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Wednesday, 17 November 2010
Page: 1436

Senator BOYCE (11:52 AM) —The coalition opposes many aspects of this MOU. Once again, there was yet another Senate inquiry which was told over and over that consultation between the government and the relevant stakeholders in this area was insufficient from the perspective of the stakeholders. In report after report we make the point to the Department of Health and Ageing that we continue to be told by stakeholders that they were told what the department was going to do, not asked to assist the department to do it. It is interesting to look at some of the history of this MOU as described by the government and take up the point of whether GMiA was actually deliberately excluded or not from negotiations.

Mr Learmonth from the department has set out a time frame. He has talked about who did what and who said what and he has made the comments in regard to how the discussions came about that, certainly, GMiA were consulted. He said:

In the case of GMiA, again we had a range of discussions. Some of them came off the back of submissions that GMiA had put in before about various ideas, and we talked about sustainability. There were a number of meetings that we detailed in our submission. I would add that no meeting was ever refused—it all was opened to GMiA—but I could not really characterise the way discussions evolved with GMiA as a negotiation in the same way as I could with others. We put our view that we were looking for sustainability, and GMiA made their views extremely clear on what they thought about the notion of price disclosure and any further saving. In other words, they did not really want to be a party to that. They did have some other ideas that were fundamentally about increasing competition.

From that you would get the impression that the department of health had bent over backwards to be helpful except, of course, then we get to Mr Learmonth’s evidence about the memorandum of understanding that the department of health ultimately signed with just one sector of the industry—the innovative pharmaceuticals area. Mr Learmonth, the deputy secretary of the department, said that the government had not actually set out to have a memorandum of understanding and that as far as they were aware the suggestion to have an MOU came late in the piece. He said:

As I said, it was not the intention upfront. Indeed, it was a suggestion from Medicines Australia and not us. My guess would be that it was April this year but I do not think we could even nail down a day. It was not an a priori objective.

Medicines Australia went on to suggest that they did not know who had thought up the idea of a memorandum of understanding. I guess when you look at the favours that this memorandum of understanding, the MOU, does for Medicines Australia you would rather hope that the Department of Health and Ageing would say that it was their suggestion not the company’s. So we have a confusion first over what constitutes negotiation and what constitutes consultation.

Late in the piece, Medicines Australia, who hold about 60 per cent of the market that we are talking about says to the department: ‘Let’s have a memorandum of understanding which gives us a four-year moratorium on the price of many of our products. But we’ll save you money elsewhere.’ The department says: ‘Oh, what a good idea. Let’s do that.’ The department does not say: ‘Gee, we should go back and talk to some of the other stakeholders about what they think about that. Irrespective of the fact that we know that they are not keen on the idea now that a memorandum of understanding, which will give a commercial advantage to about two thirds of the market, is about to be signed, perhaps we should go and talk to the other third of the market. Perhaps also as the Consumer Health Forum pointed out we should talk to the Consumer Health Forum and consumers as well about what they think about the changes that are proposed.’

There was a debate that consumed an awful lot of the inquiry’s time about what percentage of the market these relevant industry bodies represented or what percentage of the market was held by the innovative industry, which includes patented products and products that have come off patent and are now in the generic area. It also includes a number of generic medicines made by the innovative industry. The Generic Medicines industry Australia by contrast makes only generic medicines; they make only off-patent medicines. We had the GMiA saying that they had 75 per cent of the off-patent PBS market in Australia by volume or 68 per cent by value. We had Medicines Australia disputing that claim and saying that members of Medicines Australia accounted for about 60 per cent of the off-patent market by value. Dr Brendan Shaw, Chief Executive of Medicines Australia, said:

Whichever way you cut it, our members account for the majority of the off-patent market.

Well, yes, I agree that 60 per cent would look like the majority if Medicines Australia are right on this point. However, that leaves 40 per cent of the off-patent PBS market supplied by others, and most of that is supplied by the members of GMiA and one or two other generic medicine manufacturers. Forty per cent of the market, which is the lowest figure anyone has ever suggested that generic medicines hold, is, I would argue, a not insignificant percentage of the market.

This is a point I put to Dr Shaw from Medicines Australia, who over and over during the inquiry into this piece of legislation refused to accept that 40 per cent of a market was a significant share of the market. He would not use that dreaded word, ‘significant’! So, finally, we asked the department to provide their figures on who held what in the PBS medicines market. They came back with the figures for the formulary 2 market, which is the off-patents market. Medicines Australia held 57.4 per cent of PBS medicines by expenditure and GMiA held 34.2 per cent, with other generics holding seven per cent. That is 41 per cent by expenditure to the generic medicines area. The Department of Health and Ageing also told us that, by PBS volume, Medicines Australia members held 47.3 per cent of the market and GMiA held 43.8 per cent, with other generics representing 6.1 per cent. That gives generics a total of 50 per cent of the market.

What are we arguing about here? It is completely ridiculous and pointless for the department to claim—irrespective of whether or not we have the correct data for generic medicines—that the most minimal figure for their share of the market has been given as 40 per cent; yet, instead of going back to them when a memorandum of understanding was signed, the department simply went ahead with basically a commercial-in-confidence deal with half to 60 per cent of the market through Medicines Australia and ignored the other half of the market.

