Pharmaceutical Benefits Scheme Reforms¹ 

The Pharmaceutical Benefits Scheme (PBS) was substantially changed during the 41^st Parliament through amendments to the National Health Act 1953. The changes applied from 1 July 2007. Given that there are questions over the long-term financial sustainability of the PBS, these latest reforms, along with other issues to do with the scheme’s effectiveness, are likely to be of ongoing concern.

Government expenditure on the PBS for the year ending 30 June 2007 totalled $6.6 billion, an increase of around 6.3 per cent over the previous financial year’s expenditure. The 2007–08 Budget papers suggest that PBS expenditure will increase to $7.3 billion in
2007–08, and there are longer-term projections of further increases. In light of this, the Howard Government introduced in recent years measures calculated to contain the cost of medicines under the PBS.

The most complex changes to the PBS are those contained in the National Health Amendment (Pharmaceutical Benefits Scheme) Act 2007. This Act introduced new arrangements for determining the price the government pays for medicines under the PBS. The new arrangements seek to establish pricing structures that will enable the government to achieve greater savings in the price it pays for medicines. The legislation was supported by a majority of stakeholders and both major political parties (as outlined in the relevant Bills Digest). However, the Senate Committee inquiring into the Bill recommended that the reforms be monitored, particularly with regard to their impact on sustainability of the PBS and the prices paid for medicines by consumers.

Concerns regarding the reforms centre on the question of whether or not they are likely to ensure the development of the Australian generic medicines industry. Without such development, some argue, there will be insufficient competition in the Australian medicines sector, costs to government will not be reduced, and the future sustainability of the PBS will be compromised.

Arguably, the most significant of the PBS reforms is the division of the PBS Schedule into two ‘formularies’, or lists of preferred, commonly prescribed drugs. The first formulary (F1) is for single drugs and the second formulary (F2) is for drugs that have multiple brands or are interchangeable with drugs that have multiple brands. Under the new legislation, generic, F2 medicines are subject to mandatory price cuts of up to 25 per cent. F1 drugs, on the other hand, are protected from mandatory price cuts and from comparison with F2 medicines.

Some argue that the mandatory price cuts to generic medicines and a $20 million government campaign to encourage consumers to use cheaper generic medicines, rather than branded medicines, are insufficient. It is also argued that protecting F1 medicines may result in ‘evergreening’; that is, the extension of patents through trivial enhancements to ensure that drugs remain within the price-protected F1 class. This, some maintain, may result in higher prices being paid for ‘new’ drugs that offer no advantage, and also delays to the introduction of cheaper generic medicines. A key concern of the 42^nd Parliament, then, will be the need to closely monitor the impact of the reforms to ensure that they result in savings to government, but not at the expense of consumers.

Documentation
K. Woods, ‘What cost the PBS revamp?’ Medical Observer, 21 September 2007.

1: Updated 14 April 2008