Bills Digest no. 125 2007–08
National Health Amendment (Pharmaceutical and Other
Benefits Cost Recovery) Bill 2008
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
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National Health Amendment
(Pharmaceutical and Other Benefits Cost
Recovery) Bill 2008
introduced: 29 May
House: House of Representatives
Portfolio: Health and Ageing
Sections 1 to 3 of the
Bill commence on Royal Assent
Schedule 1 amendments
commence on 1 July 2008.
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 the National
Health Amendment (Pharmaceutical and Other Benefits Cost Recovery)
Bill 2008 (the Bill) is to amend the National Health Act
1953 (the Act) by introducing provisions that will authorise
the Commonwealth Government to impose fees, and thereby recover
costs associated with the services and activities related to
listing medicines on the Pharmaceutical Benefits Scheme (PBS) or
designating vaccines for the National Immunisation Program
The fees, which would generally be paid by the pharmaceutical
industry, will be prescribed in the regulations under the Act.
The PBS ensures reliable, timely and affordable access to
prescription pharmaceuticals to Australian citizens and permanent
residents. It has been in operation for around 60 years and is
considered a key feature of the Australian health care system. For
a drug to be listed on the PBS it must have marketing approval from
the Therapeutic Goods Administration (TGA) and receive a positive
recommendation from the Pharmaceutical Benefits Advisory Committee
The PBAC is the Committee which advises the Minister for Health
and Ageing as to which pharmaceuticals should be listed on the PBS
and which vaccines are to be funded under the National Immunisation
Program (NIP). When making a recommendation about a pharmaceutical,
the PBAC takes into account the comparative efficacy and
cost-effectiveness to products already listed on the PBS. Under the
Act, the Minister cannot list a drug on the PBS (or fund a vaccine)
unless that drug or vaccine has received a positive recommendation
from the PBAC.
The NIP is a joint program of Commonwealth and State/Territory
governments which provides fully funded vaccines for major
preventable diseases. As with most health programs, the
Commonwealth provides the funding and the service is delivered by
the State/Territory governments. Vaccines listed on the NIP are
considered by the PBAC.
This Bill enables the implementation of a 2008-09 Budget measure
announced in the Health and Ageing portfolio. The introduction of
cost recovery arrangements for all submissions lodged to the PBAC
on or after 1 July 2008, is expected to generate additional revenue
of $7 million over four years, with a net cost of $2.2
The proposal involves two payment points for fees - the first
for receipt of submission and consideration by the PBAC and the
second for pricing and listing activities following a positive PBAC
Any subsequent consideration by the PBAC, for example
resubmissions, will be subject to further fees. The fees will be
prescribed by regulations. There is provision in the legislation
for review of the fees by the Administrative Appeals Tribunal.
Cost recovery arrangements were first announced in the 2005 06
Budget, with a proposed implementation date of 1 July 2007.
Implementation was deferred due to consultations with the
pharmaceutical industry about the Pharmaceuticals Benefits Scheme
Reform process during 2006. This measure was described in the 2008-09 budget papers
as an election commitment, but it has not been possible to locate
the introduction of cost recovery to Pharmaceutical Benefits
Advisory Committee (PBAC) processes in the ALP election platform or
other health policy documents.
When the cost recovery arrangements were first announced in the
2005-06 Budget, there was widespread concern about the introduction
of this measure undermining the independence of the PBAC and
possibly resulting in manufacturers declining to list products on
the PBS (especially for low volume products).
Those concerns remain. The peak lobby group for pharmaceutical
manufacturers in Australia, Medicines Australia, expressed surprise
and disappointment at the announcement of the measure on Budget
night. They argued
that operation of the PBS was essentially a Commonwealth Government
function and it was inappropriate for cost recovery arrangements to
In the press, there were fears that this measure could undermine
the independence of the PBAC and result in higher drug prices to
It is noted that the possible impact on the generic medicines
industry has not been widely considered in the public debate.
