Making savings from the PBS - is deferring the listing of medicines the answer?

Parliament house flag post

Making savings from the PBS - is deferring the listing of medicines the answer?

Posted 4/04/2011 by Rebecca de Boer

In a recent speech, Prime Minister Gillard warned that there would be ‘painful’ cutbacks in the forthcoming Budget. There was no indication of where these cuts might be but it appears that the Government has already made decisions that will slow government expenditure in some programs. Recently, the Government has deferred the listing of products on the Pharmaceutical Benefits Scheme (PBS) until ‘circumstance permit’ and imposed a requirement that all pharmaceuticals that receive a positive recommendation from the Pharmaceutical Benefits Advisory Committee(PBAC) must be considered by Cabinet prior to listing on the PBS. This post explains the recent changes to the process for listing medicines on the PBS and discusses some of the implications of the Government’s decision to defer listing of some medications on the PBS.

Under the National Health Act 1953, pharmaceuticals may not be listed on the PBS without a positive recommendation from the PBAC. The PBAC is an independent expert committee which makes a recommendation based on clinical effectiveness, safety and cost-effectiveness (or value for money). For a product to be listed on the PBS (at a higher price than an equivalent or similar product), it must offer a comparative benefit to what is already listed. This process of economic evaluation determines whether a product offers ‘value for money’ to the Australian taxpayer. Irrespective of the price paid by Government, consumers pay a fixed copayment, $5.60 for concession card holders and $34.20 for general patients.

Once a product receives a positive recommendation from the PBAC, pricing negotiations with the Pharmaceutical Benefits Pricing Authority (PBPA) commence. These negotiations are based on the recommendation from the PBAC. Once the price and any risk sharing agreements are resolved the Minister for Health makes a determination about whether a product is listed on the PBS. Until recently, this was a routine process and it was rare for a product that received a positive recommendation from the PBAC not to be listed on the PBS. An exception to this was in 2002 when the then Minister for Health (Senator Patterson) declined to list Viagra on the PBS, despite a positive recommendation from the PBAC. The advice from the PBAC contained a clear warning that the listing of this product on the PBS may cause a significant budgetary impact on the PBS. This prompted outcry from the pharmaceutical industry who argued that the PBAC was not basing its recommendations on ‘evidence’.

In response to the Government’s decision to defer the listing of products on the PBS, some commentators in the medical and drug industries have argued that the Government was ‘ignoring’ the advice of experts and undermining the role of the PBAC. The announcement to defer the listing of seven products was made together with the announcement to list seven new medicines and vaccines on the PBS from 1 April 2011 as well as 52 new and amended listings. It was noted that the deferred products had existing treatments that were already available on the PBS, although this has been disputed. When making this announcement, the Government noted that it had complied with the strict timeframes for listing (and Cabinet consideration) as set out in the Memorandum of Understanding (MOU) signed with Medicines Australia (the peak lobby group for the patented pharmaceutical sector in Australia). Delays in the listing of products on the PBS have long been criticised by Medicines Australia.

The requirement for Cabinet consideration of products that cost more than $10 million in any of the first four financial years of being listed on the PBS was first introduced in 2001. This has led to delays in the listing of some products on the PBS. Medicines Australia has estimated that the requirement for Cabinet consideration has led to delays of up to ten months. One of the arguments against Cabinet consideration is that drugs which have received a positive recommendation from the PBAC have already been subject to rigorous scrutiny and economic evaluation, in contrast to many other areas of government expenditure.

Expenditure on the PBS has long been of concern to successive governments. The most recent statistics suggest that the PBS expenditure increased 9.2 per cent from June 2008 to June 2009 with a total expenditure of around $7.7 billion for that year. The last Budget estimated that expenditure would increase by 10.6 per cent in 2009-10. PBS prescription volumes only increased by 6.2 per cent and the smaller rise in prescription volumes compared to expenditure was attributed to doctors prescribing newer, more expensive drugs. Both the Howard and the Rudd-Gillard government have introduced measures to curb PBS expenditure such as one-off price cuts, statutory price reductions and the extension of price disclosure arrangements. It is too early to tell whether the most recent reform (signing of MOU with Medicines Australia) will result in considerable savings to Government, although early indications suggest that savings from the 2006 reforms (on which the MOU is based) will not be realised.

