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Thursday, 14 May 1970


Mr HAYDEN (Oxley) - This measure proposes an amendment to the Commonwealth Serum Laboratories Act lo allow the Commonwealth Serum Laboratories to import rubella vaccine. This is a thoroughly commendable proposal and the Opposition will support it. The amendments relate to section 9b of the principal Act. I would like to pose some questions to the Minister for Health (Dr Forbes). They relate to the method of operation of the Commonwealth Serum Laboratories, especially the relationship of the proposed amendment to the established practice. Under a sub-section of section 19 of the Act the Laboratories are required to carry out research work and the production and stockpiling of certain drugs used. They are required to do this at the direction of the Minister, presumably in the event of some sort of national emergency. The Laboratories are remunerated for this service at a price which is struck by the Minister. I am not quite sure how he strikes this price, but this is one of the points which I would like him to discuss. Section 22 gives the Minister power to determine the price at which this organisation wilt bc remunerated for this service. Will this also apply in the case of rubella vaccine which is stockpiled? I expect that a certain amount of it, anyway, will be stockpiled.

I ask that question because I think that the Commonwealth Serum Laboratories operate at a disadvantage. A fairly onerous demand is placed upon them by the terms of the Act. On 11th May 1961, Dr Cameron, the then Minister for Health, stated in this House:

In accordance with the usual approach adopted in business activities of this nature, the commission will adopt a policy aimed at obtaining sufficient revenue from the sale of products to cover the expenditure of the commission plus a reasonable return on the capital invested. In other words, the commission will follow accepted business lines in relation to this aspect of its activities.

In actual1 practice, however, it is not possible in any fair sense of the word for the Laboratories to operate on what generally would be conceived to be a sound commercial basis. The reason for this is that the operations of the Laboratories consist of 2 parts. Firstly there is a commercial enterprise, a certain amount of the output of which is sold on the open market. Such products are sold on a commercial basis.

The other section of activity and production is not commercial and cannot be commercial in any conception of that word. This section of activity is carried out at the direction of the Minister for Health and involves work which no commercial enterprise would undertake. For this section of activity the organisation has to have a certain amount of productive capacity installed in the plant. It has to use labour and technical know-how, to provide storage and all the apparatus necessary for storing biological drugs, and to stockpile them as part of what can be interpreted as a public health service. This section of activity is quite distinct from that of a commercial enterprise. Quite clearly, activity of this sort involves diseconomies for the main organisation and cannot be regarded as part of a commercial enterprise.

There is another practice related to this which I would like to bring to the notice of the Minister so that he may deal with all these points to a certain extent. If so far he has not proposed some change in the practice, he might give consideration to changing it later. If a loss is sustained in what I have described as the public health service sector of the work of the Commonwealth Serum Laboratories it is absorbed in any overall profit made, assuming there is one. In effect the consumers of the commercial output of the Laboratories, the Australian taxpayers, are asked to subsidise the public health section of its work.

To my mind this is unfair. Consumers of the products of the commercial sector are people who suffer from some form of ill health. Drugs are expensive enough now without requiring these people to make more than a fair surrender of their living standards to purchase drugs and in order to generate a surplus to cover losses on the public health sector. If there is an overall loss then the lesser of the losses on the 2 sectors is the one covered by the Government. If there is a loss on the public health side - the stockpiling and research side dictated by the Government - that is covered by aGovernment refund.

Consistent with what I said earlier, this means that the taxpayers or consumers are to some extent still subsidising the activities of the public sector. This is unreasonable and defeats the commercial objectives which Dr Cameron enunciated so precisely in 1961 when the Laboratories were established as a Commission. Honourable members who were in the House at that time - I was not one of them but I remember the debate - will recollect that it was the Government's argument that it wanted to give the Laboratories independence and put them on this viable commercial footing so that its existence would be self justifying.

If the Minister perpetuates this practice then it would seem that the importation of rubella would come under that sub-section of section 19 and that there will be some sort of stockpiling. The Minister should discuss this today and tell us whether there are any proposals in view on the Government side to overcome this practice. The immediate thing that comes to my mind is that the Government ought to become a consumer client of the Commonwealth Serum Laboratories for such services as stockpiling and research which are now carried out under its direction. It should pay what could be regarded as a commercial price for these services so that the organisation can fulfil the objective for which it was created under the legislation of 1961. It should do that or somehow the accounts of the organisation ought to be clearly identified in 2 separate parts so that a more reasonable demand could be made on the organisation to carry this public health service responsibility and not to impose the charge unfairly upon the public. 1 am not aware at this juncture of any instance where this may or may not have happened - that is, where the Government has bad to cover losses. In fact, one of the criticisms which has been made of the annual reports of the Commonwealth Serum Laboratories is that they do not make a detailed breakdown of the financial involvement of the organisation for the year. In any event, the Minister might be able to enlighten us in that regard.

