Pharmaceutical Benefits Scheme

Budget Review 2014–15 Index

Leah Ferris

As part of its goal to ‘put health spending growth on a sustainable path’, the Government has announced changes to the Pharmaceutical Benefits Scheme (the PBS) which will increase the amount that consumers pay for medicines.[1] By increasing both the co-payment and the safety net, the Government will achieve savings of $1.3 billion over four years.[2]

Under the PBS, the Government subsidises the cost of those medicines that are considered suitable for listing on the PBS Schedule. When a consumer purchases the drug at a pharmacy, they are required to pay a co-payment (currently up to $36.90 for most PBS medicines or $6.00 for those people who have a concession card).[3] If the cost of the medicine is higher than the co-payment, the Government pays the remainder. The co-payment is intended to act as a contribution to the overall cost of the PBS. The amount of the co-payment is adjusted on 1 January each year in line with the Consumer Price Index (CPI). From 1 January 2015, in addition to the CPI increase, the co-payment for general patients will increase by $5.00 (to $42.70) and the co-payment for concessional card holders will increase by $0.80 (to $6.90).

There will also be an increase in the PBS safety net thresholds. The PBS Safety Net is aimed at protecting patients who require large quantities of medicines by reducing the cost of their medicines once they reach a threshold. The safety net for general patients will increase by 10 per cent per year for a period of four years in addition to the CPI indexation (beginning 1 January 2015). Currently the safety net is $1,421.20 per person/family.[4] When a patient or their family’s total expenditure reaches this amount, they then pay the concessional amount for the rest of that year. Concessional patients currently have a safety net of 60 PBS prescriptions (or $360.00). Once they go over this limit PBS medicines are free for the rest of the year. For concessional patients there will be an increase of two prescriptions per year for a period of four years (beginning 1 January 2015).  It remains the responsibility of consumers to keep a record of their PBS medicine costs on a Prescription Record Form in order to qualify for the safety net.[5]

In introducing the increased patient contributions, the Government has included a commitment that all savings will be invested in the new $20 billion Medical Research Future Fund.[6] Medicines Australia has shown enthusiastic support for this proposal.[7] However, the Government has stated that increased patient contributions will keep the PBS sustainable and allow for new medicines to be listed. It is unclear how this will occur if all savings are to be invested in the Fund.[8]

This is not the first time that the PBS co-payments or the safety net have been increased, with the latest changes occurring during the Howard Government. From 1 January 2005, patient co-payments increased by 21 per cent. [9] In the 2005–06 Budget, the Government announced that both general and concessional safety nets would increase annually from 1 January 2006 to 1 January 2009.[10] Despite having criticised the increases while in Opposition, this increase was retained under the Rudd Government.[11]

The underlying issue with price increases is the impact it has on consumer’s access to medicines. Australia’s co-payments are already fairly high and recent statistics show that people are already deferring filling their prescriptions because of the cost, especially in disadvantaged areas.[12] Not only does this significantly impact the health of the individuals themselves, it also leads to higher healthcare costs due to increased hospitalisations.[13] Increases to both co-payments and the safety net mean that not only are consumers required to pay a higher cost before the safety net applies; the period for which they are covered by the safety net is significantly shorter or in some cases non-existent.  This particularly affects concessional card holders, who account for 78.5 per cent of the Government’s PBS expenditure.[14] If the cost of medicines continues to increase, some Australians will no longer have timely access to the medicines they need at a cost they can afford to pay—one of the core components of the National Medicines Policy.[15]

The Consumer Health Forum (CHF) has expressed great concern over the growing out-of-pocket costs that Australian pay for health care.[16] Both the CHF and the Pharmacy Guild of Australia have criticised the increase in the cost of medicines for consumers and have argued that it will particularly affect the elderly in light of other social security changes.[17] However Medicines Australia and Generic Medicines in Australia have welcomed the changes as a way of making the PBS more sustainable.[18]

