Bills Digest No. 65, 2017–18
PDF version [316KB]
Alex Grove
Social Policy Section
23
January 2018
Contents
Purpose of the Bill
Background
About the PBS
PBS medicine pricing
Statutory price reductions and price
disclosure
2017–18 Budget
Industry Agreements
Community Pharmacy Agreement
Pharmacy location rules
Committee consideration
Senate Selection of Bills Committee
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues and provisions
Twenty-five per cent price reduction
when the first competitor brand is listed
Return to 16 per cent price reduction
in 2022
Anniversary price reductions
Price disclosure price reduction
thresholds
Pharmacy location rules
Prescribing by medical practitioners
Other provisions
Concluding comments
Date introduced: 18
October 2017
House: House of
Representatives
Portfolio: Health
Commencement: Part
1 of Schedule 1 commences on 1 October 2018.
Part 2 of Schedule 1, Part 2 of Schedule 2, Part 2 of Schedule 3 and Part 2
of Schedule 4 commence on 1 July 2022.
Part 1 of Schedule 2, Part 1 of Schedule 3, Part 1 of Schedule 4 and
Schedules 5 to 9 commence the day after Royal Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at January 2018.
Purpose of
the Bill
The purpose of the National Health Amendment
(Pharmaceutical Benefits—Budget and Other Measures) Bill 2017 (the Bill) is to
amend the National
Health Act 1953 (the Act) to:
- increase
statutory price reductions for medicines listed on the Pharmaceutical Benefits
Scheme (PBS)
- grant
the Minister discretion in applying some statutory price reductions
- extend
the operation of the pharmacy location rules beyond their current sunset date
and
- make
other minor and technical changes.
Background
About the PBS
The Pharmaceutical Benefits Scheme (PBS) provides subsidised
access to necessary medicines for Australians. Most of the listed medicines on
the PBS are prescribed by doctors, dispensed by pharmacists and used by
patients at home. Patients pay a co-payment of $6.40 (for concession card
holders) or up to $39.50 (for general patients) towards the cost of each PBS
medicine, with the Australian Government paying any remaining cost. 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.[1]
There is also a PBS Safety Net scheme which is intended to protect patients
needing a large number of medicines in one year from excessive out of pocket
costs.[2]
Expenditure on the PBS is uncapped, and may
increase as new medicines are added and demand grows.[3] Government expenditure on
pharmaceutical benefits under the Act was around $11.3 billion in 2016–17, but
is forecast to fall to around $11.0 billion in 2017–18.[4]
PBS medicine pricing
The Australian Government is committed to increasing the
‘sustainability of the PBS’, which it defines as ‘the ability of the Government
to continue to fund medicines over the longer term given increasing demand for
and costs of medicines and related services e.g. dispensing.’[5]
To this end, the Government tightly regulates the prices of medicines listed on
the PBS.
Applications by a pharmaceutical company for
PBS listing of a medicine 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. The PBAC must take into
account both the cost and clinical effectiveness of the medicine when compared
with other treatments for the same condition.[6]
If the PBAC recommends listing the medicine,
the sponsor must still negotiate the final arrangements for listing on the PBS,
including pricing, with the Department of Health (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.[7]
The price negotiated between the pharmaceutical company and
the Minister is known as the Approved Ex‑manufacturer Price (AEMP).[8]
Various fees (such as dispensing fees) are then added to the AEMP to arrive at
the PBS-dispensed price (also known as the Commonwealth price). The method for
calculating the PBS-dispensed price is agreed between the Minister and the Pharmacy Guild of Australia (the Guild, representing community pharmacy
owners) in a Community Pharmacy Agreement. When a pharmacist dispenses a PBS
medicine to a patient, the Australian Government pays the pharmacist the
PBS-dispensed price for the medicine, less any patient contribution.[9] Community Pharmacy
Agreements are further discussed below.
Statutory price reductions and price disclosure
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 more than one brand listed on the PBS.[10]
Medicines on F1 currently take a five per cent cut in AEMP 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]
Medicines on F2 can then be subject to further price
reductions via a mechanism known as price disclosure. Price disclosure requires
the suppliers of certain PBS listed brands of medicines to disclose information
to the Department relating to the price at which their brands are sold. The
Government uses this information to move the AEMP closer to the price at which
the medicines are supplied in the market.[13]
Price disclosure arrangements were introduced in 2007 to allow the Government
to reap the savings from generic medicines being offered to pharmacists at
discounted prices.[14]
The arrangements were expanded in 2010 and 2014 and amended in 2015.[15]
Current price disclosure arrangements apply to all drugs on
the F2 formulary (unless they are exempt).[16]
The Government saved around $2.4 billion as a result of price disclosure in
2016–17.[17]
The Government can also vary the price of a medicine outside
of the above mechanisms (for example as the result of a post market review or
if the price has fallen so low that supply may be at risk).[18]
2017–18 Budget
The 2017–18 Budget contained $1.8 billion in
savings over five years under the ‘Improving Access to Medicines –cheaper
medicines’ measure, to be achieved through the expansion of existing statutory
price reductions for PBS-listed medicines. 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. Savings from the measure will offset the
cost of health policy priorities and other medicines measures in the 2017–18
Budget, and ‘contribute to the net cost of future new and amended listings on
the PBS’.[19]
The price cuts may result in cheaper PBS
medicines for general patients if medicine prices fall below the maximum
general co-payment of $39.50. Significant savings for the Australian Government
are also forecast. Largely as a result of the price cuts, expenditure on
pharmaceutical benefits and services is expected to decrease by 10.3 per cent
in real terms from 2017–18 to 2020–21.[20]
The Bill implements these price cuts.
