The Pharmaceutical Benefits Scheme - an Overview

Current Issues

The Pharmaceutical Benefits Scheme an Overview

E-Brief: Online Only issued 16 September 2002; updated 13 November 2002; 29 November 2002; 2 January 2003

Amanda Biggs, Information/E-links
Social Policy Group

Introduction

The Pharmaceutical Benefits Scheme (PBS), along with Medicare, is a key component of Australia's health system. The PBS provides access to necessary and lifesaving medicines at an affordable price. Increasingly the PBS has been the subject of greater scrutiny as the cost of providing subsidised medicines to all Australians has escalated. This brief is intended to serve as an introduction to the PBS and to provide links to a range of electronic materials, which deal with the PBS. It includes a general background and chronology of the PBS, government expenditure over time, statistics on volumes of drugs prescribed, information on current arrangements including concessions, safety net and co-payments, details of the number of drugs listed, an outline of the PBS listing process, international comparisons of drug prices and possible reasons for the increased cost of the PBS. Finally some options for growth control are presented.

The Development of the PBS: Historical Overview and Chronology Back to top

Legislation

Current provisions governing the operations of the PBS are embodied in Part VII of the National Health Act 1953 together with the National Health (Pharmaceutical Benefits) Regulations 1960 made under the Act.

Background

The Pharmaceutical Benefit Scheme has been in operation for more than 50 years with some benefits first being made available in June 1948. It has evolved from supplying a limited number of 'life saving and disease preventing drugs' free of charge to the community, into a broader subsidised scheme which, from 1 May 2002, provides subsidised access to over 590 generic drugs, available in more than 1460 forms, and marketed as over 2500 different drug brands.

Restrictions apply to 785 of the items, 286 of which require an authority prescription. Pharmaceuticals on the PBS are listed in the Schedule of Pharmaceutical Benefits for Approved Pharmacists and Medical Practitioners (also known as the Schedule for Pharmaceutical Benefits).

Origins and Chronology of the Development of the PBS

(Based on Clyde Sloan, A History of the Pharmaceutical Benefits Scheme 1947 1992, Department of Human Services and Health, Canberra, 1995.)

The PBS has its origins in some early schemes that provided free pharmaceuticals to particular groups. This chronology starts with a summary of those schemes.

1919 Repatriation Pharmaceutical Benefits Scheme

The Repatriation Pharmaceutical Benefits Scheme (RPBS) was established in 1919 to provide free pharmaceuticals to ex-service men and women. The Repatriation Commission reached agreements with the various Australian pharmaceutical societies to provide necessary medications for veterans of the First World War and the Boer War.

1944 1947 Early Legislative Attempts

In 1944 the Commonwealth attempted to legislate for the provision of free pharmaceuticals through the Pharmaceutical Benefits Act 1944. Benefits were to be restricted to medicines listed in the Commonwealth Pharmaceutical Formulary, and only on the presentation of a prescription written by a registered medical practitioner on an official government form, to a Commonwealth approved pharmacist. A Formulary Committee was established with the role of advising the Minister on the composition of the formulary. The committee was a precursor to the Pharmaceutical Benefits Advisory Committee.

However, the Australian Branch of the British Medical Association (BMA) challenged the Act and the High Court subsequently declared the Act unconstitutional because the Commonwealth did not have the power to spend money on the provision of medicines. This finding led to an amendment to the Constitution allowing for Commonwealth provision of pharmaceutical benefits. A new Pharmaceutical Benefits Act 1947 was subsequently passed. However, ongoing resistance by the medical profession forced amendments requiring practitioners to use Commonwealth prescription forms or face a fine. Again the BMA challenged the Act and again the High Court found it unconstitutional. In November 1947, under Section 15 of the Pharmaceutical Benefits Act 1947, the Commonwealth made arrangements to supply free products for immunisation against diphtheria and whooping cough. Despite the High Court finding, the Commonwealth attempted to implement the scheme with voluntary participation. Few Doctors participated, however the 1944 and 1947 Acts laid the groundwork for the development of the PBS by establishing it as a component of the Federal health system.

1948 49 and the Introduction of a Limited Pharmaceutical Benefits Scheme

During 1948 remote health establishments such as bush nursing centres were approved as hospitals under the Pharmaceutical Benefits Act 1947 49 for the purpose of supplying pharmaceutical benefits to geographically isolated communities. All the items listed in the Commonwealth Formulary could be supplied at Commonwealth expense. With the election of the Liberal government in 1949, the comprehensive scheme proposed under the 1947 49 Labor legislation was altered. The new government introduced a limited scheme to provide a list of 139 'life saving and disease preventing drugs' free of charge to the whole community. Implemented under the Pharmaceutical Benefits Act 1947, the new regulations that gave effect to this change came into force on 4 September 1950.