However, this does not obviate the argument which I am putting forward, that there is provision within the Act to have consumers prop up the public health service sector of the activity of the Serum Laboratories and this should not be so. It should not be a charge on unhealthy people, lt should be a charge which is equitably borne by the community. This in turn could be done through the Government adequately remunerating the Serum Laboratories for carrying out this work. The Laboratories do in fact have to carry an extra cost structure because of this work. In 1965-66 the Commission installed production capacity to meet what was then termed defence and national emergency demands for a number of key products. This means that productive capacity was built into the Laboratories to produce a surplus beyond current demands so that a stock pile could be made. This, of course, is a cost burden which a normal commercial enterprise would not be prepared to bear. Therefore it is unfair to require of the Serum Laboratories a commercial result at the end of each year, lt just cannot be done with this sort of practice unless the consumers of the products are to be exploited by this organisation charging too much.

There are some practical problems which 1 would like to raise with the Minister because they need to be explained. The Treasury has admitted that unless there is in fact a break up of capital it would be difficult to determine any measurement for a reasonable return on funds as is required for the commercial obligation imposed on the Serum Laboratories. The Treasury has confessed that this in fact is a problem at the present time. If we are lo operate under statutory authority, this is something which ought to be defined in precise terms. Section 21 of the Act which covers the Serum Laboratories states that it shall be the objective of the Laboratories, inter aiia, to pursue a policy directed towards securing revenue from the sale of those products sufficient to meet all its expenditure (including expenditure in undertaking research) in connection with those products that is properly chargeable to revenue, and to permit the payment to the Commonwealth of a reasonable return on the capital of the Commission'. On the admission of the Treasury, it is just not possible for an assessment to be made of what is a reasonable return. Officers of the Minister's own Department were unable to define the meaning of a 'reasonable return' when they were witnesses before the Public Accounts Committee in 1968 or 1969. The report was produced in Parliament in 1969, in any event.

The Laboratories operate on additional peculiar conditions. Section 33 provides for repayments of capital aud amounts from profits as determined by the Treasurer. This seems a rather ad hoc approach to the operation of what is supposed to be a commercial enterprise. It is in conflict with the philosophy which was enunciated in 1961 by Dr Cameron and which the Government has upheld ever since. Section 34 places no limit on the amount the Commission can borrow. There is no requirement that the Minister for Health must consent to its borrowing, and no provision is made regarding the rate of interest which ought to be accepted on funds borrowed. In the case of other statutory bodies, such as the Australian National Airlines Commission and the Australian Coastal Shipping Commission, provision is specifically made on these points. This is not done in the Act covering the Commonwealth Serum Laboratories, lt would seem a desirable objective in administration to try to have some sort of consistency of practice ibr statutory bodies such as these.

The actual operations of the Commonwealth Scrum Laboratories are being hamstrung by the Act which controls their operations. I will quote from the Public Accounts Committee report to which I referred a few minutes ago. The Chairman of the Commission, Mr Davis, referred to the relationship between various sections of the Act. He said:

.   . section 19 was to confine, restrict and limit the activities of the Laboratories in that there is no provision for flexibility of operation or opportunity to diversify production.

This seems to me to be a key criticism of the whole operations of the Laboratories. The remarks achieve special significance because the Chairman is a former serving member of this House from the Government's ranks. He has made this criticism which, even on a moderate interpretation, must be accepted as a trenchant criticism of the hamstringing of the activities of the Commonwealth Serum Laboratories. Of course, what he is pointing out here is the point that I have been making, that the Serum Laboratories cannot fulfil the obligations imposed upon them through the philosophy written into the Act controlling the Laboratories in 1961, a philosophy enunciated by Dr Cameron in his second reading speech on the occasion in which he introduced that Act.

Section 19 is restricting and interfering with the operation of the Laboratories. If the Labor Party were in government, as it will be after the next election, we would in fact expand the activities of the Commonwealth Serum Laboratories. We would not restrict its activities to the production of biological drugs. We would encourage its expansion into the production of synthetic drugs. We would not continue to fetter it by limiting it to the 2% maximum portion of the- total commercial market which it is now allowed to obtain through its production. We believe this change is necessary. It is quite a reasonable sort of proposition because of the tremendous amount of money which is involved in public expenditure on drugs under the pharmaceutical benefits scheme alone.

