Legislation Amendment Bill 2007
13 September 2007
House: House of Representatives
Portfolio: Health and Ageing
Various dates (See
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
The purpose of
this Bill is to make a number of amendments to two pieces of health
legislation in order to correct inadvertent or unintended
consequences of these Acts. Amendments are proposed for the
Private Health Insurance Act 2007 (PHIA) and the
National Health Act 1953 (NHA).
During 2007 the government implemented major
changes to two key health policy areas: private health insurance
and pharmaceutical benefits arrangements. Further details of the
legislative changes are outlined in the relevant Bills Digests.
Broadly, the reforms for private health
insurance established a new regulatory regime for private health
insurers, while the reforms affecting pharmaceutical benefits
introduced major structural changes to the pricing of medicines
subsidised under the Pharmaceutical Benefits Scheme (PBS).
These reforms were undertaken after
consultation with stakeholders and generated considerable public
interest. Both pieces of legislation were referred to Senate
This Bill proposes to correct or rectify some
unintended consequences of the original legislation.
Significant amendments are discussed
The Private Health Insurance Bill 2006 and six
related Bills were introduced into the House of Representatives in
December 2006; subsequently they were passed (with amendments) by
the Senate on 23 March 2007.
This suite of Bills introduced a range of
reforms to private health insurance arrangements that included
allowing for private health insurers to offer a wider range of
products, standardised health insurance products, changes to
Lifetime Health Cover, changes to prudential arrangements and
changes to the role of the regulator the Private Health Insurance
Administration Council (PHIAC). In addition various transitional
arrangements were introduced.
The reforms, especially Broader Health Cover,
were generally supported, although some concerns were raised during
the Senate Inquiry.
Under the new arrangements emphasis on
regulation shifted from health funds to regulation of health
This Bill proposes amendments to one of the
issues considered by the Senate Committee: health insurance
arrangements affecting overseas visitors. This is discussed further
The private health insurance reforms
introduced changes to health insurance arrangements for overseas
visitors such as tourists, 457 visa holders, or overseas students
(special provisions apply to students and some temporary visa
holders). From 1 July 2008 overseas visitors health cover will
become a general insurance product; that is, general insurers and
private health funds can offer this product, which will not be
subject to the complying health insurance product arrangements
established by the PHIA. Community rating arrangements will cease
to apply to overseas visitors health cover products from this
Under the PHIA private health insurers who
offer complying health insurance products, are bound by community
rating requirements which requires them to offer these products
based on community rating principles; that is, without
discrimination. Health cover cannot be refused on the basis of age
profile, medical history or other risk factors.
General insurers, on the other hand, are not
subject to the requirement of the community rating arrangements;
they operate in a risk rating environment where they can charge
higher premiums (or refuse cover altogether) based on a person s
It was argued in a submission to the Senate
Inquiry, that community rating requirements when applied to
overseas visitors health insurance may place an unfair burden on
private health funds. This is because private health funds are
required to accept risks that their competitors in this market, the
general insurers, can refuse. Further, general insurers can offer
discounts to younger policy holders based on their better risk
profiles, shifting higher risk policy holders to private health
The Bill proposes to remove the requirement
that health funds who offer overseas visitors health cover during
the transition period (1 April 2007 to 30 June 2008) must offer it
as a complying health insurance product . Penalties for not
offering this as a complying health insurance product will also be
removed, retrospective to 1 April 2007.
Since 1 April 2007 special provisions to
encourage private health insurers to offer health insurance
products to overseas students and some other visa holders, under
the regulatory authority of the Australian Prudential Regulatory
Authority (APRA), have applied. This Bill proposes a transitional
provision to allow insurers until 1 July 2008 to comply with these
This Bill also proposes that from 1 July 2008
overseas visitors health cover offered by private health funds will
be regulated as a health related business under the authority of
the PHIAC. In parallel arrangements health cover offered by general
insurance funds will be regulated by APRA.
One possible effect of these proposed
amendments is that holders of 457 visas may face higher health
insurance costs as a result of the removal of the complying health
product provisions. Concern over health insurance costs for
temporary visa holders was raised in a recent Joint Standing
Committee on Migration report. 
