Budget Review 2018–19 Index

Alex Grove

The Budget provides funding for new medicines and vaccines, while continuing to control overall expenditure on the Pharmaceutical Benefits Scheme (PBS). Reforms to the way the Government pays for high cost medicines do not directly affect consumers, but do have implications for the pharmaceutical supply chain, including pharmaceutical companies, wholesalers and pharmacists.

Pharmaceutical Benefits Scheme

The Australian Government subsidises the cost of many medicines through the PBS.[1] The Budget contains changes to the way the Government pays for certain high cost medicines on the PBS. Under the current system, the Government may enter into special price arrangements for the listing of a PBS medicine through a deed of agreement. This allows the published PBS price (which can affect international markets) to be higher than the actual price of the medicine to the Government. The pharmaceutical company funds the difference between the published price and the ‘cost-effective price’ through a confidential rebate which is paid to the Government in arrears.[2] Rebates have been growing in recent years. In 2016–17 the Department of Health (DoH) received $3.27 billion in ‘PBS drug recoveries’, much of which related to rebates paid for new medicines to treat Hepatitis C.[3]

The Government has negotiated with individual pharmaceutical companies to reduce the published PBS price of some high cost medicines from 1 July 2018, with a corresponding decrease in the rebate to be repaid by the companies. The Government will also implement an ‘improved payment administration trial’ for some high cost medicines from 1 July 2019.[4] The design of the trial is still being negotiated, but the intent is to pay pharmaceutical companies the cost-effective price of the medicine, while continuing to remunerate wholesalers and pharmacists based on the published price.[5] These changes to the remuneration of the PBS supply chain may make it easier for pharmacists to stock high cost medicines.[6] They may require legislation.

As part of the same budget measure, the Government has set aside $1.0 billion over the forward estimates to pay for medicines which have not yet been listed on the PBS.[7] Including both the changes to rebates and the $1.0 billion that has been set aside, the overall measure is budget neutral because government upfront expenditure on the PBS will reduce, but revenue from rebates will also fall. When the $1.0 billion is included, overall PBS investment (expenditure minus rebates) is forecast to grow slightly in nominal terms to 2021–22, but to decline in real terms by 7.3 per cent.[8]

New medicines are listed each month on the PBS, following a positive recommendation from the Pharmaceutical Benefits Advisory Committee and pricing negotiations with DoH.[9] The Budget provides $1.4 billion (less confidential rebates) over five years from 2017–18 for new and amended listings on the PBS. This includes medicines to treat cancers, multiple sclerosis and spinal muscular atrophy (SMA, a form of motor neuron disease), as well as a medicine to prevent HIV/AIDS.

The Budget contains measures to encourage appropriate use of medicines and increased prescribing of generic and biosimilar medicines. This includes $28.2 million over five years from 2017–18 to upgrade doctors’ prescribing software, including an option for electronic rather than paper PBS prescriptions.[10] There is also $5.0 million over three years from 2017–18 to continue a campaign to encourage prescribing of generic and biosimilar medicines (which are often cheaper than their brand name equivalents). This will include changes to doctors’ prescribing software to allow medicine ingredient name prescribing by default, without preventing doctors from prescribing by brand name.[11] Increased uptake of these medicines is expected to reduce PBS spending by $335.8 million over five years from 2017–18. The Government will also target prescribers with education activities to encourage appropriate use of certain medicines, and blood and blood products for an expected saving of $77.6 million over five years from 2017–18.

Life Saving Drugs Program

The Life Saving Drugs Program (LSDP) funds expensive medicines for rare and life threatening diseases. It is not part of the PBS. The Government responded to the Post-market Review of the Life Saving Drugs Program in January 2018.[12] The Government announced it would retain and improve the LSDP (despite the review recommending that it should transition to the PBS), and apply pricing policies such as statutory price reductions (which currently apply to PBS medicines) to LSDP medicines.[13]

The Budget includes $5.4 million over five years (already provided for in forward estimates) from
2017–18 to implement improvements to the administration of the LSDP. The Government has reached an agreement with Medicines Australia (MA) on behalf of pharmaceutical companies to implement PBS-like pricing policies for the LDSP. This is likely to result in savings, but the financial impact is not published in the Budget as it is commercial-in-confidence.