It seems quite clear that the large drug manufacturers in Australia exploit to a significant extent the Australian consumer market with excessive prices. By expanding the area of operation of the Commonwealth Serum Laboratories we could combat this with fair competition which would not be party to the cartel-like arrangements which are inherent in the activity of the drug manufacturers in the Australian market at the present time. I can give some indication of the magnitude of the expenditure on drugs and why we are justified in making this suggestion. I pointed out that in 1968-69 there was the greatest increase in absolute terms in national health spending for pharmaceutical benefits. The increase was $13. 2m. The total cost of the scheme was S138m. It was only $66m in 1960-61. In other words, there has been an increase of 109% in the cost of these drugs in that period. The population increased by only 17% in the same period.

I will readily concede that one must expect drug costs to increase at a much faster rate than is the case for other normally accepted cost of living indices because of the complex and extremely expensive nature of research and development of pharmaceutical drugs. But one has the clear suspicion, nonetheless, that the increase which has occurred is much greater than could be justified. As the Commonwealth carries about 80% of the total cost of the pharmaceutical benefits scheme - that is of the $138m which I quoted - it has a vested interest, and indeed a moral obligation, on behalf of taxpayers to ensure that the best rates are obtained for it when it is purchasing drugs. In 1968 a survey by Health Economics Services Ltd indicated that 141 drug companies were operating in Australia. However, 24 of them, representing about 17% of the total, cornered more than 50% of the market, which indicates the opportunity for cartel-like arrangements to exploit consumers on the Australian market.

Again it was the honourable member for Hughes who participated in an earlier debate on the National Health Bill and who pointed out in about 1965 that one of the reasons, amongst many others which he quoted, why drugs were so expensive to the consumers was that we had 1 salesman for every 5 or 6 doctors. Following on this the Commonwealth Department of Health was forced to admit in its annual report for the year 1965-66 that this was in fact so. I do not know whether there has been any remedy for the situation. If there has been, I do not know when it was effected and I do not know whether there has been any regression since it was effected. But in any event this alone shows how money has been wasted in a ridiculous situation where for many years, until the honourable member for Hughes exposed this as a rather scandalous practice, there was 1 salesman for every 5 or 6 doctors. Under normal competitive arrangements the drug companies could not survive with such a low ratio of doctors to salesmen. This suggests very strongly that there are cartel arrangements which preclude competitive advantages for consumers on the Australian market.

Finally, as further evidence of just how remunerative the pharmaceutical drug industry is in Australia 1 would quote a 1964 Equity Court case in which it was disclosed that Sterling Drug Company lnc. of the United States sold its products to its Australian subsidiary, Bayer Pharma Pty Ltd, at 50% profit, and Bayer Pharma Pty Ltd in turn sold the drugs it had purchased from its parent company at a further profit margin, 1 would expect, of around 50% or 60% as a minimum. So we get some insight into how the Australian public is being exploited by the activities of drug companies, which seem to have a buccaneer's licence to operate in the Australian community. As a taxpayer, 1 am concerned that the Government is also being exploited. 1 am sure, in spite of what the Minister might say, that he is caused a great deal of concern from time to time by the cartelarranged activities of drug companies in Australia, because the more they extract from us for a given quantity of drugs over what they should be charging us, the less they are allowing the pharmaceutical benefits scheme to be expanded for the benefits of the Australian community. lt can be complained that doctors might over-prescribe. I have my doubts about whether this is always true. I think that this is over-emphasised. But in any event the degree of stress that this places on the scheme is extremely minute compared with the tremendous cost stress which is placed on the scheme by the drug companies in Australia. This is why we of the Opposition would extend the activities of the Commonwealth Serum Laboratories to producing biological drugs and a wide range of synthetics and would also allow them to compete on the Australian market on fair terms with the private drug manufacturers. If the private drug manufacturers proved that on fair terms, not on dumping terms, they could out-compete the Commonwealth Serum Laboratories, we would be prepared to accept this. We would be foolish to do otherwise. I am a Socialist, but I do not blindly believe that something that is inefficient has to be imposed on the public, because from an economist's point of view this represents an unfair tax on the public and a fetter on improvement in their living standards. It is my firm belief, until the contrary is proved, that the Commonwealth Serum Laboratories can be used as an extremely beneficial and effective instrument in improving the effectiveness of the pharmaceutical benefits, scheme operating in Australia by establishing a more reasonable price level for drugs.

I advert finally to the point which is really the substantial matter I want to raise with the Minister, because he is not even slightly socialistic in his tendencies and therefore would be unmoved by my argument for an expansion of the activities of the Commonwealth Serum Laboratories. However, 1 do ask him serio.usly to consider those points I have raised in relation to sections 19, 21 and 22, especially section 1.9. If the Government has in mind any arrangements whereby it will demand that the activities of the Commonwealth Serum Laboratories be placed on a commercial basis, I would suggest that the Laboratories be not placed, as they are currently, at a disadvantage, by having to carry under section 19 of the Act this research, production and stockpiling requirement for what is in reality a public health service.







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