The National Health Amendment (Enhancing the Pharmaceutical Benefits Scheme) Bill 2021 (Bill) was introduced into the House of Representatives on 28 October 2021.
The Bill seeks to implement a number of measures agreed to in Strategic Agreements (Agreements) between the Government and the medicines industry of Australia (represented by Medicines Australia and the Generic and Biosimilar Medicines Association (GBMA)). The Agreements were signed in September 2021, and will be in place for five years from 1 July 2022.
As outlined in the Explanatory Memorandum (EM), the Bill has three key elements:
- changes to statutory price reductions for medicines listed on the Pharmaceutical Benefits Scheme (PBS), with several of the current arrangements due to expire on 1 July 2022 (Part 2 of the Bill)
- establishing a price reduction floor (floor price) for PBS medicines that have an approved ex-manufacturer price (AEMP) of $4.00 or less (Part 2) and
- requiring suppliers of PBS medicines (Responsible Persons) with a floor price to maintain a minimum level of stock in Australia (Part 4).
This Flagpost will focus on medicine supply security arrangements and the Agreements entered into with industry. Further information about the operation of the PBS and statutory price deductions more generally has previously been published by the Library.
It is estimated that more than 500 PBS listed medicines were affected by medium to critical impact shortages in 2019 and 2020, affecting people’s access to these medicines in Australia. Medicines that were most susceptible to shortages were commonly prescribed, low-cost, generic medicines, including antibiotics and medicines used to treat epilepsy and mental health conditions. According to the EM, PBS listed medicines supplied by drug manufacturers to the Commonwealth for an AEMP price of $4.00 or less per pack were the most susceptible (p. 2).
The COVID-19 pandemic not only exacerbated medicine shortages but also highlighted weaknesses in supply chains. The Senate Select Committee on COVID-19 and the Productivity Commission have recently examined the issue of vulnerable supply chains, including its impact on access to medicines. The Government has also adopted strategies to try and minimise the impact on medicine shortages during the pandemic (on top of existing measures), such as the Serious Scarcity Substitution Instruments issued by Therapeutic Goods Administration (TGA) that allows community pharmacists to substitute specific medicines without needing prior approval from the health practitioner who prescribed the medication (who will be notified after the substitution).
Both of the Agreements include a clause providing for security of supply, which the Government has termed the Medicines Supply Security Guarantee, which is designed to ‘better protect Australian patients, pharmacists, and prescribers from the impact of the increasing number of medicines supply shortages and interruptions, both globally and domestically’.
The Agreements identify three main measures for supply security:
- the continuation of a modified version of the 30 per cent price disclosure threshold
- establishing a minimum Floor Price for certain F2 medicines listed on the PBS
- requiring Responsible Persons supplying PBS medicines with a Floor Price to maintain a minimum level of stock in Australia and provide updates on the stock holdings when providing regular information for Price Disclosure (to commence on 1 July 2023).
Depending on the arrangements, the minimum amount of stock may be for four or six months of stock of that medicine based on usual demand, or as determined by the Minister for Health and Aged Care (the Minister) (proposed section 99AEKC of the National Health Act 1953 (the Act), at item 86 of the Bill). The Commonwealth has committed to consult with industry before July 2023, and as necessary thereafter, regarding alternative stockholding amounts should the Minister wish to make a determination for a different amount (refer to clause 3.6.4 in the Agreement with GBMA and clause 11.4.3 in the Agreement with Medicines Australia).
In addition, the Government agreed to introduce amendments to the Act that will:
- require the Responsible Person supplying the brand listed on the PBS with a Floor Price to notify the Minister if their stock may fall, or has fallen, below the stockholding requirement, and provide a written explanation on why the stock levels have fallen below the requirement (proposed section 99AEKD of the Act, at item 86 of the Bill)
- if the stockholding requirements are not met or the brand is being offered at a price below its AEMP the Minister will, among other things, have the power to revoke the listing of the medicine on the PBS (proposed section 99AEKE of the Act, at item 86 of the Bill).
Part 4 of the Bill inserts proposed Division 3CAA – Minimum stockholding requirement into Part VII of the Act, which will commence on 1 July 2023. The Bill introduces the changes discussed above, including making it an offence for failing to comply with the minimum stockholding requirements or the stockholding disclosure requirements, which can result in a penalty of 60 penalty units ($13,320) for committing either offence (proposed subsections 99AEKD(3) and 99AEKF(3) of the Act, at item 86 of the Bill).
Stakeholder views on the Bill
GBMA welcomed the introduction of the Bill calling it a ‘watershed moment in the security of medicine supply for Australian patients’ with the proposed legislation enabling the industry ‘…to increase its stock holdings substantially so we can better withstand any future medicine supply chain shocks’.
Medicines Australia also welcomed the Bill. Industry media have noted that the new pricing arrangements establishing a minimum floor price (which could result in some low-cost medicines’ AEMP being increased) will automatically be passed on to non-concessional patients as ‘these price increases … are not permitted to be discounted through trading terms to pharmacy …’. In addition, some pharmaceutical companies have raised concerns about the proposed pricing changes, with Medicines Australia noting that the price reductions could result in ‘occasional inappropriate outcomes’. Medicines Australia’s CEO has stated overall ‘the Strategic Agreement is overwhelmingly positive for the innovative medicines and vaccines industry …’ and Medicines Australia is committed to work with Government and industry to try and minimise the impact of these outcomes.
In response to concerns about Australia’s vulnerability to global supply chain shortages, the Government and industry have committed to new arrangements for onshore minimum stock levels of particular PBS listed medicines. The amendments introduced in this Bill are designed to support a sustainable PBS and ensure reliable medicines supply for people in Australia whilst providing a commitment to industry on pricing policy for the five-year term of the Agreements. The Bill is anticipated to deliver a saving of approximately $1.9 billion (p. 4) with the Government committing to reinvest all savings achieved by the reforms to the statutory price reductions in the PBS.