7 April 2016
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Social Policy Section
This quick guide provides an introduction to the
Pharmaceutical Benefits Scheme (PBS), the Australian Government program which subsidises
the cost of medicines. The quick guide briefly introduces and provides links to
further information on the PBS. It highlights the cost of the PBS to the
Australian Government, the price of medicines for patients, medicines available
on the PBS and the approval process that pharmaceutical companies undertake to
have their medicines subsidised. It also outlines agreements between the
Australian Government and external stakeholders that are relevant to the PBS,
and suggests some possible future developments.
The Australian Government subsidises the cost of many medicines
for Australians through the Pharmaceutical
Benefits Scheme (PBS). The first
attempt to legislate for a scheme to provide approved prescription
medicines, such as antibiotics, free of charge to Australian residents was made
by the Curtin Labor Government in 1944 but the legislation was struck down by
the High Court. A limited version of the PBS began in 1948, offering
free medicines for pensioners and 139 ‘life saving and disease preventing’
medicines free of charge to the general public. The PBS became
a comprehensive scheme offering access to a wide range of medicines in
The PBS is now regarded as a key component of the National Medicines
Policy (NMP) which ‘aims to improve positive health outcomes for all
Australians through their access to and wise use of medicines’. The PBS is
established under the National
Health Act 1953 (the NHA).
According to the 2014–15 Department of Health (DoH) Annual
Report, the PBS cost
the Australian Government $9.1 billion in 2014–15 with more than 211
million prescriptions subsidised (p. 49). This represents 21 per cent of the $43.3
billion in funds
administered by the DoH in 2014–15. (p. 14). By way of comparison, medical
services (including Medicare benefits) accounted for 47 per cent of the
administered funds, and private health insurance rebates for 13 per cent.
Expenditure on the PBS is uncapped, and can therefore
increase as new drugs are added and demand grows. Total PBS expenditure grew at an average annual rate of 4.9 per cent from 2005–06 to 2013–14, although
growth was slower towards the end of this period, and PBS expenditure actually
contracted by 2.2 per cent in 2012–13. More recently, PBS expenditure fell
slightly from $9.15 billion in 2013–14 (p. 55) to $9.1 billion in 2014–15 (p.49).
Budget Office analysis shows that although moderate growth in PBS spending
to 2018–19 was forecast in the 2015–16 Budget, this was subsequently revised
downwards to a relatively flat level of spending (Figure 37, p. 20). This
downwards revision is due to the 2015 PBS
Access and Sustainability Package of reforms, which is lowering the price
the Government pays for many medicines. It also reflects the ongoing impact of price
disclosure policies, which are designed to move the PBS price paid by the
Government closer to the market price of off patent medicines (which may be
Consumer co-payments and safety
Patients pay a co-payment towards the cost of each PBS
medicine, with the Australian Government covering the remaining cost, which can
vary from nil to thousands of dollars per prescription. This keeps otherwise
expensive medicines affordable for consumers. Patient
co-payments are currently set at $6.20 for concession
card holders and up to $38.30 for those ineligible for a concession (known
as general patients).
Safety Net scheme is intended to protect patients needing a large number of
medicines in one year from excessive out of pocket costs. Individuals and families who spend an amount equal to their Safety Net
threshold on co-payments in a calendar year receive further
prescriptions for that year for free (concession card holders) or for the concessional
co-payment of $6.20 (general patients). The 2016 thresholds are $372.00
for concession card holders and $1,457.70 for general patients.
Since 1 January 2016, pharmacists have been
permitted to offer consumers a
discount of up to $1 on each PBS co-payment, as long as the pharmacist
absorbs the cost of the discount.
Under section 99G of the NHA, co-payments
and Safety Net thresholds are adjusted in line with the Consumer Price Index
(CPI) on 1 January each year. The PBS website provides a table outlining the history of PBS co-payments and Safety Net thresholds since 1960. The National
Health Amendment (Pharmaceutical Benefits) Bill 2014 proposes
to further increase co-payments and Safety Net thresholds. This Bill has been before the Senate since July 2014, but appears unlikely to pass.
What medicines are subsidised under
According to the 2014–15 DoH Annual Report, as at June 2015,
the PBS included 793 medicines in 2,066 forms and dosages, sold as more than 5,300 differently
branded items (p.49).