Also in the 2017–18 Budget, the Government
announced its intention to ‘ensure the ongoing legislative basis for pharmacy
location rules’, to give pharmacy owners confidence that the location of
pharmacies dispensing PBS medicines will continue to be regulated.[21] The pharmacy location
rules are discussed further below. The Bill removes the sunset date of 30 June
2020 for the current pharmacy location rule arrangements.
Industry Agreements
The above price cuts are contained in 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 2017–18 Budget, also include measures to
encourage (but not mandate) prescribing of lower-cost generic and biosimilar
medicines, including changes to doctor’s prescribing software. [22] 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.[23] The MA agreement also
includes an undertaking that the Commonwealth will record savings from the
agreement in the contingency reserve to support the listing of new medicines on
the PBS.[24]
Community Pharmacy Agreement
Since 1991, every five years the Australian
Government makes a new Community Pharmacy Agreement (CPA) with the Guild. The CPA
establishes rules about how community pharmacies will provide PBS medicines.
The most recent, the Sixth Community Pharmacy Agreement (6CPA), commenced on 1
July 2015 and provides around $18.9 billion in remuneration (from the
Government and from patient co-payments) for community pharmacies and
wholesalers. The 6CPA covers matters including:
- pharmacy remuneration for dispensing PBS medicines
- funding for the pharmaceutical supply chain
- funding for community pharmacy programs to help patients manage their
medicines
- the Review of Pharmacy Remuneration and Regulation and
- the continuation of the pharmacy location rules until 30 June 2020.[25]
As part of the 2017–18 Budget
process, the Australian Government and the Guild agreed to vary the 6CPA. Among
other matters, the Government guaranteed funding for certain community pharmacy
programs under the 6CPA, and also committed to continue the pharmacy location
rules beyond the life of the 6CPA. In return, the Guild pledged to support a
number of Government measures, including the savings measures contained in this
Bill.[26]
Pharmacy
location rules
Pharmacists who wish to dispense PBS medicines from a
particular location must seek approval under the Act.[27]
Such requests will generally only be granted if they comply with the pharmacy
location rules.[28]
The current rules, as agreed between the Guild and the Australian Government
under the 6CPA, are determined by the Minister under the Act.[29]
The rules specify location-based criteria intended to
support the equal distribution of pharmacies across the country. Generally
speaking, pharmacists cannot open a new pharmacy or relocate a pharmacy within
a certain distance of an existing pharmacy, although the exact distance varies
depending on factors such as the presence of prescribing doctors and
supermarkets in the area, and the type of facility (such as shopping centre or
medical centre), if any, the pharmacy will be located in. An applicant must
nominate the specific rule (which best suits their circumstances) under which
they wish to seek approval. The rules also include general requirements for all
applications. For example, the proposed premises for the pharmacy must not be
directly accessible by the public from within a supermarket.[30]
Critics of the rules have argued that they are
‘anti-competitive, limit access and choice in rural and remote areas and
prevent young pharmacists from owning their own business as a result of the
high cost.’[31]
A number of reviews and reports have recommended changing or removing the
rules. Former Health Minister Sussan Ley acknowledged that ‘the National
Commission of Audit, the Competition Policy Review by Professor Ian Harper, and
the Productivity Commission Research Paper: Efficiency in Health have
all suggested that the location rules affect competition and that they should
be revised or removed’.[32]
The 6CPA contained an agreement to continue the pharmacy
location rules in their current form until 30 June 2020, but also provided for
an independent review of the rules (and other matters). The Interim Report of
this Independent Review of Pharmacy Remuneration and Regulation was released on
22 June 2017. The Review noted a number of issues with the rules and concluded
they should be removed and possibly replaced with a simpler system:
A number of submissions concluded that the current pharmacy
location rules are not fit-for-purpose and may be limiting equitable and
affordable access in some areas.
