Pharmaceutical Benefits Scheme

Budget Review 2017–18 Index

Alex Grove

The 2017–18 Budget contains a number of changes to the Pharmaceutical Benefits Scheme (PBS). This follows the announcement of a five-year package of reforms in 2015.[1] This article focuses on the three most financially significant measures: co-payments will not be increased, savings will be generated through price cuts, and community pharmacy will receive extra funding.[2]

Co-payment increase abandoned

The Australian Government subsidises the cost of many medicines through the PBS. Patients pay a co-payment (currently $6.30 for concession card holders and up to $38.80 for general patients) towards the cost of each PBS medicine, and the Australian Government covers the remaining cost. These co-payments are reduced or eliminated for individuals and families who spend an amount equal to their PBS safety net threshold on co-payments in a calendar year.[3]

The 2014–15 Budget contained a measure to increase the co-payment for general patients by $5.00 and concessional patients by $0.80 (in addition to indexation). It also increased the safety net thresholds above inflation each year for four years.[4] The measure was widely criticised amid concerns that it might lead to patients not filling their prescriptions.[5] Legislation to enact this measure stalled in the Senate and lapsed at prorogation in 2016.[6]

The Government has announced that it will not proceed with these increases to co-payments and safety net thresholds, at a cost to the Budget of $938 million over four years.[7] The Consumers Health Forum of Australia (CHF) has welcomed the removal of the ‘“zombie” $5 increase to prescription co-payments’.[8]

Price cuts for PBS medicines

The Budget contains $1.8 billion in savings over five years under the ‘cheaper medicines’ measure, to be achieved through the expansion of existing statutory price reductions for PBS-listed medicines.[9]

PBS medicines are divided into two categories for pricing purposes. Formulary 1 (F1) is for single brand (generally patented) medicines and Formulary 2 (F2) is for medicines (generally off-patent) that have multiple brands listed on the PBS.[10] Medicines on F1 currently take a five per cent cut in the price paid by the Government after five years on the PBS.[11] When a second brand of a medicine is listed on the PBS, the medicine moves to F2 and takes a 16 per cent price cut.[12] Under this budget measure, F1 medicines will continue to take a five per cent price cut after five years on the PBS (extended to 2022), but will also take further price cuts of 10 per cent after 10 years and five per cent after 15 years. When a medicine moves to F2, the price cut will increase from 16 to 25 per cent.[13] Legislation will be required to implement the price cuts.

These price cuts may result in cheaper PBS medicines for general patients if medicine prices fall below the maximum general co-payment of $38.80. However, the largest savings will accrue to the Australian Government. Largely as a result of this measure, expenditure on pharmaceutical benefits and services is expected to decrease by 10.3 per cent in real terms from 2017–18 to 2020–21.[14]

The price cuts are part of a new five-year agreement with Medicines Australia (MA) representing the innovative pharmaceutical industry, and also in a two-year extension to the Government’s existing agreement with the Generic and Biosimilar Medicines Association (GBMA) representing generic and biosimilar medicine suppliers. Both agreements, announced to coincide with the Budget, also include measures to encourage (but not mandate) prescribing of lower-cost generic and biosimilar medicines, including changes to doctor’s prescribing software. MA has also secured a degree of policy certainty for the life of the agreement, with the Government undertaking to consult with MA before pursuing any additional savings measures.[15]

The Pharmacy Guild of Australia (the Guild), representing pharmacy owners, has expressed its support for the F1 and F2 price cuts which it believes will ‘make many medicines more affordable for taxpayers and consumers’.[16] The CHF has also welcomed the savings measures, saying they will enable the PBS to subsidise new medicines.[17]

Community pharmacy payments

The Budget provides $825 million over three years from 2017–18 for community pharmacies. This is comprised of $600 million (already provided for by the Government in the Sixth Community Pharmacy Agreement (6CPA) funding) to continue and expand existing pharmacy programs, as well as $225 million in payments to community pharmacies and wholesalers to compensate for lower than forecast PBS prescription volumes.[18]

These payments relate to provisions in the existing 6CPA between the Guild and the Australian Government, and should not require legislation.[19] Prior to the Budget the Guild was reportedly campaigning to ensure that pharmacists were compensated for revenue foregone due to fewer PBS prescriptions being dispensed.[20] The Guild was also reportedly concerned that the $600 million in funding for community pharmacy programs would not be released on time because a review into the cost-effectiveness of such programs had not commenced.[21]

The majority of the $225 million will be paid to pharmacies as an increase in the Administration, Handling and Infrastructure fee they receive each time they dispense a medicine. The $600 million for pharmacy programs will largely be spent on the expansion of existing programs such as medicine reviews in the patient’s home and dose administration aids to help patients manage multiple medicines. There is also $30 million in funding for a new initiative for medication management programs within Health Care Homes.[22] While welcoming the funding, the Pharmaceutical Society of Australia, which represents pharmacists, has questioned whether spending most of the funding on existing programs will deliver the intended innovative and new services.[23]