Medicines that are subsidised under the PBS are listed on
the Schedule of Pharmaceutical Benefits (the Schedule). The Schedule can be downloaded, browsed or searched via
the ‘PBS Medicine Search’ box on the PBS
website. Changes to the Schedule are made every month by amendment to the National Health (Listing of
Pharmaceutical Benefits) Instrument 2012, which is made under the NHA.
Most PBS medicines are dispensed by community pharmacies and
used by patients at home. These are known as ‘General Schedule’ or ‘section 85’
medicines because they are dispensed under section
85 of the NHA.
Eligible veterans receive subsidised medicines through the Repatriation Pharmaceutical
Benefits Scheme (RPBS), which is administered by the Department of
Veterans’ Affairs (DVA) under the Veterans’ Entitlements
Act 1986. This includes medicines listed on the PBS, as well as
additional items such as wound care products which are listed on the Repatriation Schedule of
According to the 2014–15
DVA Annual Report, expenditure under the RPBS was $355.3 million in 2014–15
Medicines with special arrangements
100 of the NHA some PBS medicines are supplied through special
arrangements where normal supply through community pharmacies is not suitable. For
example, some medicines may require special storage or dispensing, specialist
monitoring during treatment, or administration in a hospital outpatient
setting. Such medicines are subsidised on the PBS under a number of ‘Section 100’ programs,
In addition to the above programs for specific medicines, section
100 also allows for the supply of many PBS
medicines to remote area Aboriginal Health Services (AHSs). Under these
arrangements, clients of approved AHSs can receive medicines free of charge
directly from the AHS, without the need for a normal PBS prescription form.
Statistics on PBS medicines
statistics are available in a number of forms. The annual PBS Expenditure and
Prescriptions reports are particularly useful as they include information
on the most frequently prescribed medicines and the highest cost medicines.
These reports focus mainly on general (section 85) medicines, but also include
some statistics on RPBS and section 100 medicines.
Statistics on the number of
prescriptions and cost of subsidies paid for individual PBS and RPBS medicines
are available via PBS
Item Reports on the Department of Human
Services website. The item number(s) or codes for an individual medicine can be
located by entering the name of the medicine in ‘PBS Medicine Search’ box on
the PBS website. The relevant item
number(s) can then be entered into the ‘Item numbers’ box on the PBS
Item Reports to generate a custom report on the number or cost of PBS
prescriptions dispensed in the selected timeframe. Caution should be used when
generating these reports as the same medicine may have more than one item
number, and item numbers can change over time.
Life saving drugs supplied outside
The Australian Government provides subsidised access,
outside of the PBS, to ten expensive ‘life saving drugs’ for very rare
conditions through the Life
Saving Drugs Programme (LSDP). In 2014–15, 278
patients received free drugs under the LSDP (p. 52).
The listing process for PBS
Therapeutic Good Administration
(TGA) approval process
Before a medicine can be listed on the PBS, it must first be
approved for use in Australia by the Therapeutic
Goods Administration (TGA). The sponsor of the medicine, usually a
pharmaceutical company, applies to the TGA to have the medicine entered in the Australian
Register of Therapeutic Goods (ARTG) so that it can be sold in Australia. The
sponsor must provide evidence (such as from clinical trials) that the medicine meets the required standards
of quality, safety and effectiveness for the intended use.
Pharmaceutical Benefits Scheme
(PBS) approval process
A medicine that is listed on the ARTG can be marketed in
Australia. However, the medicine will not attract an Australian Government
subsidy unless the sponsor is also successful in listing the medicine on the
PBS. Without the subsidy, patients have to pay the full cost of the medicine.
Applications for PBS listing are considered by the Pharmaceutical
Benefits Advisory Committee (PBAC), which is an independent expert body
appointed by the Australian Government. A new medicine cannot be listed on the
PBS unless the PBAC makes a positive recommendation for its listing. Under section
101 of the NHA, the PBAC must take into account both the cost and
clinical effectiveness of the medicine when compared with other treatments for
the same condition.