The other fact that then came up, which certainly had been mentioned in submissions but not perhaps brought out as strongly as it was during this debate, was that no data is currently collected on medications under co-payment where they cost less than $33 or less than $5. According to the GMiA, a large percentage of products in that area are made by the generic medicines industry, yet the data is currently not collected in this area. GMiA say: ‘We keep our figures on that. We sell the stuff. We know how much of it we make. We know how much of it we sell. We’re not like the department, who has to rely on the PBS figures, where these are not recorded. On that argument, we make a significantly larger amount of the medication and the ones that do not cost the government anything because they are under the co-payment.’

To continue to put the view that this group could be easily excluded from negotiations and simply forced to come along on the coat-tails of the government’s deal with the half of the industry that will benefit substantially from the four-year moratorium on the pricing of some of the formularies is a complete nonsense. We will be opposing and seeking to amend this legislation on that basis.

I go on to point out that the coalition are absolutely in favour of making savings on the PBS. We invented the idea—when our current leader, Mr Abbott, was the health minister—of pushing for savings on the PBS and pushing for price disclosure so that it was transparent to the government what they were paying for and how they were paying for it.

Yes, it is true; PBS costs are growing quickly. In 2008-09 the cost of the PBS was 9.2 per cent higher than it was in 2007-08. In 2009-10 the PBS grew a further 9.3 per cent to an annual cost of $8.4 billion. The continued growth has been recognised by all manner of organisations and especially in the 2010 Intergenerational report—a series of reports which former Treasurer Peter Costello began so that we had a sense of how to have a sustainable Australia and an ageing Australia at the same time. The Intergenerational report for 2010 forecasts that spending on the PBS will increase in real terms from $443 per capita in 2012-13 to $534 per capita in 2022-23.

Not mentioned, of course, in this section of the government’s report are the savings that have already been realised. Since the policies of 2004 to push for cost savings in the PBS and to control prices by price disclosure, the savings that have been made in that area have been significant. The rate of growth of PBS expenditure has slowed significantly. Between 2004 and 2010, twice as much has been saved than was anticipated or forecast when the savings were put in place.

We are talking here about a deal that was done in 2007 for 10 years. The point was to do it for 10 years. It is delivering double the savings that were already anticipated. Yet we have the government incapable of not fiddling with this memorandum of understanding, and not just not fiddling but completely and ineptly overturning some of the benefits that have come out of this arrangement. In my view, the truth about the harm that can be done to the Australian pharmaceuticals market by this legislation lies somewhere between the two views that were given to our committee. It will not be as bad as the Generic Medicines Industry Association of Australia said, nor could it possibly be as good as the government and their current partners, Medicines Australia, claim.

The generic medicines industry makes the point that most of the drugs their members sell are made in Australia. They make the point that, if they cannot manufacture them here and make a profit, they will simply send that manufacturing offshore. We are talking about, at a minimum, 40 per cent of the generic PBS medicines market. I know from importing products in an earlier life that, if there is a storm somewhere in the China Sea or something like that, it can be quite possible for drugs not to arrive up to four months after the time they were supposed to arrive. Let us just hope that the forecasts made by the generic medicines industry in this area do not come to pass. If they do come to pass, we could have very serious shortages in areas of medicines that people simply must take.

This government does not seem to know when it should be subsidising industry to keep jobs onshore and when it should not. The generic medicines industry does not want any subsidies. The generic medicines industry wants a level playing field. They want the opportunity to compete, and one would have thought that even this government could realise that competition is what will continue to drive price reductions in this area, not favouring one section of the industry over another section of the industry.

There was also evidence given by the wholesale distributors, both by their association and by a number of their members, regarding what exactly is going to happen in the weeks leading up to the drop in the value of pharmaceuticals in this area. Whilst the view might be put that this could be very easily handled, we took evidence along the lines of: what pharmacy in its right mind is going to be well stocked with medicines when the price is going to drop something like 12½ or 27 per cent tomorrow morning? Why would you do it? What is the sense of it? You would try to be out of stock at that stage or to have as little stock as possible and then, come D-day in January, you would stock up as fast as you could. The department thinks that all sounds fine; but, if somebody could explain how distributors are going to handle what is basically four or five times the level of business they would normally expect at that time, I would be interested to hear it. Pharmacies certainly have some very serious concerns about it. It is not as if we are running out of one particular brand of cornflakes or something. It is about the fact that these pharmacies will have no stock of particular medicines. I hope that over Christmas the government and the department think about how that will affect Australian consumers and, one hopes, reflect on the anger that they may experience if consumers cannot buy their drugs on prescription when they need them in the new year.

The pharmacists also point out that this change is being imposed on them during one of their busiest periods, the Christmas period. It is not just for medications but for all the other products that pharmacies sell to make a profit—the gift sections and the like. December is their busiest time. Every product in the place has to be re-ordered and repriced in that time. (Time expired)