Rather than try to modify the existing rules, the Panel has
considered that it is more appropriate to remove the existing rules and, if
required, replace them with a different, simpler system that directly deals
with the issues of consumer access.[33]
The Review proposed a number of options including removing the rules in urban areas, removing them and replacing them
with a statutory authority that decides where new pharmacies can open, or
modifying the existing rules.[34]
However, in light of the Government’s announcement in the 2017–18 Budget that
it would seek to ensure the ongoing legislative basis for pharmacy location
rules, the Review Panel indicated that it would not be further considering
options to remove, or remove and replace the rules. The Panel ‘will continue to
consider options to modify the location rules that have been put forward on the
assumption that the current location rules will be retained.’[35]
Committee
consideration
Senate Selection of Bills Committee
The Senate Selection of Bills Committee has deferred
consideration of the Bill to its next meeting.[36]
Senate
Standing Committee for the Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills notes
that the Bill seeks to introduce ministerial discretion regarding the
application of statutory price reductions. The Committee notes:
... the explanatory memorandum does not explain why there is a
need to exempt medicines from statutory price reductions in certain circumstances,
nor the need to leave the application of such exemptions to the discretion of
the Minister rather than setting out the criteria for applying an exemption in
the bill.[37]
The Committee further notes the Bill provides that the
Minister may exercise this discretionary power by making determinations by
written instrument or notifiable instrument. These categories of instrument are
not subject to disallowance by the Parliament. The Committee has asked the
Minister to advise:
... why the bill proposes to provide the Minister with a broad
discretionary power to apply statutory price reductions and to do so by way of
written or notifiable instrument (noting that such instruments are not subject
to disallowance).[38]
The Minister has responded to the Committee’s questions,
noting that the introduction of ministerial discretion regarding the
application of statutory price reductions is contained in the agreement with
MA. The Minister states that price reductions are currently applied without discretion
or consideration of additional information, and that this can sometimes
threaten the supply of a medicine:
Current requirements for statutory price reductions and price
disclosure reductions mean that price reductions are required regardless of the
nature of a medicine, the supply history, or supply volume for a product. If
mandatory reductions (especially flow-on reductions) make products unviable to
supply, it can be difficult for companies to maintain supply which threatens
continuity of therapy for patients. In some cases, it has been necessary for
companies to apply for price increases immediately following a statutory price
reduction in order to continue to support the supply of affected products in
Australia. The Agreement acknowledges that it would be preferable for relevant
information to be considered before applying the new statutory price
reductions.[39]
The Minister claims it would be counterproductive to
include a list of criteria for ministerial discretion in the Bill, as it might
limit the information considered and inadvertently prevent the Minister from
considering unusual circumstances:
It would be counterproductive for a detailed list of criteria
for ministerial discretion to be included in the Bill. Ministerial discretion
is intended to be exercised only where genuinely justified based on pricing or
other history. Including further criteria may result in applications
prioritising those criteria when others could be more important for a
particular medicine, and create the perception or expectation that applications
would be judged according to the response to the criteria. Setting criteria may
also inadvertently fetter the Minister from considering unusual circumstances
which would warrant adjustment of a price reduction. Either way, including criteria
in the legislation is unlikely to be of assistance.[40]
The Minister argues that the technical nature of the
subject matter and the availability of expert advice from the PBAC and the
Joint Oversight Committee (composed of Department of Health and MA
representatives) make it unnecessary for the exercise of such ministerial
discretion to be subject to Parliamentary scrutiny.[41]
Policy
position of non-government parties/independents
Catherine King, the Australian Labor Party’s Shadow Minister
for Health, reportedly expressed support for the MA agreement with the
Government and indicated that Labor might seek to amend the Bill to ensure that
all savings generated are reinvested in new medicines.[42]
At the time of writing, no comments by other non-government
parties or independents specifically relating to the Bill had been identified.
However, in the lead up to the 2016 election, both Labor
and the Nick Xenophon Team expressed support for continuing the pharmacy
location rules.[43]
Position of
major interest groups
As outlined above, the savings measures implemented by the
Bill are the result of agreements (or extensions to agreements) with MA, the
GBMA and the Guild. Therefore, they should have widespread industry support.
The pharmaceutical sector’s key groups are reported to have reviewed the
exposure draft of the Bill and, following minor changes, to support the Bill.[44]
The savings measures announced in the Budget have also been welcomed by the
Consumers Health Forum of Australia (CHF, the peak body for health consumer
organisations), which believes they will enable new medicines to be subsidised
on the PBS.[45]
The removal of the sunset clause for the pharmacy location
rules may prove more controversial. A journalist has described it as ‘a major
win for the guild’.[46]
A Guild spokesman reportedly claims the rules provide certainty for pharmacy
owners and a well-distributed network of pharmacies that serve patients where
they live.[47]
However, the Chemist Warehouse group of pharmacies, which is not represented by
the Guild, claims the rules are anti-competitive and are preventing the group
from serving many communities.[48]
The CHF likewise believes that there:
... remain significant areas where pharmacy owners, represented
by the guild, retain a favoured place as a result of the Government decision to
retain location rules which will continue to protect current owners against
competition in many areas...[49]
Financial
implications
The measures in Schedules 1 to 4 of the Bill are expected
to result in savings of $1.292 billion over four years to 2020–21, and $1.8
billion over the life of the MA and GBMA agreements (to 30 June 2022).[50]
As noted above, the MA agreement includes an
undertaking that the Commonwealth will record the savings in the contingency
reserve to support the listing of new medicines on the PBS. The agreement notes
that the savings ‘are not intended to limit, and should support, the Australian
Government’s commitment to implement all new and amended listings recommended
by the PBAC’.[51]
One pharmaceutical industry media outlet has speculated that some or all of the
savings may already have been spent on new PBS listings.[52] The Minister noted in his
second reading speech on the Bill that the Australian Government has made significant
new investments in medicines since the 2017–18 Budget, including:
$1.1 billion for Opdivo for lung and kidney cancer
$378.5 million for Stelara for Crohn's disease
$466 million for Ibrutinib for leukaemia and lymphoma.[53]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible ‘as it does not raise any
human rights issues’.[54]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights considers
that the Bill does not raise human rights concerns.[55]
Key issues
and provisions
Twenty-five
per cent price reduction when the first competitor brand is listed
Medicines with a single brand listed on the PBS (F1
medicines) currently take a 16 per cent price reduction when the first
competitor brand is listed on the PBS. The mechanism in the Act is that the
competitor brand takes the 16 per cent price reduction on listing, and this
price reduction is flowed on to the original brand.[56]
As discussed earlier, both the original brand and the competitor brands then
move to F2, where they become subject to price disclosure.