The Gillard Government has promised to return the Budget to surplus by 2012-13. Further, there have been reports that Minister Roxon has told the pharmaceutical industry that new drugs will not be listed unless off-setting savings can be found. If true, this combined with the requirement for Cabinet to consider all products that receive a positive recommendation from the PBAC and subsequent deferral of listing most likely will slow PBS expenditure in the short term. It also will have significant implications for access to medicines for Australians. But is this using a blunt axe when a surgeon’s scalpel might be more appropriate?

Australia led the world with the introduction of principles of economic evaluation for pharmaceuticals but is it now time to consider other approaches? The concept of ‘value based pricing’ may warrant further consideration. This approach takes into account the health ‘benefit’ and attempts to calculate the price at which the health benefits are no less than the health services foregone to fund it. It implies that there is an opportunity cost associated with the funding of additional pharmaceuticals (or any additional health services). Although the Government and Medicines Australia have recently committed to series of price cuts to generic medicines under the MOU, it may be that more innovative ways of pricing generic medicines will be required into the future. Specific programs directed towards prescribers and consumer education campaigns may also be required, particularly as pharmaceuticals come off patent and generic medicines are available. Finally, remuneration arrangements for pharmacists could also be reviewed to identify savings.

In an era of budget austerity and proposed health reform, the financing arrangements for the health care system warrant further consideration. The PBS is an area of health policy that has served the taxpayer well, and, overall, it has provided Australians with timely access to a wide range of prescription pharmaceuticals at a cost individuals and the community can afford. But the changing landscape may present opportunities to strengthen the PBS, improve access to prescription pharmaceuticals and ensure better value for money of PBS expenditure.

(Source photo: )

Thank you for your comment. If it does not require moderation, it will appear shortly.
Facebook LinkedIn Twitter Add | Email Print


Flagpost is a blog on current issues of interest to members of the Australian Parliament

