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Wednesday, 17 November 2010
Page: 1440

Senator TROOD (12:13 PM) —The Pharmaceutical Benefits Scheme is an elemental part of the way in which we deliver good health outcomes in Australia. It has been an institution at the core of the way in which Australians have received their medicines for many decades. We have been fortunate because the scheme works, for the most part, very effectively. It delivers high-quality medicines, it delivers safe medicines and in many ways it delivers medicines which, compared to some countries, are reasonably priced.

But the challenge is to maintain the integrity of the scheme to ensure that the scheme tries to be relatively efficient and continues to achieve those kinds of objectives. The particular challenge with which we are all concerned here in this debate, and a matter with which we are all very familiar, is the rising cost of medicines. To create new medicines is a very expensive business. Not surprisingly, those companies that are creative and inventive enough to produce new medicines for the benefit of the community are able to secure patents and some cost-benefit as a consequence of all of the research that they actually undertake.

We on this side of the chamber are very conscious of the challenge to contain the costs involved in the Pharmaceutical Benefits Scheme. So, in the spirit of that concern, we do support the desire to secure these $1.9 billion of savings from the PBS. We support the general direction of these reforms, as my colleagues have said, but we do think—and I am certainly of this view—that these reforms raise some very serious questions which have not been answered by the submissions to the committee. The department was inadequate, to say the least, in providing reassurance during the committee stage of the progress of the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 through the Senate.

These are the matters that we think need to be ventilated in this debate. We urge the government to take them seriously. We think the bill needs attention. We think the matters which we raise are serious. I note that the Greens share some of these concerns. In that context I think there is widespread concern about the nature of these reforms amongst members of not only the coalition but other parties in the Senate.

The reforms build on the reforms which were introduced in 2007. They were, I suppose one could say, amongst the most radical that have been introduced to the PBS over its many decades of existence. There were quite wholesale changes to the way in which medicines were delivered. They introduced categories of formularies for medicine. They introduced new pharmacy and wholesale support arrangements. The promotion of generic medicines was an important part of those reforms. There was the streamlining of the approval process for some medicines. Whilst it has not been alluded to in the debate I have heard this morning, there are in fact further changes in relation to the approval process which we on this side of the chamber actually support. The final thing that occurred in 2007 was the introduction of price disclosure as a way of securing significant savings for the future.

These were all very significant reforms. Because they were significant and because people realised what a widespread impact they were going to have on the PBS, they were to be introduced over a 10-year period. In fact, it was significant that only a small number of medicines were actually included in the early proposals for price disclosure—162. My own view is that with these reforms we have created an extraordinarily complex system within the PBS. There are simpler ways of providing medicines to the Australian public which would secure the kinds of cost savings that we all think are important. It would be instructive if we were to take some time to look at other examples around the world and consider whether we should undertake those kinds of reforms in Australia. But that is not the debate we are having today. Mandatory substitution and tendering in relation to medicines, for example, are some approaches that other countries have adopted, but those are issues that are perhaps for another day.

The 2007 reforms, as my colleagues have noted, were anticipated to yield significant benefits to the government—in the vicinity of $3 billion over a 10-year period. The submission to the committee by the Pharmacy Guild of Australia points out that there have been three independent studies of the progress of these reforms so far and each of those studies has demonstrated that the reforms have produced savings to the PBS far in excess of those projected—not just trivial amounts of money or small additional benefits but benefits that range between $5 billion and $7 billion. There is even a suggestion that the returns to the PBS might be considerably greater. It could be in the vicinity of $9 billion over this 10-year period. The calculations which were made in relation to the 2007 reforms are already way out of date, and those changes are already bringing considerable savings to the PBS.

I think it is reasonable to ask: why, in the context of a 10-year reform program that is bringing considerably larger savings to the PBS, are we now, just two or three years into that program, introducing another set of reforms on top of those which the industry has barely accommodated? They were radical reforms, as I said, and they are only now being bedded down. Of course, the answer to that question is that the government is desperate for money. It is desperate because its budget bottom line is in a mess and it needs every means possible to secure more revenue for the Treasury coffers.

These seem to be useful reforms, but the impact of imposing them on a process of reform which is already taking place seems not to have been well thought through or very well considered. There is every potential, as my colleague Senator Boyce said so eloquently, that these reforms will produce a considerable disruption to the supply of medicines to the Australian market. That would have serious consequences. I know the Department of Health and Ageing are disbelieving; they treat such concerns with great contempt. They are not persuaded this is a problem. They are not persuaded by any of the evidence presented to the committee that this is a challenge which has to be met into the future. If you look at the reality of the existing reforms, you can see that there have already been difficulties in relation to 162 listings, including a legal challenge or two. So when we are talking about producing whatever the number of medicines might be—and there seems to be some dispute about whether it is potentially 1,600, but it is a large number of additional medicines, certainly well beyond 162—it is almost inconceivable that there would not be some quite significant issues and problems in relation to administration, data collecting and things of that nature. So the department ought to think seriously about the consequences of these reforms and the impact they are going to have just on the market, let alone on the suppliers et cetera.