The Act also provides for single brand combination items
(items containing more than one medicine, which are not listed on either F1 or
F2) to take a 16 per cent price reduction when a competitor brand is
introduced.[57]
Part 1 of Schedule 1 increases the price
reduction when a first competitor brand lists from 16 to 25 per cent, in
accordance with the MA agreement. Part 1 of Schedule 1 also
introduces some exceptions to the application of the price reduction, including
where the medicine has already taken a price reduction, or where the Minister
uses their discretion not to apply part or all of the price reduction. As
explained by the Minister in the second reading speech:
... the increased price reduction to be applied when a new,
competing brand lists on the PBS can ... be adjusted, taking into account
previous price reductions that have applied to the medicine. On this basis, a
statutory price reduction can be applied in full, in part, or not at
all—depending on the amount of previous eligible reductions. The new method
will adjust, taper and cap reductions to ensure that price reductions since
January 2016 do not exceed certain maximums.[58]
Section 99ACB of the Act provides that the first
competitor brand (other than a combination item) of a medicine must generally take
at least a 16 per cent price reduction when it lists.
Item 12 of Schedule 1 repeals subsection
99ACB(5) and inserts proposed subsections 99ACB(4A),(5) and (5A) to
provide that:
- if
the price of the medicine has been reduced by 15 per cent or less since 1
January 2016 (or since first listing if it was not on the PBS on that date),
then the 25 per cent price reduction applies or
- if
the price of the medicine has already been reduced by more than 15 per cent but
less than 40 per cent since 1 January 2016 (or since first listing if it was
not on the PBS on that date) then only part of the 25 per cent price
reduction will be applied (such that the final price will not be more than 60
per cent of the price on 1 January 2016 or on first listing).
Items 22, 28 to 30, 32 and 36 of Schedule 1
make similar amendments to sections 99ACD, 99ACE and 99ACF of the Act
respectively to provide for price reductions of up to 25 per cent for
combination items, and to flow the price reduction on to the original brand of
the medicine.
Items 8, 20 and 26 of Schedule 1 amend
subsections 99ACB(2), 99ACD(1A) and 99ACE respectively to provide that the 25
per cent price reduction will not be applied if the price of the medicine has
already been reduced by 40 per cent or more since 1 January 2016 (or since
first listing if it was not on the PBS on that date).
Item 14 of Schedule 1 inserts proposed
subsections 99ACB(6A) to (6D) to provide that the Minister may use
discretion to determine by written instrument not to apply, or to reduce the
amount of, the 25 per cent (or part thereof) price reduction for the first
competitor brand. The Minister must take into account what the price of the
medicine would otherwise be if he or she did not make such a determination, and
may take into account any other matter that he or she considers relevant.
Items 24, 34 and 38 of Schedule 1 make similar
amendments to sections 99ACD, 99ACE and 99ACF of the Act respectively to provide
the Minister with a discretion in applying 25 per cent price reductions for
combination items and original brands of medicines. Please refer to the section
on the Senate Standing Committee for the Scrutiny of Bills for the Committee’s
view on these items.
Section 99ACC of the Act provides for flow-on price
reductions where a component medicine of a single brand combination item has
taken certain statutory price reductions. Items 15 and 16 of Schedule
1 amend section 99ACC to provide that such flow-on price reductions can
also be applied to component medicines that are not listed on the PBS, as
though they had been listed on the PBS.
Return to
16 per cent price reduction in 2022
Part 2 of Schedule 1 commences on 1 July 2022,
which is the day after the expiration of the Government’s five-year
agreement with MA. The agreement provides that the 25 per cent price reduction
when a first new brand lists will only apply until the end of the term of the
agreement, after which the price reduction will revert to 16 per cent.[59]
Generally speaking, Part 2 repeals the amendments
made by Part 1. In particular,Part 2 of Schedule 1
repeals the 25 per cent price reduction introduced by Part 1 of Schedule 1, and
reinstates the existing 16 per cent price reduction when the first competitor
brand of a medicine is listed on the PBS. Part 2 of Schedule 1
also removes the proposed provisions providing the Minister with a discretion
not to apply part or all of the price reduction, and removes the provision that
medicines will not have to take part or all of the price reduction if they have
already taken a price reduction of more than 15 per cent.
However, the amendments made by items 15 and 16 of Part
1 of Schedule 1 are not repealed by Part 2 of Schedule 1.
