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Wednesday, 17 November 2010
Page: 1421

Senator MOORE (10:41 AM) —The ongoing relationship between this parliament and the Senate Community Affairs Legislation Committee on the very interesting and important aspects of the pharmaceutical benefits process continues with our scrutiny of the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010. This bill continues the matters of reform around our pharmaceutical system. It was referred appropriately to the Community Affairs Legislation Committee during the period of the last parliament and then, when this parliament re-formed, it went back to the committee.

When the Minister for Health and Ageing introduced this bill in the lower house, she stated the reasons why this bill was important to our community and to our government. She said:

This bill sets out the 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.

She went on to say:

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 terms of the process, the commitment to ensuring that the PBS continues to serve that function is agreed by all; and, in terms of the discussions we have had, there is great commitment to ensuring that we maintain the PBS. The minister in her speech went on to say:

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.

            …         …         …

In conclusion—

said the minister—

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.

That sums up the background to this particular bill.

The committee considered the wide range of submissions—and we always draw a wide range of submissions when we have inquiries into this issue. They are mainly from people in the industry, because this system relies completely on strong, vibrant involvement from all parts of the industry. There were some attempts during the committee process to set up an even more combative arrangement than is necessary in this process between the innovator groups, which are mainly represented by Medicines Australia, and the industry group for generic medicines. These groups provide a great service and are integral to ensuring that we move forward with a strong PBS.

We tried to establish through the committee process the need for further reform. There was some debate about this, but the government continues to say strongly that there needs to be close scrutiny of expenditure in the PBS. There was some attempt in evidence—and it is all in the Hansard—to say that somehow things were going well enough since the 2007 reforms that there did not need to be immediate consideration of further ways to effect savings in this area. The government strongly refutes this argument. There needs to be ongoing and careful scrutiny of all elements of expenditure in this process to ensure that the system remains strong and to ensure that we can continue to provide the service to the Australian community so they can have access to a wide range of new, innovative medications and, after a period of time after the patent expires, generic medicines.

The choice is important, but most importantly for so many consumers—and we have this on the record from consumer groups—is the assurance that, firstly, all the medications available are safe and, secondly, consumers are getting good value for money. Currently we have a co-payment for medications, and that is maintained at a low level. This is reviewed regularly in this place to ensure that it can be maintained. The basis of effective government expenditure continues to be the way that we can minimise the increased costs in the area. That is why these reforms are essential.

We know that the PBS costs continue to grow quickly. We know that in 2008-09 the cost of the PBS was 9.2 per cent higher than it was in 2007-08 and that in 2009-10 expenditure grew a further 9.3 per cent to an annual cost of $8.4 billion. That is significant money, but it is for a really important purpose for Australia. No-one quibbles about the need to have this expenditure, but what we need is to have scrutiny to ensure that that expenditure is the most effective.

The Intergenerational report 2010, entitled Australia to 2050: future challenges, forecasts increased spending on the PBS. That report of course contains estimates for the future, but I think it is important to understand that we need to look to the future in our systems. That report says that the PBS will increase in real terms from $443 per capita in 2012-13 to $534 per capita in 2022-23. Those are sobering but important figures for us to know.

In terms of our role as a government, it is essential that there is strong management of the high-cost growth of the PBS. The importance of that is to ensure that we allow continuing investment in new and innovative drugs, so people in the community have access to them, and ensure that we balance the expenditure that is going on. This is not a contest of any kind between whether you have innovative medications being produced and, after the patent has concluded, the generic industry being able to maintain their fair share of the market. It is not imposing any form of contest; it is actual market engagement.

The 2007 reforms were extremely important in the way that the whole PBS operated. I note from the comments that the opposition put to the legislation committee that they seem to have a particularly glowing memory of how easy the 2007 reforms were to pass. There was great debate both in the committee and in this place when those reforms were being brought into our parliament in 2007. Having sat on the legislation committee that reviewed the 2007 reforms before they came into this place and the reforms we are bringing forward in 2010, the similarity of the arguments is overwhelming in terms of the statements made by the innovative groups and by the generic medicines group about the impact the proposed changes will have on their industry, on their market share and on the future of the modern world as we know it.

If you do take the time to read some of the submissions in both cases, you will see that there was great debate about the need for the changes and about the impact on either group and who was going to hurt more from the changes in 2007—and that continues to this day. However, in 2007 we were able to progress the reforms, but with pain. What is happening in 2010 is that the same proposition is being brought to the parliament. There is an assessment of what has happened up until now, an assessment of what is happening now in the industry and, most clearly, an assessment of what will happen in the future.

This legislation we have brought to the parliament looks at two key points. One of the most debated but essential components of the reforms that happened in 2007, which we are seeking to extend, was the use of price disclosure as an effective mechanism to allow the government, which is paying for these medicines, to get better value for money by taking real advantage of discounting that is occurring in the market. Despite the claims of the industry, particularly the generic industry, in 2007 that price disclosure would not work and would cause them to have no profit in the future and be deeply affected, we have seen significant savings in PBS expenditure on generic medicines.

The first four completed rounds of price disclosure since 2007 have seen a number of drugs take a price reduction ranging from 13 per cent to 72 per cent. Those were extremes; there were not too many drugs where the saving was 72 per cent. The clear aspect of price disclosure is that the government is made aware and is only paying, in terms of the expenditure on generic medicines, the price that is paid to the supplier. That is where the discounting occurs: when generic businesses are, quite rightly, competing for their share of the market, they offer a range of discounts and then the suppliers are only paying a certain amount before they dispense the medication to the patient. What we are saying is that the government wants to get a general view that the amount the government is paying is what the supplier is paying to the generic industry. It is not a scary concept. It is based on averages. But it does mean that there has to be disclosure about price, and that is the core point of the reforms.