Parliamentary Library Logo showing Information Analysis & Advice




refugees asylum immigration Australian foreign policy Parliament climate change elections women social security Indigenous Australians Australian Bureau of Statistics Employment taxation Sport illicit drugs Medicare welfare reform Australian Defence Force welfare policy Asia income management Middle East criminal law disability Australian Sports Anti-Doping Agency World Anti-Doping Agency United States higher education people trafficking school education aid statistics Australian Electoral Commission WADA United Nations federal budget health financing emissions trading gambling Australia in the Asian Century steroids detention Private health insurance OECD ASADA labour force transport Law Enforcement Australian Federal Police Industrial Relations dental health National Disability Insurance Scheme forced labour Senate election results Papua New Guinea Australian Public Service International Women's Day corruption Fair Work Act child protection people smuggling debt federal election 2013 parliamentary procedure ALP New Zealand Australian Crime Commission Newstart Parenting Payment 43rd Parliament slavery by-election political parties Census constitution High Court skilled migration voting Federal Court terrorist groups Afghanistan Higher Education Loan Program HECS youth Aviation environment foreign debt gross debt net debt defence capability customs poker machines doping health crime health risks multiculturalism aged care Gonski Review of Funding for Schooling sex slavery sea farers leadership United Kingdom UK Parliament Electoral reform politics banking firearms public policy mental health China ADRV terrorism social media pensions welfare ASIO intelligence community Australian Security Intelligence Organisation governance public service reform Carbon Pricing Mechanism carbon tax mining military history employer employee fishing paid parental leave European Union same sex relationships international relations coal seam gas planning United Nations Security Council Australian economy food vocational education and training Drugs Indonesia children codes of conduct terrorist financing election timetable citizenship Productivity asylum seekers early childhood education Canada Population Financial sector national security fuel violence against women domestic violence disability employment Tasmania integrity science research and development Australian Secret Intelligence Service sexual abuse federal state relations World Trade Organization Australia accountability housing affordability bulk billing water renewable energy children's health health policy Governor-General US economy export liquefied natural gas foreign bribery question time speaker superannuation family assistance expertise Senators and Members climate Intergovernmental Panel on Climate Change Department of Agriculture Fisheries and Forestry food labelling Pacific Islands reserved seats new psychoactive substances synthetic drugs UNODC carbon markets health reform Indigenous constitutional recognition of local government local government consumer laws PISA royal commission US politics language education Leaders of the Opposition Parliamentary remuneration health system Australia Greens money laundering servitude Special Rapporteur Trafficking Protocol energy forced marriage rural and regional Northern Territory Emergency Response ministries social citizenship China; Economic policy; Southeast Asia; Africa housing Speaker; House of Representatives; Parliament Defence High Court; Indigenous; Indigenous Australians; Native Title ACT Indigenous education Norfolk Island External Territories emissions reduction fund; climate change child care funding refugees immigration asylum procurement Indigenous health e-voting internet voting nsw state elections 44th Parliament 2015 ABS Age Pension Death penalty capital punishment execution Bali nine Bali bombings Trade EU China soft power education Fiji India Disability Support Pension Antarctica Diplomacy by-elections state and territories workers Bills anti-corruption fraud bribery transparency corporate ownership whistleblower G20 economic reform innovation standards NATO Members of Parliament Scottish referendum Middle East; national security; terrorism social services Criminal Code Amendment (Misrepresentation of Age to a Minor) Bill 2013 online grooming sexual assault of minors ACT Assembly public health smoking plain packaging tobacco cigarettes Asia; Japan; international relations Work Health and Safety Migration; asylum seekers; regional processing China; United States; international relations fiscal policy Racial Discrimination Act; social policy; human rights; indigenous Australians Foreign policy Southeast Asia Israel Palestine regional unemployment asylum refugees immigration political finance donations foreign aid Economics efficiency human rights; Racial Discrimination Act employment law bullying Animal law; food copyright Australian Law Reform Commission industry peace keeping contracts workplace policies trade unions same-sex marriage disorderly conduct retirement Parliament House standing orders public housing prime ministers sitting days First speech defence budget submarines Somalia GDP forestry world heritage political engagement leave loading Trade; tariffs; safeguards; Anti-dumping public interest disclosure whistleblowing Productivity Commission regulation limitation period universities Ireland cancer gene patents genetic testing suspension of standing and sessional orders animal health live exports welfare systems infant mortality middle class welfare honorary citizen railways disciplinary tribunals standard of proof World Health Organisation arts international students skilled graduate visas temporary employment visas apologies roads Italy national heritage NHMRC nutrition anti-dumping Constitutional reform referendum Rent Assistance competition policy pharmaceutical benefits scheme obesity evidence law sacrament of confession US presidential election international days baby bonus DFAT UN General Assembly deregulation Regulation Impact Statements administrative law small business Breaker Morant homelessness regional engagement social determinants of health abortion Youth Allowance Members suspension citizen engagement policymaking federal election 2010 workplace health and safety Trafficking in Persons Report marine reserves hearing TAFE Victoria astronomy resources sector YMCA youth parliament alcohol Korea rebate Australian Greens presidential nomination Racial Discrimination Act entitlements political parties preselection solar hot water Financial Action Taskforce Horn of Africa peacekeeping piracy Great Barrier Reef Stronger futures political financing Hung Parliament political education social inclusion Social Inclusion Board maritime early childhood National Quality Framework for Early Childhood Education and Care Murray-Darling Basin Iran sanctions

Show all
Show less
Back to top