The National Immunisation Program (NIP) is a series of free immunisations given at specified ages or to people in specified risk groups.[14] The Budget provides $42.5 million over five years from 2017–18 to list whooping cough vaccines for pregnant women, high dose influenza vaccines for people aged 65 or over and a vaccine for children aged 12 months to protect against meningococcal A,C,W and Y.

Stakeholder reaction

Reaction to the budget measures has been largely positive, apart from concerns about the overall level of funding for the PBS.

MA has welcomed funding for the listing of new PBS medicines, and will continue to negotiate regarding the payment trial for high cost medicines.[15] The Generic and Biosimilar Medicines Association (GBMA) has welcomed prescribing and other measures to encourage uptake of generic and biosimilar medicines, as well as funding for new PBS listings and the LSDP.[16] Pharmaceutical industry media publication PharmaDispatch has taken a more negative view, questioning why PBS funding is declining in real terms over the forward estimates when funding for other health programs is growing.[17]

The Pharmacy Guild of Australia, representing pharmacy owners, has welcomed changes to rebates to the extent that they reduce cash flow pressures on pharmacies. In negotiating the terms of the trial, the Guild states it will insist on automated arrangements for pharmacies and no reduction in dispensing related remuneration.[18]

The Consumers Health Forum of Australia has welcomed budget measures promoting infant and maternal health, including the listing of a medicine to treat SMA in infants and whooping cough immunisations for pregnant women.[19]


[1].          Department of Health (DoH), ‘About the PBS’, Pharmaceutical Benefits Scheme (PBS) website, last updated 1 January 2018.

[2].           ‘Government pushing on with rebate change but implementation the challenge’,, 27 February 2018.

[3].          DoH, Annual report 2016–17, pp. 291, 302.

[4].          The budget figures in this brief have been taken from the following document unless otherwise sourced: Australian Government, Budget measures: budget paper no. 2: 2018–19, pp. 112–120.

[5].          DoH, ’PBS news: Changes to PBS payment arrangements for certain medicines’, PBS website, last updated 3 May 2018.

[6].          G Hunt (Minister for Health), Speech to the APP Conference, Gold Coast, speech, 3 May 2018.

[7].          Provision for future increases in new medicine listings is made in the Contingency Reserve, but in this Budget such expenses have been allocated to the pharmaceutical benefits and services sub-function. See Australian Government, Budget strategy and outlook: budget paper no. 1: 2018–19, pp. 6-20, 6-21, 6-44.

[8].          Ibid, pp. 6-21, 6-22.

[9].          A Grove, The Pharmaceutical Benefits Scheme: a quick guide, Research paper series, 2015–16, Parliamentary Library, Canberra, 2016.

[10].       DoH, Improving access to medicines – ePrescribing for safer medicines, Budget 2018–19 fact sheet, DoH, 8 May 2018.

[11].       DoH, Improving access to medicines – encouraging greater use of generic and biosimilar medicines, Budget 2018–19 fact sheet, DoH, 8 May 2018.

[12].       DoH, Post-market review of the Life Saving Drugs Programme: June 2014–June 2015, report to the Australian Government, 2018; Australian Government, Australian Government response to the post-market review of the Life Saving Drugs Program, 2018.

[13].       Ibid.

[14].       DoH, ‘National Immunisation Program schedule’, DoH website, last updated 8 December 2017.

[15].       Medicines Australia, Government commits to PBS, time to unpack the detail, media release, 8 May 2018.

[16].       Generic and Biosimilar Medicines Association, Commitment to affordable healthcare, media release, 9 May 2018.

[17].       ‘Why is the PBS being starved of funding?’,, 10 May 2018.

[18].       Pharmacy Guild of Australia, ‘The PBS – now more than ever the most sustainable part of the health system’, Forefront, 8(9), 8 May 2018.

[19].       Consumers Health Forum of Australia, Health budget includes welcome consumer focus, media release, 8 May 2018.


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