Both of the increase in co-payments and the increase in the safety net were discussed by the National Commission of Audit (the Commission) in its report into Government expenditure.[19] While the Commission recommended that the co-payment for general patients be increased by $5.00, it did not recommend any changes to the concessional co-payment.[20] Its view on the safety net was also different, with general patients to pay $11.00 as opposed to $6.00 once they hit the threshold and concession card holders to co-contribute $2.00 to the cost of their medicines once the threshold had been met.[21]

Industry groups are no doubt relieved that the Government has so far chosen to not implement some of the more significant changes proposed by the Commission. These included capping the cost of the PBS to control expenditure, establishing a new independent authority which would take over the role of the Pharmaceutical Benefits Advisory Committee, and opening up the pharmacy sector to competition, including through the deregulation of ownership and location rules.[22] While these reforms would have resulted in significant savings to the PBS, they would have been strongly opposed by industry stakeholders.

Phillip Clarke has argued that the Government would have saved significantly more by changes to pricing arrangements, including reducing the cost of generic medicines.[23]He states that it will be ‘consumers, particularly those with chronic diseases, rather than the pharmaceutical industry or pharmacists that will feel the pain from these budget measures’.[24] While the changes to the co-payments and the safety net will achieve savings of $1.3 billion over four years, this is fairly insignificant when compared with the total cost of PBS expenditure (in 2012–13 it was $9.0 billion).[25]

[1].           Australian Government, Budget 2014–15: Health, 2014, p. 1, accessed 14 May 2014.

[2].           The budget figures have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2014–15, 2014, accessed 14 May 2014.

[3].           Department of Health, ‘Fees, patient contributions and safety net thresholds’, PBS website, accessed 14 May 2014.

[4].           Ibid.

[5].           Department of Human Services, ‘Pricing of PBS medicine’, Medicare website, accessed 15 May 2014.

[6].           Budget measures: budget paper no. 2: 2014–15, op. cit., p. 140.

[7].           Medicines Australia, Government recognises value of PBS and vaccines in Federal Budget, media release, 13 May 2014, accessed 14 May 2014.

[8].           Budget 2014–15: Health, op. cit., p. 11.

[9].           Department of Health, ‘History of PBS copayments and safety net thresholds’, PBS website, accessed 14 May 2014.

[10].         L Buckmaster, National Health Amendment (Budget Measures—Pharmaceutical Benefits Safety Net) Bill 2005, Bills digest, 56, 2005‑06, Parliamentary Library, Canberra, 2005, p. 4, accessed 14 May 2014.

[11].         Ibid., p. 5.

[12].         Australian Bureau of Statistics (ABS), Health services: use and patient experience, cat. no. 4102.0, ABS, Canberra, 2011, accessed 14 May 2014.

[13].         Consumers Health Forum of Australia, Analysis of the 2013-14 Federal Budget, May 2013, pp. 2–3, accessed 15 May 2014.

[14].         Department of Health, Expenditure and prescriptions twelve months to 30 June 2013, Pharmaceutical Policy Branch, 30 June 2013, p. v, accessed 15 May 2014.

[15].         Department of Health and Ageing (DoHA), The National Medicines Policy Document, DoHA, 2000, p. 1, accessed 15 May 2014.

[16].         Consumers Health Forum of Australia, op. cit., pp. 2–3.

[17].         M Lam, ‘Industry breaths a sigh of relief’, Pharma in Focus, 14 May 2014; S Parnell, ‘Coalition highlights healthy payments’, The Australian, 16 May 2014, p. 4,  accessed 14 May 2014.

[18].         Ibid.

[19].         National Commission of Audit, Towards responsible government: phase one, pp. 109–113, February 2014, accessed 14 May 2014.

[20].         Ibid., p. 113.

[21].         Ibid.

[22].         National Commission of Audit, op. cit., p. 113.

[23].         P Clarke,’ Federal budget 2014: health experts react’, The Conversation, 13 May 2014, accessed 14 May 2014.

[24].         Ibid.

[25].         Department of Health, Expenditure and prescriptions twelve months to 30 June 2013, op. cit.


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