What the original reforms in 2007 introduced was that, once a drug was off patent and more people were able to produce that drug, then you could look at price disclosure. At this stage only 45 medications are subject to that process. The core aspect of the price disclosure changes which we are bringing in in this legislation is to extend that to all medications which have generic opportunities. There is a need to disclose the pricing process in all of that, which will mean a considerably larger number of medications will be subject to the process. That is the core reform. We have been open in saying that that is what we want to do. It is based on an existing process, which has been operating since 2007, and we want to extend it.

The generic industry does not want that to happen. It is their right to put up that argument, but that is the core disagreement—they do not want that to happen. In the debate in the Community Affairs Legislation Committee we were confounded by various arguments from the different groups about how much share of the market they had; we were confounded by graphs and statistics all around. Basically the end result is that, within the industry, both the Medicines Australia group—the group that is known as the innovative group—and the generic medicines group have significant market share. They are both important. We also saw that price disclosure will impact on both groups. There is an argument as to which group will be impacted most, but it will impact on both groups. So no-one is protected from having price disclosure as a mechanism.

In the legislative committee process a great deal was made about an MOU that was agreed between Medicines Australia and government about future interaction between those groups and looking for a degree of certainty in the relationship into the future. There was some attempt in the committee to paint this as some kind of conspiracy or unnatural behaviour. The government’s position is that the government is open to discussion with all people in the industry. What it was able to do after a great deal of discussion—we have dates and times of letters between various groups all on record now in Hansard—was to come to an arrangement with the Medicines Australia group which is public. People can see what is in that MOU, and some of things in the legislation reflect that. There was not an ability at the time to come to a similar arrangement with the generic medicines group. That is not to say that it cannot happen at any time in the future. It is to say that before 2010 there was no ability to achieve that agreement. That is our position. We are moving into the future, and the legislation reflects the reality of the moment. Ongoing negotiation and discussion are important and essential to ensuring that the PBS continues to work. There are a number of claims about added benefit to the Medicines Australia group as a result of the MOU. We refute that.

I want to speak about one particular issue in that discussion which came up at length in the legislation committee, and that is to do with the therapeutic groups. In 1997, amidst a great deal of discussion and debate and pain, the government introduced the therapeutic group listing, which allowed for a number of medications which were determined by the PBAC—the group that looks at the technical aspects—to have a highly contested term ‘interchangeability’. The principles of interchangeability are determined and can be discussed with the department and also with the TGA and the PBAC. Through that process, groupings of medicines that were available to the community for their conditions were seen to be interchangeable and pricing through the PBS would be the same—it put groups of drugs together. To this date, seven groups have been determined.

One of the things that have come out of the MOU is an agreement between Medicines Australia and the government that there would be no new therapeutic groups introduced through the period of the agreement, which is until 2014. I have had a look at how many therapeutic groups have been introduced and when. The first four, I believe, were introduced in 1997. The next lot were not introduced until 2007, so there is quite a significant gap between 1998 and 2007, when a further two were introduced. The year after that, another one was introduced, so that is a shorter time frame. In 2009-10, there was an attempt by our government to introduce three new groups. When you look at the records they show that therapeutic groups have been proven to save significant amounts in expenditure on the PBS. That is itemised very clearly in the evidence we received. So the years were 1997-98, then 2007 and then 2010. I will just put on the record that the last three therapeutic groups that our government attempted to introduce for cost-saving purposes to strengthen the PBS have been disallowed by the Senate on the basis that they were not appropriate. So, in terms of the cost-saving element, we have the list of therapeutic groups—I have given the dates—and we now have an agreement with Medicines Australia group through the MOU that there will not be an attempt by the government to introduce another set of these therapeutic groups until 2014.

I draw to the attention of the Senate the fact that, if you are saying that this is some deep advantage to Medicines Australia in some way, the history of therapeutic groups indicates that a four-year time frame before something else is introduced is not a major innovation in the process. We are saying that therapeutic groups, the same as price disclosure, is an agreed and effective mechanism to look at in maintaining the financial security of the PBS. I do not think any attempt to paint this particular process as giving an unfair advantage stacks up, particularly in view of the fact that the last attempt for a therapeutic group that the government put up to save money was knocked back by the people who at the moment seemingly, from the additional comments I have read, are claiming that somehow there is a deep advantage being offered to one group and not another.

There was great debate about the process of consultation. Effectively communicating with people continues to be an issue when you are looking at savings and changing practices. That needs to continue to be scrutinised, and no-one has any doubt about that. But there is significant evidence on record about attempts at discussions between the government and the various groups involved. That needs to be looked at into the future, because our system will only survive if that ongoing consultation happens.

I just want to make one other point about what was claimed in the committee and what we need to address—and this will be picked up by other senators. There was, again, an attempt to scare the community by saying that, if we introduce the program as we have discussed in this legislation, there will be threats to the supply of medication and people will not be able to receive the medication that they need on time. The department responded in depth to this and talked about the community service obligation which is in existence. The fact is that there is already an agreement that medication must be available for people who require it. We have the process using wholesaler groups and also the pharmacies to ensure that that happens. There has been a claim by some of the wholesaler groups that they need to have further supplementation of funding to ensure that this program can operate. The department has responded to that by talking about the time frames in which we are placing the situation.

These new arrangements will not automatically happen in December, should this legislation be passed. What will happen in December is that data collection systems will need to be put in place. The real changes to the cost of medication to suppliers—not the public but suppliers—do not come in until 2011. So we need to look at that in the future of this discussion. (Time expired)