This means that flow-on price reductions for single brand combination items can
continue to apply to both PBS listed and non-PBS listed component medicines in
the item.
Anniversary
price reductions
Under sections 99ACF and 99ACHA of the Act, medicines listed
on F1 currently take a five per cent price reduction when they have been listed
for at least five years.[60]
Part 1 of Schedule 2 provides for further
price reductions after 10 and 15 years on the PBS, as specified in the
Government’s agreement with MA.[61]
Items 8 and 18 of Schedule 2 amend section
99ACF of the Act and insert proposed sections 99ACJ, 99ACK and 99ACL
such that:
- medicines
that have been on F1 for at least ten years will take a one-off price reduction
of 10 per cent and
- medicines
that have been on F1 for at least fifteen years will take a one-off price
reduction of 5 per cent.
Each price reduction will be applied once on 1 April
(between 2019 and 2021) after the relevant anniversary has been reached. Proposed
section 99ACL is a catch up provision for medicines that have been on F1
for 10 years or more on 1 June 2018. These will take a 10 per cent price
reduction on 1 June 2018, and if they have been on F1 for 15 years or more,
this will immediately be followed by a 5 per cent price reduction.
Item 11 of Schedule 2 amends section 99ACF of
the Act to provide that the Minister has a discretion to determine by written
instrument not to apply, or to reduce the amount of, any of the anniversary
price reductions. The Minister must take into account what the price of the
medicine would otherwise be if he or she did not make such a determination, and
may take into account any other matter that he or she considers relevant.
Please refer to the section on the Senate Standing Committee for the Scrutiny
of Bills for the Committee’s view on this item.
Section 99ACHA of the Act currently provides that an F1
medicine will take a five-year anniversary price reduction once, on the first 1
April (between 2016 and 2020) after it has been listed for at least five years.
Item 17 of Schedule 2 amends subsection 99ACHA(2) of the Act to
add two more dates on which medicines can take a five-year anniversary price
reduction: 1 April 2021 and 1 April 2022.
The above amendments in Part 1 of Schedule 2
commence on the day after Royal Assent. Part 2 of Schedule 2
commences on 1 July 2022. Item 20 in Part 2 of Schedule 2 repeals
the subsections inserted by Item 11 of Schedule 2. This means
that the Minister will no longer have discretion not to apply, or to reduce the
amount of, any of the anniversary price reductions after 1 July 2022.
Price
disclosure price reduction thresholds
As noted earlier, medicines on F2 are subject to price
reductions via a mechanism known as price disclosure. Price disclosure requires
the suppliers of certain PBS listed brands of medicines to disclose information
to the Department relating to the price at which their brands are sold. The
Government uses this information to move the Approved Ex‑manufacturer
Price (AEMP) closer to the price at which the medicines are supplied in the
market.[62]
Price disclosure has been very successful in reducing the price the Government
pays for off-patent medicines. However, concerns have been raised by the GBMA
that price disclosure has made the prices for some generic medicines so low
that suppliers may stop supplying them. According to the GBMA, in December 2016
the Government agreed to price increases for around 60 medicines where ongoing
supply had been identified as at risk.[63]
The extension to the GBMA agreement and the MA agreement
both specify measures to ‘ensure viability’ of medicines that have been subject
to price disclosure for some time.[64]
These measures are implemented by Schedule 3 of the Bill.
Section 99ADC of the Act sets out the requirements for
pharmaceutical companies to provide information about the sales and pricing of
medicines on F2 as prescribed by the regulations.[65]
Subsections 99ADB(4) and (6) permit the Minister to use this information to
determine the price at which the medicine is being sold in the market (the weighted
average disclosed price or WADP) in accordance with the regulations.[66]
Section 99ADH provides that if, on a prescribed reduction day, the WADP is at
least 10 per cent lower than the current approved price (the AEMP), then the
AEMP is reduced to the WADP. That is, the medicine’s approved price is reduced
to match the price it is actually being sold into the market.
Item 4 of Part 1 of Schedule 3 amends
section 99ADH such that the AEMP will only be reduced:
- if
the medicine has been on F2 for less than 42 months, if the price difference is
at least 10 per cent or
- if
the medicine has been on F2 for at least 42 months, if the price difference is
at least 30 per cent (unless the medicine has already taken two consecutive
price disclosure price reductions of at least 30 per cent, in which case the
threshold for further reductions reverts to a 10 price difference).
This will have the effect of protecting medicines that have
been on F2 for some time from further price disclosure price reductions, unless
there is still a large (at least 30 per cent) difference between the approved
price and the market price of the medicine.
The above amendments in Part 1 of Schedule 3
commence the day after Royal Assent. However, Part 2 of Schedule 3
(which commences on 1 July 2022) then proposes to repeal almost all the amendments
made by Part 1 of Schedule 3. In particular, Item 11 of Part
2 of Schedule 3 repeals the amendments made by item 4 of Part
1 of Schedule 3, and restores the provision that price disclosure
price reductions will apply when the difference between the approved price and
the market price is at least 10 per cent.