Guidelines set out in detail the information that the sponsor needs to
include in their application. This includes information about the new medicine
and the medicine or treatment it is being compared to, evidence from clinical
trials, an economic evaluation and an estimate of the impact on the Budget. A review of the
PBAC Guidelines is currently underway, with an expected completion date of
The PBAC has 17 weeks to
assess and decide on the application, based on the cost-effectiveness or ‘value for money’ of the new medicine when compared to existing treatments.
The PBAC uses a Health
Technology Assessment (HTA) methodology to evaluate applications. The HTA
methodology allows the PBAC to assess new medicines against existing treatments
in order to ensure the medicines subsidised on the PBS achieve the greatest
health improvement at the lowest cost. The PBAC can consider other factors in addition to cost-effectiveness, for example whether the new medicine is less
toxic than existing treatments, or fills a treatment gap for a particular
Consideration of a new medicine by the PBAC can result in
one of three outcomes:
a recommendation to Government that the medicine be listed on the PBS, a
decision not to recommend listing on the PBS, or the deferral of a decision
pending additional information. Since 2005, the PBAC has published Public
Summary Documents giving reasons for its decision on each medicine
considered for listing.
If a medicine does not receive a positive recommendation
from the PBAC, the sponsor may prepare and resubmit a new application for PBS
listing, or they may choose not to reapply and only to sell the medicine in
Australia via private
If a positive recommendation is given by the PBAC, the
sponsor must still negotiate the final arrangements for listing on the PBS, including pricing with the DoH. Final approval can be
granted by the Minister for Health, unless the net cost of the medicine to the
PBS is more than $20 million per year, in which case Cabinet approval is
required for PBS listing.
The PBAC regularly reviews the list of PBS items, and can recommend
that a medicine be removed from the
Schedule if there are safety or efficacy concerns, or if better medicines
have become available. Medicines may also be removed from the Schedule as a
result of changes
in Government policy, or at the request of the sponsor.
The Australian Government maintains agreements with external
stakeholders who have a direct interest in the operation of the PBS.
Community Pharmacy Agreements
Pharmacists need approval under the NHA to dispense PBS medicines from a particular
pharmacy. The pharmacist charges the patient the relevant co-payment, and claims
the remainder of the PBS-dispensed
price for the medicine from the Australian Government. The PBS-dispensed
price is made up of the cost of the medicine to the pharmacist, plus handling,
dispensing and other fees.
These remuneration arrangements for pharmacists are agreed
between the Australian Government and the Pharmacy
Guild of Australia, the national peak body representing
community pharmacies, and are set out in a succession of five year
agreements. The most recent agreement, the Sixth
Community Pharmacy Agreement (6CPA), commenced on 1 July 2015. In addition
remuneration and wholesaler
payments, the 6CPA also encompasses funding
for community pharmacy programmes, Pharmacy
Location Rules which regulate where approved pharmacies can operate, a review
of pharmacy remuneration and regulation, and other matters.
Pharmaceutical Industry agreements
PBS policy and price settings have a significant impact on
pharmaceutical companies, who in turn lobby and negotiate with the Government,
in particular through their peak representative bodies.
Medicines Australia (MA) represents the innovative (patented) medicines industry. In 2010, MA
entered into a Memorandum
of Understanding (MoU) with the Government agreeing the direction of PBS
reforms over 4 years. However, MA and the Government could
not reach agreement regarding the 2015 round of reforms.
The Generic and
Biosimilar Medicines Association (GMBA) represents generic and biosimilar
(off patent) medicine suppliers in Australia. In 2015, GMBA signed its first Strategic
Agreement with the Government (under its previous name of the Generic Medicines
Industry Association), containing measures to promote the increased usage of
and biosimilar medicines on the PBS. The Strategic Agreement acknowledges
that such medicines increase price competition leading to significant savings
for the Government.
It is likely the Government will continue to seek savings
from existing PBS listed medicines, through further price reforms or higher
patient co-payments, or both, in order to accommodate future PBS listings. Competition
in the pharmacy and pharmaceutical sectors may also come under renewed scrutiny,
driven by factors such as the review of pharmacy regulation and the emergence
of cheaper biosimilar alternatives to expensive medicines. The PBAC guidelines review
is likely to stimulate the ongoing debate about how best to ensure the timely
and cost effective listing of new medicines on the PBS.
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