The Government has also committed to continue the pharmacy location rules which regulate where pharmacies can operate beyond the life of the 6CPA. This will require legislation.[24] An independent Review of Pharmacy Remuneration and Regulation, which is considering matters including payments to pharmacies and location rules, is due to provide its final report to the Minister for Health this month.[25]

The Budget contains a number of other PBS measures, including new medicine listings and price amendments to already listed medicines.[26] The Budget also announced the creation of a new Medicare Guarantee Fund special account from which funding will be directed to Medicare and the PBS.[27] This fund is discussed in the Budget review article on Medicare.

The PBS measures in this Budget deliver a number of positives for patients, including unchanged co-payments, cheaper medicines in some cases, and increased funding for programs to help them manage their medicines. The Government continues to contain the cost of the PBS through pricing reform. The Australian Healthcare and Hospitals Association has called the Budget ‘a winner ... for pharmacy interests’, noting the various compacts with industry groups which underpin the measures.[28]

[1].          S Ley (Minister for Health), Pharmaceutical Benefits Scheme to be reformed, media release, 27 May 2015.

[2].          These measures are the most important in terms of saving or spending amounts if routine new listings are disregarded.

[3].          Department of Health (DoH), ‘Pharmaceutical benefits: fees, patient contributions and safety net thresholds’, Pharmaceutical Benefits Scheme (PBS) website.

[4].          Australian Government, Budget measures: budget paper no. 2: 2014–15, p. 140.

[5].          L Ferris, National Health Amendment (Pharmaceutical Benefits) Bill 2014, Bills digest, 7, 2014–15, Parliamentary Library, Canberra, 2014.

[6].          Parliament of Australia, ‘National Health Amendment (Pharmaceutical Benefits) Bill 2014 homepage’, Australian Parliament website.

[7].          Australian Government, Budget measures: budget paper no. 2: 2017–18, p. 77–78; Australian Government, Budget strategy and outlook: budget paper no. 1: 2017–18, p. 3–38.

[8].          Consumers Health Forum of Australia (CHF), Medicare thaws, now time to take health reforms off ice, media release, 9 May 2017.

[9].          Australian Government, Budget measures: budget paper no. 2: 2017–18, pp. 112–113.

[10].       DoH, ‘Formulary Allocations - 1 May 2017’, PBS website.

[11].       DoH, F1 5% Statutory Price Reduction, PBS fact sheet, DoH, 2015.

[12].       DoH, ‘12.5% and 16% price reductions - 1 May 2017’, PBS website.

[13].       Australian Government, Budget measures: budget paper no. 2: 2017–18, pp. 112–113.

[14].       Australian Government, Budget strategy and outlook: budget paper no. 1: 2017–18, p. 6–21.

[15].       Australian Government, Strategic Agreement [between the Commonwealth of Australia and Medicines Australia], 2017; Generic and Biosimilar Medicines Association (GBMA), Strengthening PBS measures to support generic and biosimilar medicines uptake, GBMA, 2017.

[16].       Pharmacy Guild of Australia, Budget recognises the vital role of community pharmacy, media release, 9 May 2017.

[17].       CHF, Medicare thaws, now time to take health reforms off ice, op. cit.

[18].       Australian Government, Budget measures: budget paper no. 2: 2017–18, p. 115.

[19].       DoH, Sixth Community Pharmacy Agreement, DoH, 24 May 2015, pp. 14, 15.

[20].       A Gartrell, ‘Budget razor gang to consider shake-up to medicine scheme’, The Sydney Morning Herald, 12 April 2017, p. 5

[21].       A Tillett, ‘Pharmacists in line for $600m Budget boost’, The West Australian, 12 April 2017, p. 6.

[22].       Pharmacy Guild of Australia, Budget recognises the vital role of community pharmacy, op. cit.

[23].       Pharmaceutical Society of Australia, Budget offers security for community pharmacy but misses mark on pharmacists’ primary healthcare role, media release, 9 May 2017.

[24].       Pharmacy Guild of Australia, Budget recognises the vital role of community pharmacy, op. cit.

[25].       DoH, ‘Review of Pharmacy Remuneration and Regulation’, DoH website.

[26].       Australian Government, Budget measures: budget paper no. 2: 2017–18, pp. 114–115.

[27].       Ibid., p. 167.

[28].       Australian Healthcare and Hospitals Association, Doctors, industry groups entrusted with the keys for a healthy Australia, media release, 9 May 2017.


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