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Affordability and access to the Pharmaceutical Benefits Scheme

Expenditure on the Pharmaceutical Benefits Scheme (PBS) grew by 9.3 per cent last year (to 30 June 2010). Growth in PBS expenditure (and other health care programs) and the subsequent pressure on growth in spending was noted in paper recently released by Senator Wong as background to the upcoming tax forum. Yet it is not only government that is feeling the financial pain. A recent study found that expenditure by consumers on prescription medicines trebled between 1991 and 2007. The Government has attempted to rein in PBS spending through the Memorandum of Understanding (MOU) it signed with Medicines Australia and, controversially, the deferral of the listing of some medicines on the PBS.

Affordability of the PBS is only one of a number of PBS-related policy challenges facing the Government. The comparative high cost of generic medicines in Australia means that the Government is not making savings in the magnitude of other countries when pharmaceutical patents expire. Patent protection ensures a monopoly on manufacture and supply, resulting in such drugs commanding higher prices. Both of these unresolved challenges: the high out-of-pocket cost for pharmaceuticals and the (comparatively) high cost of generic medicines were recently canvassed in the latest edition of the Australian Health Review.

Kemp et al compared private expenditure on prescription pharmaceuticals in Australia with 15 other OCED countries. Private expenditure is the co-payment amount (currently $34.20 for general patients, $5.60 for concession card holders) plus any additional payments like brand premiums. They found that private expenditure on prescription pharmaceuticals in Australia trebled between 1991 and 2007. This does not include spending on pharmaceuticals that might be under the co-payments or over-the-counter medications such as pain killers or topical creams. Of the countries studied, Australia ranked 6th highest for private prescription expenditure.

This finding supports an earlier (international) survey that reported that Australians are skipping medications due to cost. A recent Newspoll suggested that around 13 per cent of Australians had delayed buying a prescription drug because of cost. The Council of Australian Governments (COAG) Reform Council National Healthcare Agreement Performance Report for 2009-10 also found that one in ten Australians over the age of 15 were foregoing prescription medication due to cost (p. 44). This raises important questions about timely and affordable access to PBS medicines, one the stated objectives of the National Medicines Policy. It also raises questions about whether the changes to PBS implemented in 2007 designed to generate savings have made medicines more affordable to patients and government alike.

The cost of generic medicines has long been of concern to government. The Government’s most recent attempt to address this was the MOU signed with Medicines Australia. It further extends the arrangements introduced in 2007 and imposes statutory price reductions to generic medicines (most of which have already taken effect) and price reductions as a result of price disclosure. For further analysis see here.

Spinks and Richardson demonstrated that Australia pays significantly higher for many of its pharmaceuticals, especially generics, ‘than is necessary’. Many pharmaceutical patents have expired or are about to expire. This means that pharmaceuticals previously protected by patent are subject to competition as generic products enter the market. Generic products contain the same active ingredient as the original version and must meet safety and quality standards. In other countries, the introduction of generic medicines has usually resulted in significant price reductions and savings to government (and consumers).

Widespread change to the pricing of generic medicines is proposed by Spinks and Richardson. They contend that current framework is largely administrative in nature, resulting in higher prices (despite the statutory price reductions and price disclosure arrangements negotiated as part of the MOU). Other countries have successfully negotiated significant price reductions for generic medicines. The authors argue that Australia should take note of these price arrangements and adopt a more competitive approach to the pricing of generic medicines.

Stakeholder groups and the Parliament, justifiably, have been concerned with the deferral of medicines on the PBS. A major source of contention with the Government’s policy was that medicines would not be listed on the PBS ‘until circumstances permit’ (widely interpreted as when the Budget returned to surplus) and that medicines would only be listed if savings could be found to offset the fiscal impact. This was considered by some to undermine the clinical and economic evaluation conducted by the independent Pharmaceutical Benefits Advisory Committee (PBAC) as part of the listing process. What further fuelled debate was the decision that each positive recommendation of the PBAC required Cabinet consideration before it could be listed on the PBS. Previously, only drugs which cost more than $10 million in any of the first four years of listing required Cabinet consideration. See here for further explanation.

A Senate Inquiry to investigate the impact of deferral of PBS medicines and associated administrative processes (namely the ‘criteria’ to determine the medicines to be deferred) has been completed. The Report recommended that the Government revert to previous PBS listing processes. It called on the Government to reinstate the $10 million Cabinet threshold and argued that listing of medicines on the PBS should not be dependent on finding savings in other areas of health. The Government Senators minority report argued that the decision to defer medicines on the PBS was a ‘difficult decision on the ground of financial responsibility’. The Australian Greens, noted that savings from the PBS could be achieved by alternative methods of pricing generic medicines rather than the deferral of PBS medicines.

Around the time the report was tabled, Prime Minister Gillard promised a ‘solution’ to the deferral of medicines on the PBS would be achieved by the end of September. To date, the Government has not given any indication as to what their policy response might be. In her keynote address to a conference jointly organised by the Department of Health and Ageing and Medicines Australia, Minister Roxon was reported as being committed to work with industry and consumers to develop a 'fair and efficient' process for deferrals.

‘Value for money’ and the ‘right price’ is a perennial issue in Australian pharmaceutical policy. Principles of economic evaluation have served Australia well but perhaps the time is right for a new approach for the pricing of generic medicines to be considered. Although it may be too early to tell, it is doubtful that the Government’s current approach will offer savings in the magnitude achieved by other countries. The deferral of medicines on the PBS is, at best, a short term solution to rising expenditure on the PBS. Even if the Government is able to develop a solution by the end of September, the underlying policy challenges of affordability and the price of generic medicines will remain.