Pricing of cancer drugs in Australia - update on changes to the Senate Notice Paper

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Pricing of cancer drugs in Australia - update on changes to the Senate Notice Paper

Posted 28/11/2012 by Rebecca de Boer

The proposed (weighted average) price cut of 76.83% for docetaxel, a drug used in the treatment of cancer, has sparked controversy. There have been claims that cost to patients will increase by about $100 and that cancer services will close as a result of this reduction. On Monday 26 November, Senator Xenophon moved a motion to disallow this price reduction but this has been withdrawn. It was replaced with a cross-party motion (Senator Xenophon, the Coalition, Australian Greens and DLP Senator Madigan) to be moved on 29 November (the last sitting day of the Parliamentary year). The Greens are now no longer part of the motion and this is reflected on the Notice Paper for 29 November (*1080, p. 11).

The motion calls on the Government to negotiate with ‘relevant bodies regarding the cost of dispensing chemotherapy drugs’ and ensure that the ‘result of these negotiations will allow pharmacists to continue dispensing the drug (docetaxel), and other chemotherapy drugs, without disrupting patients’. The motion, did, however, ‘welcome’ the price disclosure policy framework. Although the voting intentions of the Greens is not yet known, the vote on this motion is likely to be close and 39 votes are required for it to pass. Despite this, motions passed by either House are not binding on the Government.

 This price cut is part of the Expanded and Accelerated Price Disclosure Policy (EAPD) agreed by the Government and Medicines Australia in the Memorandum of Understanding in relation to the Pharmaceutical Benefits Scheme (PBS) in 2010. Price disclosure is designed to ensure that the Government reaps the benefits of the discounting arrangements between pharmacists and wholesalers for generic medicines. Manufacturers are required to disclose the actual price at which medicines are supplied to wholesalers and/or pharmacists. Price reductions occur if there is a difference of more than ten per cent between the weighted average disclosed price and the price paid by the Government.

Price reductions occur three times a year on 1 April, 1 August and 1 December. Prior to the reduction taking effect, a legislative instrument is tabled in Parliament. The Instrument must be tabled when Parliament is sitting and 'laid before each House within 6 sitting days [of that House] after the registration of the instrument' (section 38 of the Legislative Instruments Act 2003). The Department is no longer legally obliged to notify manufacturers separately to the Instrument being tabled. It should be noted that there a significant time lag (around 18 months) between when the reporting period commences and when the reduction takes effect (see EAPD Operational Guidelines, p. 18).

The debate about the proposed price reduction of docetaxel has raised a number of questions about the pricing of pharmaceuticals in Australia. It has once again highlighted that Australia pays a high price for generic medicines. The Government has argued that prior to this policy being introduced, pharmacists had been charging 20% to 50% above market price for some drugs although this has been disputed by the Pharmacy Guild of Australia. Some pharmacists have argued that margin on generic medicines has been used to cross-subsidise other services and that these services will no longer be able to be provided once the price cut takes effect. Catholic Health Australia has warned that that cancer treatment services in rural and regional areas might close as a result. It has also raised questions about whether the remuneration for the dispensing of chemotherapy drugs is sufficient.

The pricing of pharmaceuticals on the PBS and the remuneration for supply of PBS medicines are two separate issues. Although there have been some challenges associated with the implementation of price disclosure (it has been subject to legal challenge) and there is debate about whether this is the most effective way to achieve savings for generic medicines, it is, currently, the dominant policy tool for the Government to reduce the cost of generic medicines. International comparisons show that the Australian Government pays considerably more for generic medicines. And while one needs to exercise caution when comparing the price of pharmaceuticals in different jurisdictions, other countries impose much harsher price reductions than the Australian government when the first generic medicine enters the market. The Australian Government imposes a reduction of only 16%, compared to around 95% achieved by countries such as the UK, Sweden and New Zealand.