Prior to the Budget 2008-09 announcement, the chair of the PBAC,
Professor Lloyd Sansom, noted that the PBAC did not have a view on
the issue and suggested that cost recovery arrangements would not
affect its recommendations. Professor Sansom commented that it
would be business as usual .
One of the main arguments put forward in favour of cost recovery
is that there is significant financial benefit to a pharmaceutical
company for a product to be listed on the PBS and that it is not
unreasonable for the taxpayer incurred costs associated with
listing to be recovered. Companies with products listed on the PBS receive
considerable financial benefit.
Some comparisons may be drawn between listing products on the
PBS and Commonwealth Government procurement processes such as
tendering. In both instances, the applicant receives a financial
benefit from positive selection. Currently, the Commonwealth
Government does not charge tenderers as part of the tender
submission process. It could be argued that the costs associated
with developing a tender submission is a substitute for a fee.
Similarly, the pharmaceutical industry expends considerable effort
when developing a PBAC submission, at a cost to the manufacturer.
Under the cost recovery arrangements, the pharmaceutical industry
will be required to fund the development of the submission and also
pay a fee when the submission is considered by the PBAC.
Independence of the PBAC
In the second reading speech, the Minister has noted that the
proposed implementation model addressed the concerns about
independence of the PBAC. The Commonwealth Government will continue
to directly fund the operations of the PBAC and the revenue
generated will become part of consolidated revenue. In this way,
the model is expected to guarantee the independence of the
The independence of the PBAC has always been considered
paramount in the operation of the PBS. It operates at arms length
from the Commonwealth Government and the Minister. Its importance
is enshrined in the legislation and the Minister for Health cannot
list a drug on the PBS or fund a vaccine on the NIP without a
positive recommendation from the PBAC.
The Commonwealth Government is confident that the shift towards
cost recovery arrangements will not undermine the independence of
the PBAC. Given
the comments made by Professor Lloyd Sansom prior to the
announcement, it would appear that the changes will not have any
material impact on the operation of the PBAC. However, the
perception of a conflict of interest (real or perceived) lingers
Comparisons have been made between the TGA and the work of the
PBAC. Specifically, cost recovery has been implemented successfully
in the TGA and the TGA has maintained its independence. Examples of other
agencies such as the Civil Aviation Safety Authority and the
Australian Prudential Regulatory Authority where cost recovery
arrangements had been successfully implemented have also been
The Department of Health and Ageing (DoHA) has argued that as
the TGA operates under cost recovery arrangements, it is a logical
extension for the PBAC to operate under the same
However, the TGA and PBAC have vastly different roles: the TGA
determines whether a drug (or medical device) can be marketed in
Australia whereas the PBAC recommends to the Minister which drug
should receive public subsidy on the PBS and which vaccines should
be publicly funded under the NIP.
In the context of public reimbursement or subsidisation for
medical products (pharmaceuticals or vaccines), cost recovery
arrangements have rarely been used. There is only one other
publicly funded program that operates on principles of cost
recovery - the evaluation of prostheses for listing on the Medicare
Benefits Schedule exist. It was introduced to reduce public
expenditure on prostheses which had been increasing
In contrast, cost recovery for pharmaceuticals and vaccines is
being introduced to offset the additional costs associated with
evaluating and listing new products on the PBS. Given these vastly different
objectives, comparisons between the two are difficult, except to
note that pharmaceuticals are widely used in the community and the
PBS (including the listing process) is an integral part of the
delivery of timely and affordable access to medicines.