Pharmacy
location rules
As noted earlier, pharmacists who wish to dispense PBS
medicines from a particular location must seek approval under section 90 of the
Act. Most requests for approval are referred to the Australian Community
Pharmacy Authority (ACPA), unless they relate to a pharmacy that is remaining
at the same premises but changing ownership or size.
Section 99K of the Act provides that the ACPA can only
recommend that an application be approved if it complies with the pharmacy
location rules. The current rules, as agreed between the Guild and the
Australian Government under the 6CPA, are determined by the Minister under the
Act.[67]
Under subsection 90(3C) of the Act, the provisions in the
Act for referring applications to the ACPA cease to have effect at the end of
30 June 2020. Item 1 of Schedule 5 proposes to repeal subsection
90(3C), thereby removing this sunset clause.
Division 4B of Part VII of the Act, which provides for the
establishment and operation of the ACPA and requires the Minister to determine
the pharmacy location rules, also ceases to have effect at the end of 30 June
2020, as a result of section 99Y of the Act. Item 2 of Schedule 5
proposes to repeal section 99Y, thereby removing this sunset clause.
The effect of these amendments is to allow arrangements for
the pharmacy location rules to continue in perpetuity (subject to the relevant
determination being remade).[68]
This is consistent with the Government’s compact with the Guild to continue the
rules beyond the life of the 6CPA.[69]
The controversial nature of the pharmacy location rules is
discussed in the ‘background’ and ‘position of major interest groups’ sections
of this Digest. The Guild believes the rules provide certainty and stability
for pharmacy owners, which is currently threatened every five years when the
new community pharmacy agreement is negotiated. A Guild spokesman has pointed
out that ‘[r]emoving the sunset clause does not prevent a future government
from legislating either to remove the location Rules, or improving the rules to
address any anomalies or meet the changing needs of consumers’.[70]
However, Professor Ian Harper, whose 2015 Competition Policy Review was one of
many reports to criticise the rules, ‘told The Australian Financial Review
there were more efficient ways of ensuring patients were able to access
prescription medicines than relying on location rules to curtail competition’.[71]
Prescribing
by medical practitioners
Section 88 of the Act provides that medical practitioners
can write a prescription for any generally listed PBS medicine, but that dental
practitioners, optometrists, midwives and nurse practitioners can write a
prescription for any generally listed PBS medicine determined by the Minister.
Item 2 of Schedule 8 repeals and inserts a new
subsection 88(1) of the Act to provide that medical practitioners can
prescribe any generally listed PBS medicine determined by the Minister.
According to the Explanatory Memorandum, this is not intended to limit
prescribing by doctors, but rather to allow superseded PBS medicines to remain
available for supply only, but not prescription. This would save patients from
having to obtain a new prescription when their medicine has been replaced by a
similar product:
New subsection 88(1) is not intended to be used as a
restriction on medical practitioner prescribing. It is intended that all items
available to medical practitioners for prescribing and subsequent supply prior
to this amendment would remain available to them. Rather, the amendment to
subsection 88(1) is to facilitate the retention of a pharmaceutical benefit on
the PBS for supply-only purposes when it would otherwise have been de-listed
from the PBS for all purposes. This would be done by removing the
pharmaceutical benefit from the class of drugs determined by the Minister under
subsection 88(1) as able to be prescribed by a medical practitioner (and
restricting prescription by any other class of PBS prescribers who previously
could prescribe the benefit).[72]
However, it appears that this provision could
theoretically be used in the future to place limits on the generally listed PBS
medicines that can be prescribed by medical practitioners. No stakeholder
comment on this provision has been identified.
Item 4 of Schedule 8 inserts new
subsections 88(1EA) and 88(1EB). New subsection 88(1EA) provides
that the Minister must have regard to any advice from the PBAC when determining
which health professionals are allowed to prescribe a particular PBS medicine. New
subsection 88(1EB) provides that the Minister is not required to determine
that at least one kind or prescriber can prescribe a particular PBS medicine,
thus allowing a medicine to remain on the PBS for supply only, but not for
prescription.
Other provisions
Schedule 4 amends the Act to provide for a new
presentation of an F1 medicine by the same manufacturer to be listed on the PBS
without triggering the first competitor brand price reduction, in certain
circumstances.
Schedule 6 makes minor amendments to allow for more
than one name for the same medicine to be used for PBS purposes.
Schedule 7 makes minor and technical amendments to
the operation of the PBS safety net.[73]
Schedule 9 makes minor amendments to the collection
of prescription data from pharmacists.
These amendments are relatively minor in nature and are
adequately explained by the Explanatory Memorandum.
Concluding comments
The Bill increases statutory price reductions for both
patent and off-patent PBS medicines. The larger price reductions are expected
to generate around $1.8 billion in savings for the Government, until they are
repealed by the Bill on 1 July 2022. The savings have been agreed with the
pharmaceutical industry and seem to have widespread support. The Government has
agreed to use the savings to support the listing of new medicines
on the PBS. The Bill also repeals the sunset clause for the pharmacy location
rules. This removes pressure from the Guild to renegotiate the continuation of
the rules every five years. The rules have often been criticised for reducing
competition between pharmacies, but it appears that they continue to enjoy
bipartisan support.