1950s Consolidation of the Legislation

In 1951 the National Health (Medicines for Pensioners) Regulations under the National Health Service Act 1948 1949, came into effect. These regulations authorised the free provision of medicines listed on the British Pharmacopoeia for pensioners (old age, invalid, widows or service).

1953 Establishment of Pharmaceutical Benefits Advisory Committee (PBAC)

Although the medical profession was hostile to the idea of a government appointed committee controlling the Commonwealth Pharmaceutical Formulary, the government was firm in its decision to restrict pharmaceutical benefits to items on the Formulary. The Formulary Committee was embodied in Section 19 of the Pharmaceutical Benefits Act 1947. Originally it consisted of the Director-General of Health (chairman), and six other people appointed by the Minister, the Formulary Committee later became known as the Pharmaceutical Benefits Advisory Committee (PBAC). PBAC became an independent statutory body under section 101 of the National Health Act 1953.

1960s and the PBS as We Know it Today

The Pharmaceutical Benefits Scheme as we know it today, was introduced on 1 March 1960 following the passage of the National Health Act No. 72 1959. The main components of the scheme were a combination of the existing pensioner and general schemes, an expanded range of drugs for the general public, and the introduction of a patient contribution (or co-payment) of 5 shillings to provide some control on volumes and expenditure. Despite the introduction of the co-payments, prescription volumes increased from 24.6 million in 1959 60, to 60.4 million in 1968 69, and Commonwealth expenditure rose from $43 million to $100 million at the end of the decade.

1970 1979 Growth of the PBS

This was a decade of increasing PBS volumes and expenditure. From 1948 1969 government expenditure reached $100 million, then from just 1969 1975 expenditure reached over $211 million. As a consequence patient co-payments were steadily increased from $1 in November 1971 to $2.75 in September 1979. In 1974 there had been an outbreak of influenza that had led to very high prescription rates for antibiotics and sulphonamides. This outbreak contributed to the increase in Commonwealth expenditure in 1975 76 and the government's increase in the patient co-payments. Another notable event was the listing of oral contraceptives in February 1973.

1974 Impact of Cyclone Tracy

One of the biggest operations under the special arrangements of section 100 of the National Health Act 1953 was launched on Christmas Day 1974. With the devastation of Darwin by Cyclone Tracy on Christmas Eve, pharmaceutical supplies became critical in ensuring that the risk of a public health disaster was minimised. Arrangements were made so that supplies of pharmaceuticals, especially antibiotics, immunising agents against cholera, typhoid and tetanus and anti-malarials, were flown to Darwin to prevent the outbreak of disease. Provision was also made for free pharmaceutical benefits to be supplied to those who remained in Darwin and those who had been evacuated until services got back to normal.

1979 Dentists

The National Health Act was amended in 1978 to allow dentists to prescribe a limited range of antibiotics, antibacterial and antifungal drugs as pharmaceutical benefits. Dentists could prescribe benefits under the PBS from 1 April 1979.

1980 1992

On 1 January 1983 a concessional beneficiary category was created to assist the disadvantaged. Low-income earners and the unemployed (now concession cardholders) would pay a concessional amount for listed pharmaceuticals.

Substantial rises in the patient contribution to offset the massive increases in the cost of the scheme, were introduced.

Safety Net arrangements were established in 1986 to protect the chronically ill from huge pharmaceutical costs. Originally the safety net kicked in when patients had received a certain number of prescriptions, however by 1990 the Safety Net threshold had changed to an amount of expenditure basis. It remains calculated in this way today.

Changes to the Scheme from the 1990s

In 1990 a patient contribution (co-payment) of $2.50 for pensioners was introduced together with the Pharmaceutical Allowance (PA) (equal to 52 x rate of co-payment) to offset costs for pensioners. The minimum pricing policy where payment of pharmaceutical benefit is based on the lowest priced brand was introduced. Also during the early 90s the highly specialised drugs program was introduced and the Highly Specialised Drugs Working Party which makes recommendations to Pharmaceutical Benefits Advisory Committee on the suitability of supplying drugs via hospital outpatient departments under section 100 of the National Health Act 1953, was established. In 1992 a co-payment of $2.60 for the Repatriation Pharmaceutical Benefits Scheme was introduced. In 1997 the nexus between the concessional co-payment and Pharmaceutical Allowance (PA) was effectively broken with the PBS co-payment increasing to $3.20 but PA remaining at the rate of $2.70 x 52. From 1 May 2002 eligibility criteria for the PBS were tightened so that a current Medicare Card or Veterans Repatriation Card must be presented to the dispensing pharmacist in order to obtain the pharmaceutical benefit (or passports for eligible visitors from countries where Australia has a Reciprocal Health Care Agreement).