The PBS was established in 1948 to provide
free life saving and disease preventing drugs . The PBS has since
evolved with around 680 listed drugs. In 2005-06 168 million PBS
prescriptions were dispensed. An estimated 72 per cent of all
prescriptions dispensed in Australia are subsidised under the PBS.
Total Commonwealth expenditure for the PBS in 2005-06 was $6.2
billion. PBS medicines attract a co-payment of up to $30.70 for
general patients or $4.90 for concession card holders. 
In May 2007 a Bill amending the pharmaceutical
provisions of the National Health Act 1953 (NHA) was
introduced into the House of Representatives; subsequently the Bill
was passed by the Senate on 20 June 2007 and came into effect on 1
The legislation introduced significant
structural changes to the pricing of medicines subsidised under the
PBS, and was the subject of a Senate Committee Inquiry. The main
components of the legislation included the introduction of two
formularies for subsidised medicines: F1 for single brand medicines
and F2 for multiple brand medicines. Different pricing rules were
introduced to apply to each formulary. 
The amendments proposed in this Bill aim to
clarify and correct provisions in this Bill that affect the
pharmaceutical benefits around pharmacists supplying substituted
brands of prescribed medicines, repeats of medicines and early
supply of medicines.
Under brand substitution arrangements,
pharmacists are allowed to substitute to the lowest priced approved
bioequivalent generic product, with the permission of the patient
and provided the prescriber has not directed otherwise on the
prescription. The Government subsidises only to the lowest priced
drug in the defined subgroup and consumers pay any difference in
price in addition to the usual co-payment. Classes of drugs covered
by brand substitution include H2 receptor antagonists and ACE
The Bill proposes introducing a new
definition, Schedule equivalent , to describe those medicines
supplied under brand substitution arrangements. The Bill proposes
that only those medicines that are stated to be equivalent in the
Schedule of Pharmaceutical Benefits, are eligible for
The Bill clarifies that a prescriber does not
need to specify the exact brand of medicine when writing the
prescription; a prescription will be valid even if the brand is not
specified, although a listed drug and its dosage/form must be
The Bill further proposes restricting
substitution arrangements to only those medicines specified in the
Schedule, so that pharmacy-prepared medicines do not qualify as
The Bill proposes applying permissible repeat
prescription arrangements to Schedule equivalent medicines. Under
PBS arrangements a prescription can specify a number of repeats, so
that the patient does not need to return to their doctor to obtain
a new prescription every time they complete a course of medicine.
The maximum number of repeats for a subsidised medicine is
specified in the Schedule.
The proposed amendments prevent the number of
permissible repeats being exceeded by prescribing more than one
Schedule equivalent medicine in a prescription.
Under PBS arrangements, when a patient has
repeat prescriptions for a PBS medicine, normally they cannot
obtain the repeat script until 20 days after the supply of the
original prescription. This is designed to prevent stockpiling of
medicines. However, in special circumstances the patient can obtain
the script early (or immediately) under the immediate supply
provisions of the PBS, for example if the original medication is
lost or damaged. These early supply prescriptions do not count
towards the PBS Safety Net.
Prior to the implementation of the new
legislation in August 2007 pharmacists could substitute an
equivalent brand under the early supply arrangements. However, the
reforms introduced in August 2007 inadvertently narrowed the
definition under the early supply provision, so that pharmacists
could no longer substitute between different brands. This Bill
proposes allowing the substitution of different brands under the
early supply arrangements, provided the brands are described as
equivalent in the Schedule.
No financial implications.
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Section 84-1 of the Act is the enforcement
part of the Act: it makes it an offence to advertise a product, or
to offer a person insurance under a policy, or to insure a person
under a policy that is a non-complying policy. Section 63-10 of the
PHIA prescribes the elements of a complying health insurance policy
 private health
insurers who make health insurance products available must meet
certain obligations to people insured or seeking to be insured
under the products.
The current wording of Section 84-1 is making
its operation unnecessarily broad in its capture, resulting in
penalties for certain insurers who are offering some types of
insurance products. For example, general insurers offering accident
or disability insurance or private insurers offering overseas
students health cover. 