There has been considerable debate about the rising cost of the PBS, as I have said. It will grow significantly in the years ahead; there is no doubt about that. As new medicines come on, the costs increase, particularly when they are subject to patents. And the proposition which does not seem to be challenged by anybody is that the costs of medicines in the F1 category will grow more quickly than the costs of medicines in the F2 category. In fact, the Generic Medicines Industry Association said in a submission to the committee that, between 2005-06 and 2009-10, the cost to the government of F2 medicines had declined by 21.4 per cent while the cost of those in the F1 formulary had risen by 35.4 per cent over the same period. So we face a situation where the costs of F1 are rising, the costs of F2 are declining, and the point about these reforms is that they target very specifically the F2 medicines and impose essentially the whole burden of the cost savings on the F2 formulary—save for the fact, which I acknowledge, that some companies that are part of the Medicines Australia group and have generic medicine activities will bear some of the cost pain. But the essential point is that the costs of this reform are being borne by the F2 section of the industry. In fact, not only are they bearing the costs but it would seem that the companies in the F1 market are insulated from further reforms which might actually save further money to the PBS. The MOU which has been signed, and which has been referred to already in this debate, seems to insulate the F1 companies and that section of the market from undertaking any serious reforms.

We take the view, and I certainly take the view, that the Commonwealth should be doing everything it reasonably can to share the burden of the cost savings across the whole of the PBS. All sectors should be contributing to the savings, including the companies in the F1 formulary. They ought to be making a proportionate share of the savings. They certainly should not be in a position where they are being insulated for a long period of time—four or five years—from being required to take steps to save money, save in those circumstances where their drugs might come off patent. That is what the MOU between Medicines Australia and the Commonwealth actually does, because it specifically rules out various measures which might actually save money to the PBS over a period of time. I note that Senator Moore sought to address this issue, but the therapeutic groups seem to be a proven way of saving money to the PBS. This is not just my assessment; it is the assessment and part of the evidence given to the committee by DHA last week. It is recognised that therapeutic groups offer significant cost savings to the PBS, and the creation of new therapeutic groups is actually precluded under the MOU which has been signed between Medicines Australia and the Commonwealth. I am not persuaded that this is in the interests of the Australian consumer. I am certainly not persuaded that it is in the interests of the reforms that are in this legislation. Why the burden of costs should not be shared amongst all parties is a mystery to me. This legislation and the MOU in particular deny that possibility.

We have heard quite a lot about the MOU and the way it was negotiated. I want to add my voice to the concerns that have been expressed by Senator Fierravanti-Wells and Senator Boyce about how it was negotiated. It was very specifically a case where there were only two parties to the negotiation: the group of companies which constitute Medicines Australia and the Commonwealth. We can go through all the rigmarole if we like about the way in which it came about and the various consultations that occurred between various groups, but the reality is that the Generic Medicines Industry Association, one of the groups which had a very significant interest in the nature of this MOU, one of the groups which would be most adversely affected by the consequences of the MOU, was excluded from the negotiations. An argument presented to the committee was that the reason for this was that the GMiA had a relatively small proportion—it was even suggested, an almost insignificant proportion—of the drug market in Australia and therefore it had no standing to be included. The evidence on the proportions of the market which Medicines Australia and GMiA have is highly contentious. The data seems to me to be highly unreliable. One of the consequences of these reforms is that we will be in a position to have more reliable data into the future, and that is highly desirable. But it is a profound shortcoming of this particular process that GMiA members were excluded, particularly when their interests were so badly affected. It reflects no glory on the department that the negotiation proceeded in this way. The evidence before the committee in submissions was that the GMiA had only learnt of the MOU a couple of days before the federal budget was brought down earlier this year.

There are serious shortcomings in this legislation. My colleague Senator Boyce has alluded to many of them. The difficulty is that price disclosure dates and the dates at which the price of medicines will be reduced seem to me to be manifestly too limited. The timetable is not a timetable which is actually going to facilitate the supply lines. It is not going to facilitate the assurance that we all want—that we will have safe drugs coming onto the market and that they will be available in a timely way. It has the potential, not only for drug manufacturers but also for wholesalers, retailers and everybody involved in the industry, to be highly disruptive to their activities.

There is one particular anomaly that I want to allude to in relation to these matters, and that is with regard to the medicines which are in schedule 5 of the act. There are, I think, three medicines—the names of which I do not have with me—that are on patent. So the cost of these medicines cannot be reduced in any way but they are included in the process of price disclosure. That is a manifestly inappropriate way to try to determine the costs of medicines—to include them in the price disclosure activity. If the government does nothing else in amending the bill that is before the parliament, it certainly should remove those three medicines from that schedule because they cannot be subject to price cut because of the fact that they are on patent and they are highly distorting to the actual price disclosure costs. I think it is probably an error that they were there in the first place, but they are and that ought to be rectified because it is not helping the progress of the reforms.

These overall reforms are important. They will yield savings. We want those savings to be yielded to the Commonwealth. Given the estimate we had on the last occasion, I suspect the proposed $1.9 billion of savings will be very much higher—and that of course is to the advantage of the PBS. But there need to be some changes here. We need to see that the failure of these negotiations and the consequences that it actually had are rectified so that we spread the pain more widely throughout the pharmaceutical industry. That would be not only a fair and equitable result but also better for those of us who actually need these medicines in a safe and timely way. (Time expired)