[1]. Department
of Health (DoH), ‘About the
PBS’, The Pharmaceutical Benefits Scheme (PBS) website, last updated 18
July 2017.
[2]. Department
of Human Services (DHS), ‘Pharmaceutical
Benefits Scheme (PBS) Safety Net’, DHS website, last updated 27 August
2017.
[3]. DoH,
‘About the PBS’, op.
cit.
[4]. Australian
Government, Portfolio
budget statements 2017–18 budget related paper no. 1.10: Health Portfolio,
Commonwealth of Austalia, Canberra, 2017, p. 24.
[5]. DoH,
Annual
report 2015–2016, DoH, Canberra, 2016, p. 73.
[6]. National Health Act
1953, section 101.
[7]. DoH,
‘8.2
Finalisation of the budget impact’, PBS website, last updated September
2017.
[8]. DoH,
‘Fact
sheet – Setting an approved ex-manufacturer price for new or extended listings’,
PBS website, last updated 25 July 2017.
[9]. DHS,
‘Pricing
of Pharmaceutical Benefits Scheme medicine’, DHS website, last updated 22
September 2017.
[10]. DoH,
‘Formulary
allocations - 1 November 2017’, PBS website, last updated 1 November 2017.
[11]. DoH, F1 5% Statutory price reduction, PBS fact
sheet, DoH, 2015.
[12]. DoH,
‘12.5%
and 16% Price Reductions - 1 October 2017’, PBS website, last updated 1
October 2017.
[13]. DoH,
Pharmaceutical
Benefits Scheme price disclosure arrangements: procedural and operational
guidelines, version 6, DoH, Canberra, June 2016, p. 8.
[14]. R
de Boer and S Scully, National
Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010, Bills
digest, 13, 2010–11, Parliamentary Library, Canberra, 2010, p. 5.
[15]. DoH,
Pharmaceutical
Benefits Scheme price disclosure arrangements: procedural and operational
guidelines, op. cit., pp. 8–9.
[16]. Ibid.,
p. 9.
[17]. DoH,
Annual
Report 2016–17, DoH, Canberra, 2017, p. 124.
[18]. See
for example PharmaDispatch, ‘No
therapeutic groups but no respite on reviews’, PharmaDispatch website, 4
May 2017; PharmaDispatch, ‘Sector
slams “misleading” Grattan Institute report’, PharmaDispatch website, 6
March 2017.
[19]. Australian Government, Budget measures: budget paper no. 2: 2017–18, pp. 112–3.
[20]. Australian Government, Budget strategy and outlook: budget paper no. 1: 2017–18, p. 6–21. ‘Estimates for the PBS do not include the potential listing
of new medicines or price adjustments to existing listings, which typically
increase spending above the original estimates’.
[21]. Australian Government, Budget measures: budget paper no. 2: 2017–18, op. cit., p. 115.
[22]. Australian Government, Strategic Agreement [between the Commonwealth of Australia and
Medicines Australia], Medicines Australia, 2017;
Generic and Biosimilar Medicines Association (GBMA), Strengthening PBS measures to support generic and biosimilar medicines
uptake, GBMA, 2017.
[23]. Australian Government, Strategic Agreement [between the Commonwealth of Australia and
Medicines Australia], op. cit., clause 3.
[24]. Ibid.,
clause 6. The contingency reserve is an allowance that reflects anticipated
events that cannot be assigned to individual programs in the Budget. See
Australian Government, ‘Statement 6: Expenses and net capital investment’, Budget
strategy and outlook: budget paper no. 1: 2017–18, p. 6–45.
[25]. DoH,
‘Sixth
Community Pharmacy Agreement’, PBS website, last updated 1 May 2017.
[26]. Australian
Government, Strengthening
PBS Agreement with Pharmacy Guild to vary the Sixth Community Pharmacy
Agreement, DoH website, 2017.
[27]. National Health Act
1953, section 90.
[28]. Requests
for approval are referred to the Australian Community Pharmacy Authority
(ACPA). Section 99K of the National Health Act 1953 provides that the
ACPA can only recommend that an application be approved if it complies with the
rules determined by the Minister under section 99L. Section 90A provides that
the Minister can overrule a decision to reject an application that does not
comply with the rules if a community would be left without reasonable access to
PBS medicines and it is in the public interest to approve the application.
[29]. National Health Act
1953, section 99L. The current pharmacy location rules are in the National Health
(Australian Community Pharmacy Authority Rules) Determination 2011 (PB 65 of
2011).
[30]. National Health
(Australian Community Pharmacy Authority Rules) Determination 2011 (PB 65 of
2011).
[31]. R
de Boer, ‘Pharmaceuticals
and pharmacy’, Budget review 2010–11, Research paper series,
2009–10, Parliamentary Library, Canberra, 2010.
[32]. S
Ley, ‘Second
reading speech: National Health Amendment (Pharmaceutical Benefits) Bill 2015’,
House of Representatives, Debates, 27 May 2015, p. 4711.
[33]. Review
of Pharmacy Remuneration and Regulation Panel, Review
of Pharmacy Remuneration and Regulation, Interim report, Commonwealth
of Australia, June 2017, p. 104.