According to the Productivity Commission, cost recovery
arrangements should only be introduced to improve economic
efficiency and cost recovery should not be implemented where it
would be inconsistent with policy objectives . This view is also echoed in the
Commonwealth Government s Cost Recovery Guidelines. While subjecting the
assessment of medicines to cost recovery may well increase economic
efficiencies, one of the unanswered questions is whether the
introduction of cost recovery arrangements undermines Commonwealth
Government health policy objectives in relation to timely and
affordable access to essential medicines. As the primary focus of
the PBS is timely and affordable access at a cost the community can
afford , charging companies for the products to be listed on the
PBS may lead to delays in listings and higher drug prices for the
Commonwealth Government. If this were to be the result it would not
be consistent with the Commonwealth Government s health policy
However, the Minister has emphasised the Productivity Commission
s support for the principles of cost recovery. It was suggested
that their introduction may potentially increase compliance with
PBAC Guidelines, reduce the time and costs associated with
resubmissions and improve the overall quality of PBAC
Development of a submission to the PBAC is a complex and time
consuming exercise and any delays with PBAC recommendations have
financial implications for companies. It is possible that this
already serves as sufficient motivation for the pharmaceutical
industry. In addition, DoHA and the chair of the PBAC actively work
with the pharmaceutical industry to promote understanding of the
PBAC guidelines and requirements for submissions with regular
meetings and transparent processes. Therefore, it remains to be seen
whether the introduction of a fee will improve the overall quality
of submissions (and re-submissions) and reduce the time associated
The proposed implementation date of 1 July 2008 puts
considerable pressure on DoHA and the pharmaceutical industry.
Although DoHA has released a Frequently Asked Questions document
explaining the changes, information sessions about the proposed implementation
have been set for 10 and 12 June 2008, some three weeks before
implementation is due to commence and a month before the due date
for major submissions for consideration at the next PBAC
submissions will be subject to cost recovery processes.
Indicative fees and charges were released by DoHA the day before
the legislation was due to be debated in Parliament (4 June 2008).
At the time of publication, the fees and charges had not been
tabled in Parliament. Indicative fees were as follows:
- Major submission $119 500
- Minor submission $12 500
- Secretariat listing $1 000
- Generic products $500
- Pricing arrangements $25 000
Commentary on the indicative fee structure has focussed on the
total cost to the pharmaceutical industry to bring a product to
market. For new products (such as new cancer drugs) the cost will
be around $315 000, provided there are no complications. This is perhaps a
conservative estimate. A review of the PBAC meeting outcomes
suggests that it is rare for a major submission to receive a
positive recommendation on its first consideration by the
PBAC. As yet,
no advice has been provided about how deferrals or resubmissions
will be costed. In addition, pricing negotiations can take
considerable time and it is not clear if each round of pricing
negotiations will be subject to a $25,000 fee.
An unintended consequence of this policy may be that it will now
become more difficult for non-industry bodies (for example,
clinicians or patient groups) to apply for products to be listed on
the PBS. There are no restrictions on who can make a submission to
the PBAC. In order to be considered by the PBAC, submissions must
fulfil the technical requirements. Given the total estimated cost
for a major submission, it may be difficult for clinicians or
patient groups to raise the necessary funds to not only prepare the
submission, but also to have it considered by the PBAC. The
proposed cost recovery arrangements may therefore well act as a
barrier to their applying. It should be noted that there is
provision in the Bill for exemption and waiver of fees. Although
the Bill does not define the circumstances in which this can be
applied, the second reading speech notes that an exemption could be
applied when it is in the public interest .
Another possible unintended consequence of the Bill is higher
costs of pharmaceuticals. As it will be necessary for the industry
to recoup these additional costs, it may lead to higher prices for
pharmaceuticals and a subsequent increase in cost to the
Commonwealth Government. This possibility was acknowledged by
senior DoHA officials during a Senate Estimates hearing in
The Explanatory Memorandum states that once fully operational,
annual revenue from fees is expected to total about $9.4 million in
2008-09 rising to around $14 million in 2009-10. This is in contrast to what was
announced in Budget 2008-09 that this measure was expected to
generate additional revenue of $7 million over four years, with a
net cost of $2.2 million.
