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Thursday, 21 November 2013
Page: 976

Mr DUTTON (DicksonMinister for Health and Minister for Sport) (09:39): I move:

That this bill be now read a second time.

The National Health Amendment (Simplified Price Disclosure) Bill 2013 will amend the National Health Act 1953 to improve the operation of the Pharmaceutical Benefits Scheme (PBS) and deliver better value for money for all Australians.

The PBS is a major government investment in the health of Australians. It is currently costing about $9 billion per annum. With annualised growth expected to be between four and five per cent over the longer term, it is a sustainable and world-envied model.

The simplified price disclosure measure was announced by the former government as part of its economic statement in August 2013. It will deliver savings to the budget of $835 million commencing 1 October 2014 and these savings are already factored into the forward estimates for the PBS and Repatriation Pharmaceutical Benefits Scheme (RPBS).

Price disclosure was originally introduced as part of the Howard government reforms to PBS pricing policy in 2007 and is a routine part of maintaining PBS listings for medicines subject to competition. It was a farsighted reform that placed the PBS on a sustainable footing.

The objective of the policy is to ensure that the price at which the government subsidises multiple-brand medicines reflects more closely the prices in the market.

However, the current arrangements are complex and the time taken to achieve price reductions is too long.

At present, cycles take at least 18 months to complete. This means the government can be paying higher than market prices for at least 18 months.

The complexity in the current arrangements comes from there being three cycles—one 'main' cycle and two supplementary cycles. This results in additional and irregular periods for data collection, and inconsistent periods between price reductions.

This government wants to partner with business to pursue the efficient delivery of health outcomes. We are committed to reducing the effect that regulatory burden has on the time and cost of doing business.

The changes in this bill provide a simpler and more uniform approach to PBS price disclosure. New arrangements will mean less frequent reporting of data batches for irregular periods for drugs new to price disclosure than under the old three-cycle arrangement.

These efficiency gains are a step in the right direction in reducing administrative and compliance costs.

Price disclosure amendments

The amendments in the bill will streamline the operation of the current price disclosure arrangements. All medicines would be merged into one ongoing cycle rather than having several different cycles over the year.

The changes would also allow price reductions to occur sooner, and more frequently, after medicines become subject to market competition. This would be achieved by reducing the length of each price disclosure cycle.

Operation of price disclosure

Under price disclosure, drug companies are required to report their data on sales to wholesalers, pharmacists and other suppliers as part of their listing. The sales data are used to calculate the weighted average price at which PBS brands are actually being sold in the market place. The weighted average sale price is then compared to the PBS price to determine whether a price reduction will apply.

The PBS price is reduced only if the weighted average sale price is at least 10 per cent lower than the price the government uses to reimburse pharmacists and other suppliers.

Price disclosure is a free market solution which brings market forces and discounting practices to bear in a way that would not otherwise occur for subsidised prices. Over time, PBS prices are reduced in line with average market prices, not down to the lowest price, leaving room for further discounting. At the same time it protects low-volume high-need medicines when there is little competition in the market. This reduces the risk of essential drugs being withdrawn from the Australian market.

This approach ensures that PBS prices allow companies, including generic suppliers, to compete in the market at fair and competitive prices and avoids threatening continuity of supply.

Simplified price d isclosure

Simplified price disclosure is intended to streamline the operation of the pricing policy and adjust prices more quickly.

Firstly, the length of each cycle would be reduced from 18 months to 12 months. Cycles would have a data collection period of only six months, followed by the usual six months for calculating and publishing the new prices, and any dispute resolution. This would ensure the savings are realised as early as possible.

Secondly, three cycles would be merged into one cycle and the number of price disclosure related price reduction days each year would be reduced from three to two. The first price reduction day would be 1 October 2014.

Simplified price disclosure will make medicines cheaper not only for government, but also for consumers. Price cuts, such as the almost $16 per prescription already achieved for simvastatin, a drug used for high cholesterol, will benefit consumers six months earlier, year on year.


Under the new arrangements, the majority of medicines would move into the new October 2014 price reduction cycle. For a small number of medicines, there are provisions that would allow their current cycle to continue to completion under the current rules.

Amendments to regulations would also be made to support the transition to the new arrangements, ensuring companies are clear how their brands fit into the new cycles.


The $835 million associated with the changes, as I mentioned before, is already factored into the budget. Unfortunately, the current fiscal situation means that we need to proceed with this change, which was made by the former government with limited consultation with those affected.

I should note that simplified price disclosure is not designed to increase the magnitude of reductions to PBS prices. Rather, it is about applying price reductions sooner after a drug becomes subject to market competition, and more frequently, so the PBS price follows market prices more closely.

Stakeholder groups and agreements

As I mentioned at the outset, the government is supportive of price disclosure arrangements and was responsible for their original architecture in 2007. We recognise that it evolves over time.

The difficulty though with these amendments is not the content but the manner in which they were conceived and announced by the former government.

The former government announced these changes on 2 August, only hours before the start of the caretaker period and without consultation.

The Pharmacy Guild had a formal agreement with the previous government through the Fifth Community Pharmacy Agreement. Medicines Australia had an agreement through their memorandum of understanding. Neither of these parties was consulted in any way despite these changes having a huge impact on their agreements.

Because there was no opportunity for negotiation or discussion, pharmacies in particular were not able to factor these changes into their business plans for the future.

These measures were not introduced by the previous government as part of the orderly incremental improvement of the PBS but as a desperate last minute attempt to raise revenue after six years of waste and mismanagement.

I understand, very much so, that pharmacists are concerned about the effect on their income and, in some cases, the long-term viability of their pharmacies. They contend that they rely on the income achieved from discounts from drug companies to fund other professional services and meet overheads.

Likewise, the National Pharmaceutical Services Association has claimed that pharmaceutical wholesalers and Community Services Obligation distributors will be affected by the change. Manufacturers of generic medicines have also expressed their concerns.

Unfortunately, where in 2007 Labor inherited a $20 billion-plus surplus, we have inherited a projected $30 billion deficit and climbing every day. While this government would have handled the approach and delivery of this policy in a very different manner, in this fiscal environment we have no choice but proceed with the changes.

The government is determined to champion the viability of companies along the entire PBS supply chain. We want to ensure that pharmacies prosper and pharmacists can provide professional services in a predictable business environment. If we do this, it will be to the betterment of the health of all Australians.

Industry cooperation and acknowledgement

Implementation of these legislative changes will again draw on the commitment shown by the pharmaceutical industry to work with government to improve the operation of PBS.

Consultation on the details of the changes will occur with pharmacy and industry bodies in the implementation of the new simplified price disclosure arrangements.


In summary, this bill proposes amendments to the National Health Act to improve the operation of the PBS.

Simplified price disclosure builds on the pricing policy introduced originally by the Howard government over six years ago. The new arrangement will result in a reduction in administrative burden for industry. It will benefit consumers via earlier access to cheaper medicines, and taxpayers via reduced PBS expenditure.

This is not the way this government wants to approach the delivery of those policy changes. As I say, we will have no choice after the mismanagement of the previous Labor administration. However, we should be mindful that the new arrangements are intended to allow PBS prices to be adjusted to market prices more quickly rather than to increase the size of the price reductions.

This government is committed to sound financial management of the PBS, and indeed the whole health system. These savings will assist the listing of new and innovative high-cost medicines on the PBS. I commend the bill to the House.

Debate adjourned.