Bills Digest no. 125 2007–08
National Health Amendment (Pharmaceutical and Other Benefits—Cost
Recovery) Bill 2008
WARNING:
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 Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
National Health
Amendment (Pharmaceutical and
Other Benefits—Cost Recovery) Bill 2008
Date introduced: 29
May 2008
House: House
of Representatives
Portfolio: Health
and Ageing
Commencement: Sections
1 to 3 of the Bill commence on Royal Assent
Schedule 1 amendments commence
on 1 July 2008.
Links: The 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 at http://www.comlaw.gov.au/.
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 (NIP).[1]
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 (PBAC).
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 million.[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 recommendation.[3] 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.[4] 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).[5]
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.[6] They argued that operation of the
PBS was essentially a Commonwealth Government function and it was ‘inappropriate’
for cost recovery arrangements to be introduced.[7]
In the press, there were fears that this measure could undermine the
independence of the PBAC and result in higher drug prices to consumers.[8]
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’.[9]
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.[10] 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 PBAC.
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.[11]
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 for some[12].
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.[13] 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 presented.
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 arrangements.[14] 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 significantly.[15] 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.[16]
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’.[17] This
view is also echoed in the Commonwealth Government’s Cost Recovery Guidelines.[18]
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 objectives.
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 submissions.[19]
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.[20]
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 with re-submissions.
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[21], 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
meeting.[22] These 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:[23]
- Major submission $119 500
- Minor submission $12 500
- Secretariat listing $1 000
- Generic products $500
- Pricing arrangements[24]
$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.[25]
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.[26] 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’.[27]
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 2005.[28]
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.[29] 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.[30]
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.[31]
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.[32]
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.[33]
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 time
- 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 Government.
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.[34]
Under proposed subsection 99YBB(2), such a refusal would not constitute
a legislative instrument and consequently, would not be disallowable.[35]
Concluding
comments
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 Government.
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.[36]
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.
[17].
Productivity Commission, Cost recovery by Government agencies,
Report no.15, AusInfo, Canberra, 2001, p. 175.
[18]. Commonwealth of Australia, Australian
Government Cost Recovery Guidelines, Canberra, 2005, p. 5, http://www.finance.gov.au/finframework/docs/Cost_Recovery_Guidelines.pdf,
accessed on 14 May 2008.
Rebecca de Boer
6 June 2008
Bills Digest Service
Parliamentary Library
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