Despite the discrepancy in figures, it is important to note that
both figures are estimates only and the proposed revenue may not be
realised. Furthermore, it is questionable that in the context of a
$7 billion dollar program (with a steady growth rate) that a
predicted saving of between $1.75 - $9 million per year is going to
have any material impact on the cost of the operation of the PBS.
From a monetary perspective, it appears that the introduction of
cost recovery for the public reimbursement of pharmaceuticals has
more symbolic value. For example, the TGA recovers the full cost of
all activities undertaken that are within the scope of the
Therapeutic Goods Act 1989.
As previously noted, concern has been expressed that the
introduction of cost recovery arrangements may lead to higher
prices for pharmaceuticals and a subsequent increase in cost to the
Commonwealth Government. It has been predicted that the cost of
bringing a pharmaceutical to market may double with the
introduction of cost recovery fees.
Item 1 of the Bill proposes to insert a
new Division 4C, which contains three new sections
relating to cost recovery, into the Act. Particular attention will
be paid to proposed sections 99YBA and 99YBB.
Proposed new subsection
99YBA(1) would enable regulations to made
concerning services provided by the Commonwealth Government in
relation to its exercise of the following powers under the Act:
- the provision of vaccines under section 9B, and
- the PBS regime under Part VII.
Proposed new subsection
99YBA(2) provides that regulations may be made
prescribing certain matters relating to services provided by the
Commonwealth Government under section 9B and Part VII of the Act.
Those matters include:
- applying for such services
- prescribing fees for such services
- when prescribed fees are payable, including extensions of
- the manner of payment of prescribed fees
- penalties for late payment of prescribed fees
- exemptions from payment of prescribed fees
- waiver, remission or refund of prescribed fees, and
- review of decisions made under these regulations.
Proposed subsection 99YBA(3) provides that the
prescribed fee must not amount to taxation.
Proposed subsection 99YBA(5) provides that a
prescribed fee is a debt which is recoverable by the Commonwealth
Proposed new subsection 99YBB(1) would give the
Minister a discretion to refuse to exercise certain powers if the
prescribed fee is not paid. Simply put, any consideration of the
application may cease until the appropriate fee is paid. According
to the second reading speech, a tools down approach is envisaged
until the fee is paid.
Under proposed subsection 99YBB(2), such a
refusal would not constitute a legislative instrument and
consequently, would not be disallowable.
This Bill gives the Minister for Health and Ageing the power to
introduce cost recovery arrangements for the consideration of
products to be listed on the PBS or funded under the NIP. It does
not, however, provide much detail on proposed implementation of the
arrangements and, at the time of the parliamentary debate in the
House of Representatives, only indicative fees and charges had been
released by DoHA.
It remains to be seen whether the implementation of this measure
will generate the predicted revenue for the Commonwealth Government
and improve the overall quality of PBAC submissions.
What also remains to be seen is the impact on pricing of
pharmaceuticals and whether this acts as a deterrent to the
pharmaceutical industry (originator and generic) to have products
listed on the PBS.
Discussion about the broader issues such as what constitutes
Commonwealth Government business, has been largely absent from this
debate. Arguably, the administration of the PBS could be considered
core government business and it consequently could be argued that
the associated costs should be met by the Commonwealth
Should the proposed scheme go ahead, Australia is likely to be
one of the first countries in the world to introduce cost recovery
arrangements for the (public) reimbursement of pharmaceuticals and
funding for vaccines. The Commonwealth Government s stated benefits for
introduction of these arrangements have yet to be realised and the
predicted revenue is not significant. This shift to cost recovery
sets a precedent in Australian health policy and the delivery of
health care. Given its significance there has been very little
examination or debate on the potential implications for health
policy more broadly.
Commission, Cost recovery by Government agencies, Report
no.15, AusInfo, Canberra, 2001, p. 175.
. Commonwealth of Australia, Australian Government
Cost Recovery Guidelines, Canberra, 2005, p. 5,
accessed on 14 May 2008.
Rebecca de Boer
6 June 2008
Bills Digest Service
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