Past PBS Expenditure

The following table outlines the total expenditure by the Commonwealth on the PBS since 1991 92.

Source: Department of Health and Ageing, PBS Expenditure and Prescriptions, Table 17(b). Miscellaneous and section 100 drugs excluded.

Current Arrangements Back to top

Schedule for Pharmaceutical Benefits

This Schedule provides information on the arrangements for the prescribing of pharmaceutical benefits by medical practitioners and participating dental practitioners, and the supply of pharmaceutical benefits by approved pharmacists, approved medical practitioners and approved hospital authorities, and is published quarterly.

Eligibility

Current arrangements restrict eligibility to Australian residents and visitors from those countries with which Australia has a Reciprocal Health Care Agreement. Currently, those countries are the UK (incl. Northern Ireland), Ireland, New Zealand, Malta, Italy, Sweden, the Netherlands and Finland. Proof of eligibility such as a Medicare card or DVA number (or passports for overseas visitors with reciprocal arrangements) is now required when obtaining prescriptions.

Current Payment Arrangements

The maximum cost for a pharmaceutical benefit item on the PBS is currently $23.10 for general patients and $3.70 for concessional patients (health care cardholders and pensioners).

Safety Net Arrangements

Individuals and families are protected from large overall expenses for PBS listed medicines by 'safety nets', whereby expenditure is subsidised or free once a certain threshold of expenditure is exceeded. The general patient safety net threshold is currently $708.40. When patients and/or their families reach this amount in a calendar year, they can apply for a Safety Net Concession Card and pay only $3.70 per prescription for the rest of the calendar year.

For pensioners and concessional card holders the concessional safety net threshold is $192.40 (this also applies to gold, white and orange card-holders under the Repatriation Pharmaceutical Benefits Scheme). Once patients and/or their families reach the concessional safety net threshold, they can apply for a Safety Net Entitlement Card and receive items free of charge for the rest of the calendar year.

Patient co-payments and safety net thresholds are indexed to the nearest 10 cents according to movements in the Consumer Price Index (CPI) from 1 January each year.

Patients have contributed a co-payment for PBS listed items since 1960.

Pharmaceutical Allowance (PA)

All pensioners, (including part pensioners, Veterans Affairs beneficiaries, sickness allowees and other older long term allowees, including parenting allowees over 60 and receiving income support for at least 9 months), receive a pharmaceutical allowance of $2.90 per week payable fortnightly, or $150.80 per year. The PA helps to defray their out-of-pocket pharmaceutical expenses. Payments are made through Centrelink as part of the pension payment. More details are available from Centrelink.

Why Patients Sometimes Pay More

Patients may pay more than the co-payment where a PBS item is priced above the benchmark price for different brands of the same drug, or the benchmark price for a particular therapeutic group of drugs. The Government subsidy is limited and the patient must meet any difference in price. Brand Premium or Therapeutic Group Premium items do not count towards safety nets.

How a Drug is Listed on the PBS

Prior to listing on the PBS, a drug must first be assessed for its safety, quality and efficacy by the Australian Drug Evaluation Committee (ADEC) a committee of the Therapeutics Goods Administration. Criteria for consideration are specified in the National Health Act 1953. If ADEC recommends that the drug should be available for sale in Australia, a sponsor usually the drug company - but sponsors can also include medical bodies, health professionals, private individuals and their representatives - applies to the Pharmaceutical Benefits Advisory Committee (PBAC) for listing on the PBS. Click here to view the Guidelines for preparation of submissions. The PBAC assesses the evidence on the drug's effectiveness, including its cost effectiveness, and advises the Minister for Health and Ageing if the drug should be listed on the PBS. If the Minister accepts the recommendation of the PBAC, the drug is then referred to the Pharmaceutical Benefits Pricing Authority (PBPA) which negotiates with the manufacturer on the price at which the drug will be listed on the PBS and advises the Minister accordingly. To see a graphical representation of this process click here.

PBAC Role and Current Composition

The Pharmaceutical Benefits Advisory Committee is an independent statutory body established under section 101 of the National Health Act 1953 to make recommendations and give advice to the Minister about which drugs and medicinal preparations should be made available as pharmaceutical benefits.

Until 1970, membership of the PBAC was kept secret, when a Senate amendment forced the publication of the names of the members. Over the years the membership of PBAC has been reconstituted a number of times, generally with membership being expanded. The current membership includes health economists, pharmacists, GPs, clinical pharmacologists, specialists and consumers. Professor Lloyd Sansom is the chair.

Positive Recommendations Made by PBAC

Much of the deliberations of the PBAC are commercial in confidence. However the Committee does regularly publish a list of positive recommendations it has made concerning its deliberations. These still require approval by the Minister.

