Medicines Australia.

The fact is, GMiA just do not agree with price disclosure so I am not sure what more we could have done. They do not agree on price disclosure and they were not, as I see it, ready to enter into discussions about it.

Another issue raised was the administrative burden on industry. We have an existing price disclosure program and the processes underpinning this program were developed with representatives of both the innovator and generics industry. So industry is already familiar with the operation and requirements of the program. This bill expands the program and the government has retained the key aspects of the program, with feedback from industry to further simplify and streamline the processes for compliance. The government has, through the price disclosure working group—a working group which, as I said, includes the department, GMiA, wholesalers and MA—already met and had ongoing discussions on implementation.

I believe that the impact on suppliers will be low because the major contributor to the savings, price disclosure, does not impose price reductions arbitrarily, nor demand the lowest price for a medicine—the prices will follow the market. As has been stated the disclosure arrangements aim to lower the government price only to the average price actually charged by pharma companies in the market. Also we have a situation where the generics market in Australia is significant and growing. In the last four years we have seen it grow from 27 per cent to 34 per cent. Also eligible wholesalers are sharing in some $950 million to distribute medicines under the Community Service Obligations arrangements, 58 per cent more than the previous agreement. The payments from the CSO supplement the wholesale margin for most drugs.

The issue of the supply of drugs was also raised. This bill is supported by the Consumers Health Forum on the basis that consumers will benefit from continued access to medicines and the savings generated by the measures will result in savings to taxpayers. The Consumer Health Forum’s view is this bill does not represent a threat to the viability of the generic industry, and nor do the measures remove the obligation on pharmacists and wholesalers to maintain supply of PBS drugs. Ms Bennett is executive director of the Consumers Health Forum of Australia, the CHF, which is the peak body providing leadership in representing the interests of Australian healthcare consumers. Ms Bennett gave evidence supporting the bill. In part, she said:

Consumers have told us that they want timely access to affordable medicines and that it is essential to them that the PBS remains viable into the future to achieve that. We therefore support the reforms that contribute to the continuing sustainability of the PBS while ensuring that consumers can get the medicines they need at a price that they and the government can afford. The bill gives legislative effect to the MOU between the government and Medicines Australia. We consider—

that is, the CHF—

that the MOU will contribute to that long-term sustainability and the viability of the PBS through statutory price cuts and strengthened price disclosure mechanisms for the formulary 2 medicines.

Further Ms Bennett submitted:

Consumers as both buyers of these medicines and taxpayers will pay less for medicines than under the current arrangements, due to the price cuts and the resulting potentially greater competition and further reduction in prices for generic medicines, particularly in the under co-payment market.

We also welcome the provisions in this bill that will enable faster access to safe, high-quality medications through the mechanisms in the bill that allow for parallel registration and reimbursement processes by the TGA and the Pharmaceutical Benefits Advisory Committee, the managed entry of new products onto the market and the ‘best endeavours’ commitment to a maximum time frame of six months for cabinet approvals of medicines.

I would like to quote from the government report from the Senate Standing Committee on Community Affairs inquiry into this bill. It said:

Two key goals of the bill are to contribute to the sustainability of the PBS and maintain access to quality medicines at a lower cost to the taxpayer. The committee acknowledges that the ways in which the bill seeks to achieve these goals are not new but rather build on the reforms made to the PBS in 2007 by extending the pricing policies introduced at that time, whilst maintaining the separation of medicines in the F1 and F2 formularies, and retaining the concepts of statutory price reductions and price disclosure. The committee further notes that the changes proposed in the bill are expected to deliver substantial savings to government.

I believe that the MOU and the bill now before the Senate will benefit consumers and taxpayers and should be supported.