Remuneration for pharmacists is governed by the Fifth Community Pharmacy Agreement. The current remuneration for dispensing chemotherapy drugs is $76.37. The Community Pharmacy Chemotherapy Group has estimated that this needs to be increased by $100 per infusion to account for preparation costs, the cost of consumables and dosage delivery services as well as other costs(such as return on capital). It is not possible to independently verify these amounts but the Minister has indicated that she is willing to consider ‘any evidence’ that the costs of delivering chemotherapy drugs needs to be reviewed.

The price cut is due to take effect on 1 December. It is not possible for pharmacists and hospitals to pass on these costs to consumers as the PBS co-payment is enshrined in legislation. Currently there is a stalemate – the Government is arguing that the cost of the medicine must ‘come down’ and stakeholders are concerned that vital services will no longer be delivered. One of the aims of the National Medicines Policy is timely and affordable access to medicines at a price that individuals and the community can afford. Perhaps a review of the cost of dispensing chemotherapy medicines might provide the evidence to inform future remuneration arrangements.


  • 21/01/2014 2:17 PM
    Rebecca de Boer said:

    Martin, Thanks for your comments. Pharmacists are reimbursed by the Government for medicines dispensed under the Pharmaceutical Benefits Scheme (PBS). Pharmacists purchase medicines either directly from the manufacturer or through a pharmaceutical wholesaler. For generic medicines, there is often a difference between the price paid by Government and the price paid by the pharmacist to purchase the medicine. Generic medicines are not protected by patent and are relatively inexpensive to produce. In Australia, generic medicine manufacturers usually offer significant discounts to pharmacists to attract market share. The Government introduced price disclosure as a way of capturing this difference and ensuring that it reaped the savings associated with introduction of generic medicines. In short, manufacturers are required to disclose to government the price at which they sell generic medicines to pharmacists, including any product bundling deals and non-monetary incentives. This information is combined with volume data and the Government then calculates the ‘weighted average reduction’. If this is more than 10%, the government then applies this reduction to the (reimbursement) price that is paid to the pharmacist. For a more detailed explanation of the policy and its application, see this article (1) or the Procedural and Operational Guidelines for Expanded and Accelerated Price Disclosure. You may also be interested in the ‘Pricing Matters’ section on the website. It is important to note that patients will not pay any additional costs as a result of these changes. The PBS co-payment is determined by legislation and pharmacists are not permitted to charge above the co-payment (unless a premium applies. Less than 10% of brands on the PBS have a premium (2) with the most expensive being $13.44). Currently, the co-payment is $35.40 for general patients and $5.80 for concession card holders. For general patients who are outpatients at public hospitals, the contribution rate is $28.30. The exception to this is Queensland and in hospitals participating in the pharmaceutical reforms where patients pay the safety net value of an item listed in the PBS Schedule or up to the general co-payment amount for items not listed in the Schedule. The contribution by concession card holders in public hospitals is equal to the concessional co-payment amount. Patients in private hospitals will also not be charged extra for medicines dispensed under the PBS (3). The most recent media release from the Minister for Health further reiterates this point (4). PBS pricing is notoriously complex – I hope this brief explanation helps, Rebecca List of references (unable to hyperlink in comments section (1) PBS Reform - a missed opportunity?, Australian Health Review, May 2009, volume 33, number 2: 176-185. (2) See p. 523, Appendix A2, Pharmaceutical Benefits Pricing Authority Annual Report for year ended June 2012 included in the Department of Health and Ageing Annual Report 2011-12. (3) See Section 1.4 of 'Explanatory Notes' on the website for more detail about patient charges. (4) See 'Peter Dutton misleads patients on PBS listing' media release by Minister Plibersek on 28 November 2012.

  • 21/01/2014 2:17 PM
    Martin Butterfield said:

    Perhaps I am thick, but I cannot understand this issue. I suspect it needs a child's primer in how the PBS works as an introduction. Possibly a first step is to explain who is involved in the "price" which is being reduced? A second step could then be to explain the various other steps (mark ups; "service" fees etc) which show how a price reduction ends up with the PBCV (Poor Bloody Cancer Victims) end up paying more! Martin

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