Health and Ageing Pharmaceutical Benefits Scheme

Budget Review 2009-10 Index

Budget 2009 10: Health and Ageing

Pharmaceutical Benefits Scheme

Rebecca de Boer

It is rare a thing for a Federal Budget to not include measures affecting the Pharmaceutical Benefits Scheme (PBS). Whether it is the announcement of the listing of new products or changes to co-payment arrangements, the PBS rarely escapes the attention of those drafting the Budget. This year proved no exception with the announcement of the inclusion of several high-cost drugs to the PBS schedule, some of which had received a positive recommendation from the Pharmaceutical Benefits Advisory Committee (PBAC) almost twelve months ago. Other measures include improved access to the PBS for Aboriginal and Torres Strait Islanders in remote areas, additional funding for the National Prescribing Service and measures designed to maintain the sustainability of the PBS.

Sustainability of the PBS

Two measures were introduced to enhance the sustainability of the PBS. The first was the creation of an additional therapeutic group for two statins and, the second was some changes to reference pricing arrangements to include non-exempt items. These measures combined are expected to generate savings of around $175 million over four years.  

The Government proposes to create a new therapeutic group for two statins (cholesterol lowering drugs), atorvastatin calcium (Lipitor) and rosuvastatin calcium (Crestor).[1] Previously, these products have not been included in existing therapeutic group arrangements for statins and will continue to remain separate. The therapeutic group arrangements ensure that the Government pays the same price for products that offer the same therapeutic outcome and the price paid by the Government is the lowest price of the group. When a generic version of either product is listed on the PBS, it will be subject to a 12.5 per cent statutory price reduction and the subsequent price will ‘flow on’ to all products in that therapeutic group. This will generate further savings to the Government that have not been included in this measure, as it is impossible to predict when a generic will enter the market (if at all) or the price that may be offered to government by generic manufacturer(s).

Currently, the cost to Government for atorvastatin is $42.27 for a course of 10mg tablets and $69.48 for a course of rosuvastatin 10mg tablets. As a result of this measure, it is likely that the price of rosuvastatin will be reduced. It is not clear from the Budget papers whether the Government will negotiate a price with the manufacturers of both products or if the price of rosuvastatin will be automatically reduced. It should be noted that the manufacturer does not have to accept the price paid by government and can charge a premium—known as a therapeutic group premium—which is borne by the consumer. This amount is not included towards the PBS safety net. It is possible for an exemption to be granted, but the prescriber needs to seek approval from Medicare Australia for this to take place.[2]

There are varying estimates for script volumes for atorvastatin and rosuvastatin. Data from the Pharmacy Guild indicating that in 2008, atorvastatin accounted for 10.5 million scripts and rosuvastatin 2.2 million scripts.[3] The most recent data from Government sources indicates that in the 12 months to June 2007, there were 9.4 million scripts dispensed for atorvastatin and  274 000 for rosuvastatin.[4] By any estimate, the script volumes for both products are significant.

Both the Pharmacy Guild and Medicines Australia have indicated their willingness to cooperate with the Government in the implementation of this measure. However, Medicines Australia has commented that the ‘measure is regrettable’ and noted that the pharmaceutical industry is ‘confronting a very challenging operating environment’.[5] Despite these claims, it should be noted that recent PBS reforms have not been nearly as severe to the industry as they could have been. When the reforms were initially announced in 2006, it was anticipated that they would realise savings of $580 million over four years. These anticipated savings have since been revised down to $103 million over four years.[6] In the context of an almost $8 billion dollar program and the revenues generated by most pharmaceutical manufacturers, it could be argued that the overall impact on the (branded) pharmaceutical industry is minimal. Evidence also suggests that the pricing of several generic medicines in Australia is higher in Australia than in the US, across a range of different products.[7]

One of the possible unintended consequences of this measure is that the manufacturer will charge a therapeutic premium which approximates the former price paid by government. If this occurred, this price would be borne by the consumer, and, where a therapeutic group premium exemption is granted, by the Government. Given the significant script volumes for both atorvastatin and rosuvstatin, it is likely that these numbers could be high potentially eroding the savings generated through the measure.

Extension to reference pricing

The Budget includes another measure that is designed to correct some of the anomalies in the reference pricing system. The measure is expected to generate revenue of around $61.2 million dollars. Although the budget papers note that this measure will extend the reference pricing policies to all ‘non-exempt pharmaceutical items in a therapeutic group’, there is insufficient detail in the budget papers to determine which drugs will be affected by the measure.[8] Reference pricing arrangements extend to seven groups of drugs on the PBS[9] and presumably, the products affected by this measure are those which are not currently captured by these arrangements.