[34]. Ibid.,
pp. 104–7.
[35]. Ibid.,
p. 94.
[36]. Senate
Selection of Bills Committee, Report,
15, 2017, The Senate, 7 December 2017, p. 4.
[37]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 13, 2017, The Senate, 15 November 2017, p. 37.
[38]. Ibid.
[39]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 15, 2017, The Senate, 6 December 2017, p. 79.
[40]. Ibid.,
pp. 80–1.
[41]. Ibid.
[42]. D
Rowley, ‘Industry
wins high praise at political love-in’, Pharma in Focus website, 6
September 2017; PharmaDispatch, ‘The
deepening mystery of savings fund’, PharmaDispatch website, 7 September
2017.
[43]. PharmaDispatch,
‘Guild
secures more support for pharmacy’, PharmaDispatch website, 9 June 2016;
PharmaDispatch, ‘Pharmacy
clean sweep with Labor backing [and] [Letter from the Opposition]’,
PharmaDispatch website, 16 June 2016.
[44]. PharmaDispatch,
‘Sector
backs legislation’, PharmaDispatch website, 8 September 2017.
[45]. Consumers
Health Forum of Australia (CHF), Medicare
thaws, now time to take health reforms off ice, media release, 9 May
2017, p. 2.
[46]. A
Tillett, ‘Chemists’
buffer zone becomes law’, The Australian Financial Review, 20
October 2017, p. 9.
[47]. Ibid.
[48]. W
Beaumont, ‘Govt
keeping drugs prices up says Chem Warehouse’, Pharma in Focus website, 8
August 2017.
[49]. CHF,
Consumer
voice for community pharmacy, media release, 22 June 2017, p. 1.
[50]. Explanatory
Memorandum, National Health Amendment (Pharmaceutical Benefits – Budget and
Other Measures) Bill 2017, p. 4.
[51]. Australian Government, Strategic Agreement [between the Commonwealth of Australia and
Medicines Australia], op. cit., clause 6.
[52]. PharmaDispatch,
‘The
deepening mystery of savings fund’, op. cit.
[53]. G
Hunt (Minister for Health), ‘Second
reading speech: National Health Amendment (Pharmaceutical Benefits—Budget and
Other Measures) Bill 2017’, House of Representatives, Debates, 18
October 2017, p. 11037.
[54]. The
Statement of Compatibility with Human Rights can be found at pages 5–7 of the Explanatory
Memorandum to the Bill.
[55]. Parliamentary
Joint Committee on Human Rights, Twelfth
report of the 45th Parliament, The Senate, Canberra, 28 November 2017,
p. 96.
[56]. National Health Act
1953, sections 99ACB, 99ACF and 99ACH.
[57]. Sections
99ACD and 99ACE.
[58]. G
Hunt, ‘Second
reading speech: National Health Amendment (Pharmaceutical Benefits—Budget and
Other Measures) Bill 2017’, op. cit., p. 11036.
[59]. Australian Government, Strategic Agreement [between the Commonwealth of Australia and
Medicines Australia], op. cit., clause 5.2.
[60]. National Health Act
1953, sections 99ACF and 99ACHA. Each medicine only takes this five per
cent price reduction once, on the first 1 April (between 2016 and 2020) after
it has been listed for at least five years.
[61]. Australian Government, Strategic Agreement [between the Commonwealth of Australia and
Medicines Australia] , op. cit., clause 5.4.
[62]. DoH,
Pharmaceutical
Benefits Scheme price disclosure arrangements: procedural and operational
guidelines, op. cit., p. 8.
[63]. PharmaDispatch,
‘Sector
slams 'misleading' Grattan Institute report’, op. cit.
[64]. Australian Government, Strategic Agreement [between the Commonwealth of Australia and
Medicines Australia], op. cit., clause 9.1; GBMA, Strengthening PBS measures to support generic and biosimilar medicines
uptake, op. cit., p. 2.
[65]. National Health
(Pharmaceutical Benefits) Regulations 2017, section 85.
[66]. The
method for calculating the WADP is set out in sections 70 to 82 of the National Health
(Pharmaceutical Benefits) Regulations 2017.
[67]. National Health Act
1953, section 99L. The current pharmacy location rules are in the National Health
(Australian Community Pharmacy Authority Rules) Determination 2011 (PB 65 of
2011).
[68]. The
National Health
(Australian Community Pharmacy Authority Rules) Determination 2011 (PB 65 of
2011) containing the pharmacy location
rules sunsets on 1 October 2021. See section 50 of the Legislation Act
2003.
[69]. Australian
Government, Strengthening
PBS Agreement with Pharmacy Guild to vary the Sixth Community Pharmacy
Agreement, op. cit., p. 2.
[70]. A
Tillett, ‘Chemists’
buffer zone becomes law’, op. cit.
[71]. Ibid.
[72]. Explanatory
Memorandum, op. cit., p. 51.
[73]. For
further information about the PBS safety net, see DHS, ‘Pharmaceutical
Benefits Scheme (PBS) Safety Net’, DHS website, last updated
27 August 2017.
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