Pricing PBS Listed Drugs

The pricing of new drug products and review of prices for existing products is carried out by the Pharmaceutical Benefits Pricing Authority (PBPA). When recommending listings, PBAC provides advice to the PBPA regarding comparison with alternatives or their cost effectiveness. The PBPA meets four times a year.

Numbers of Drugs Listed on PBS

It is surprisingly difficult to give a total figure of the number of medicines listed on the PBS. The reason is that there is a hierarchy of listing. Drug substances are listed, forms and strength are listed and the brands are listed (see table below). To give a simple explanation, paracetamol is a drug substance, there are a number of different forms (e.g.: gel caps, capsules, tablets) and strengths (e.g.: for adults and children), and it can be marketed under a number of brand names (e.g.: Panadol and Herron).

Source: Department of Health and Ageing

Reasons for Growth

As this chart, PBS expenditure on prescriptions and volumes of prescriptions shows, there has been a considerable increase over time.

Increases in PBS Expenditure

The PBS is currently the fastest growing area of health expenditure. Government expenditure for the year ending 30 June 2002 totalled $4 197.3 million, compared with $3 820.6 million for the previous year—a 9.9 per cent increase. In the last decade PBS expenditure has experienced an estimated average annual expenditure growth rate of around 14 per cent.

Currently the majority of government expenditure on PBS prescriptions is directed towards concessional cardholders ($3 347.8 million, 79.8 per cent of the total).

Some of the main reasons forwarded to explain the large increase in government expenditure on the PBS include:

• increasingly expensive new drugs being listed
• over-prescribing and leakage
• consumer expectations
• ageing of the population
• aggressive marketing by the Pharmaceutical Industry.

Much of the increased expenditure is due to the listing of a number of expensive new drugs. The most cited are anti-inflammatory drugs, the costs of which have more than doubled over the past couple of years. Between listing on the PBS in August 2000 and December 2001, Celecoxib (Celebrex) has cost the government $217 million, and the anti-smoking drug Zyban has cost approximately $82.2 million from its listing in February 2001 to the end of December 2001. Other drugs that have contributed to large increases in the cost of the PBS are the cholesterol lowering drugs Simvastatin and Atorvastatin.

International Comparisons Back to top

The 2001 Productivity Commission Report, International Pharmaceutical Price Differences, makes some comparative observations about manufacturers' list prices of Australia's 150 top-selling pharmaceuticals, as well as new innovative pharmaceuticals. The following is a summary of the main observations.

The Cost of Prescriptions

Manufacturer prices for Australia's top-selling pharmaceuticals in Australia:

• are at least 162 per cent higher in the US (and 84 per cent higher when discounts are taken into account)
• are at least 48 per cent to 51 per cent higher in the UK, Canada and Sweden
• are similar to pricing in France, Spain, and NZ

Manufacturer prices for Australia's top-selling new innovative pharmaceuticals are similar to those in all of the comparison countries, except the US and UK (in which prices are 104 per cent higher and 54 per cent higher).

Public Expenditure on Pharmaceuticals as a Percentage of Health Expenditure, Various Countries

Compiled from OECD Health Data 2001

Some of the countries in the above table have universal eligibility for a publicly available pharmaceutical subsidy (e.g. Sweden, France, Spain, NZ and the UK). However, in other countries, such as the US and Canada, the coverage of government subsidies is much narrower. It should also be noted that the countries compared in the table above also differ in the way they set prices for pharmaceuticals.

Options for Control Back to top

There are numerous options for controlling expenditure associated with the PBS. A recent Parliamentary Library paper entitled: The Pharmaceutical Benefits Scheme: Options for Cost Control, Maurice Rickard, Current Issues Brief no. 12, 2001 02, explores the various options open to contain the rising costs of the PBS.

Proposed Changes to the PBS Back to top

The government announced proposed changes to the PBS in its 2002 03 Budget. The proposed National Health Amendment (Pharmaceutical Benefits Budget Measures) Bill 2002 seeks to introduce the Budget measure. The Budget measure proposes that the co-payment amounts rise by 28 per cent from $22.40 to $28.60 for general patients and from $3.60 to $4.60 for concessional patients. It is also proposed that the concessional patient safety net threshold increase from $187.20 to $239.20, and the general patient safety net threshold from $686.40 to $874.90. The Bill was introduced on 6 June 2002, but failed to gain the support of the Senate. Further details may be obtained in the Bills Digest.

Further Information Back to top

PBS Information Line 1800 020 613

PBS Website http://www.health.gov.au/pbs/index.htm

For copyright reasons some linked items are only available to Members of Parliament.

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