The amendments proposed under Schedule 1 are
technical in nature and aim to cure the operational defects in
Section 84-1 by narrowing its operational scope and reach.
Proposed 84-1(1)(b) makes
Section 84-1 only apply to a health insurance
business as defined in Division 121 of the PHI Act.
Proposed 84-1(1)(d) clarifies
that the Section 84-1 offence does not apply if the health
insurance business is not of a kind specified in the Private Health
Insurance (Complying Product) Rules.
Section 63-1 of the PHIA requires that a
private health insurer only makes available as part of its health
insurance business, insurance in the form of complying health
products, unless the business is one that is specified as being
excluded in the Complying Product Rules. The Explanatory Memorandum
points out that while there are no excluding Complying Product
Rules made for the purpose of section 63-1, proposed
84-1(1)(d) is designed to better align the offence
provision with the structure of the PHI Act . 
Division 126 of the PHIA deals with the
registration rules of private health insurance companies.
Proposed subsection 126-20(4) of the PHI Act
requires the PHIAC to refuse an application for registration as a
private health insurer if the rules of the applicant permit
improper discrimination in relation to the applicant s complying
health insurance policies.
As noted in footnote 7, a key element of a
complying health insurance policy is the principle of community
rating. Proposed subsection 126-20(4) gives
operational relevance to this principle.
Part 2 transitional
Item 5 is a transitional
provision providing an exemption from sections 63-1 and 84-1 from 1
April 2007 until 30 June 2008. The retrospective and prospective
protection applies to private health insurers and insured overseas
visitors, in relation to overseas visitor health cover which has
been offered by private health insurers in the transitional period
under a policy would not meet the requirements of a complying
health insurance policy.
From the date of the commencement of this item
until 30 June 2008, rule 18 of Health Insurance Business Rules
applies to overseas student health cover and specified temporary
visa holder cover which is provided by private health insurers.
This is designed to allow private health
insurers time to adjust to the regulatory system of the Australian
Prudential Regulatory Authority (APRA) and the requirements under
the Financial Services Reform legislation.
National Health Act 1953
Basically, the amendments proposed by items
2-11 all relate to ensuring that the restriction on the maximum
number of permissible prescription repeats cannot be circumvented
by various means.
84(1)(1B): where a prescription that directs a repeated
supply of a particular pharmaceutical benefit and a pharmacist
supplies a substitute benefit as permitted under 103(2A) of the
NHA, that substitute is taken to be a repeated supply of that
84AAA(1)(a) is designed to prevent the provisions relating
to the early supply of a pharmaceutical benefit being circumvented
by asking for either the supply of another brand, or an equivalent
Items 6 and 7
Proposed subsection 88(1AA) and
In order to require that a particular
pharmaceutical benefit be provided the prescriber needs to specify
the listed drug, the form, the manner of administration and the
brand. However, a prescription will be taken to validly direct the
supply of a pharmaceutical benefit as long as it lists the drug and
a form of the drug, regardless of its failure to specify a brand
name or manner of administration.
Items 8 and 4
Proposed paragraphs 88(8)(a)
and (b) provide that where two
benefits are Schedule equivalent (as defined by proposed
84AJ) or are listed brands of the same pharmaceutical
item, the prescription is taken to direct the repeated supply of
the first benefit.
Proposed 103(2A) will enable
the substitution of different pharmaceutical benefits as long as
they satisfy the other requirements in subsection 103(2A) including
that the Schedule of Pharmaceutical Benefits states that they are
equivalent. Currently the operation of this section is narrower,
permitting substitution only if they are the same pharmaceutical
The amendments proposed in this Bill clarify
or correct some provisions contained in the Private Health
Insurance Act 2007 and the National Health Act 1953
that resulted in some unintended consequences.
The amendments relating to private health
insurance will clarify when penalties for insurers can be levied,
change arrangements for health insurance cover for overseas
visitors, and clarify regulatory arrangements.
The amendments relating to pharmaceutical
benefits introduce Schedule equivalent definition, and propose to
prevent circumvention of supply arrangements relating to repeat
prescriptions and brand substitution.
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