Reference pricing is one of the cornerstones of the PBS and has been in place since 1993. Under reference pricing, drugs that offer the same clinical outcome are reimbursed at the same price and drugs which offer a superior clinical benefit are often rewarded with a higher price.[10] However, this policy has meant that the Government has not always achieved significant savings when generic medicines entered the market. To address this, the Government introduced the 12.5 per cent price reduction policy in 2005 under which the first generic version of a PBS medicine was subject to an automatic (statutory) reduction of 12.5 per cent when listed. In the context of the PBS reform measures which commenced in 2008, both reference pricing and the 12.5 per cent price reduction policy still apply, but in much narrower circumstances.[11]

It has been suggested that the creation of an additional therapeutic group for atorvastatin and rosuvstatin is designed to ensure that the Government achieves as many savings as possible when a generic version of either product enters the market.[12] Although not directly commenting on the proposed budget measures, Deakin University academic, Liliana Bulfone has recommended that the Government foster increased competition in the generics sector by ceasing to disclose the price of generic medicines to competitors and introducing periodic price reviews as a way to achieve greater savings for generic medicines.[13]

The sustainability of the PBS and the pricing of generic medicines have long been of concern to Government.[14] The measures put forward in this Budget are expected to generate savings of around $175 million over four years. It remains to be seen whether these savings will be realised, and if the Government is able to achieve significant savings on generic medicines while also promoting increased competition in the Australian generic medicines sector.

[1].    This is in addition to the therapeutic group for statins already on the PBS which includes simvastatin and pravstatin.

[2].    Exemptions can be granted on the following grounds: adverse effects of base-priced drugs, interactions with base-priced drugs, interactions with expected base-priced drugs and where the switch to a base-priced drug is likely to cause confusion for the patient. See Australian Government, Schedule of pharmaceutical benefits: May 2009, Commonwealth of Australia, Canberra, 2009, p. 815, viewed 15 May 2009,

[3].    Pharmacy Guild of Australia, Pharmacy Guild budget brief 09, media release, 13 May 2009, viewed 14 May 2009,

[4].    Crestor was listed on the PBS in 2006-07 and the most recent data was for 12 months ending to 30 June 2007. See Department of Health and Ageing, Expenditure and prescriptions to 30 June 2007, Table 9 (a), p. 10, viewed 14 May 2009,

[5].    Medicines Australia, PBS cuts undermine commercial certainty, media release, 12 May 2009, viewed 14 May 2009,

[6].    Senate, Answers to Questions on Notice, Minister for Health and Ageing, 14 May 2009, Question Number 1360. These are net savings to Government which have, in part, been offset to payments made to pharmacists as part of the PBS Reform compensation package. PBS Reform has not had a uniform impact on the pharmaceutical industry – price cuts ranged from a one off cut of 25 per cent on 1 August 2008 to a 6 per cent price cut staged over three years, commencing on 1 August 2008. Price disclosure arrangements will further reduce the price paid by government for some medicines (namely generics) but the full impact of this will not be seen for several years.

[7].    L. Bulfone, ‘High prices for generics in Australia – more competition might help’, Australian health review, vol. 33 (2), 2009, pp. 200-214, viewed 22 May 2009,

[8].    Australian Government, Budget measures: budget paper no. 2: 2009–10, Commonwealth of Australia, Canberra, 2009, p. 303.

[9].    These are; Angiotensin converting enzyme (ACE) inhibitors, Angiotensin II receptor antagonists (ATRAs), Calcium channel blockers (CCBs), H2-receptor antagonists (H2RAs). HMG Coenzyme A reductase inhibitors (statins). Proton Pump inhibitors (PPIs), SSRIs plus. A subgroup of antidepressants, including selective serotonin reuptake inhibitors (SSRIs) and other antidepressants that have been listed on a cost minimisation basis with the SSRIs. Refer to Pharmaceutical Benefits Pricing Authority, PBPA polices, procedures and methods, Section 2, viewed 22 May 2009,

[10]. D Henry, ‘Patients the losers and makers the winners in PBS tinkering’, The Australian, 9 June 2007, viewed 22 May 2009,,20867,21872525-23289,00.html

[11]. A Searles, S Jefferys, E Doran, D Henry. ‘Reference pricing, generic drugs and proposed changes to the Pharmaceutical Benefits Scheme’, Medical journal of Australia, vol. 184 (4), 2007, pp. 236-9, viewed 17 May 2009,

[12]. N Lush, ‘More to Budget than meets the eye?’ Pharma in focus, 18-24 May 2009, viewed 18 May 2009,

[13]. Bulfone, p.213.

[14]. For example, the response to both Intergenerational Reports, and the various budget measures over the past ten years were designed to reduce spending on the PBS. Comments made by Tony Abbott at the introduction of PBS Reform in 2006 noted that PBS reform was designed to address two problems; overpricing of generics to government and difficulties of reference pricing in a system of mandatory price cuts.