Background to Inquiry
The 76.2% reduction of the weighted average price for Docetaxel, a
cancer treatment drug, in the Pharmaceutical Benefits Scheme (PBS) was announced
in the second half of 2012. This price cut has been the catalyst for the
raising of concerns about wider issues regarding the ongoing costs of supplying
chemotherapy drugs to cancer patients.
This chapter provides a brief description of the broader context in
which the inquiry occurred, including:
- the operation of the Pharmaceutical Benefits Scheme
- the Fifth Community Pharmacy Agreement
- Price Disclosure
- current funding arrangements for the supply of chemotherapy drugs
under the PBS
Operation of the PBS
Chemotherapy drugs are supplied to patients in both private and public
hospitals in Australia through the PBS, which is 'the primary means through
which the Australian Government ensures Australians have timely and affordable
access to pharmaceuticals''.
Under the PBS the Commonwealth subsidises the cost of most medicines for most
medical conditions, primarily through reimbursements paid to community or
When a pharmacist supplies a medicine that attracts an
Australian Government benefit, the pharmacist is paid the PBS dispensed price
of the medicine, less any patient contribution.
The PBS dispensed price consists of the cost to the
pharmacist (the ex-manufacturer price), a mark-up by the pharmacist, dispensing
fees, and any other fees the pharmacist is entitled to.
The distinct phases of manufacture, wholesale and dispensing of a
particular drug are thus recognised in the calculation of the PBS dispensed
price. The Department of Health and Ageing have noted that:
While the manufacturer is notionally entitled to be paid the
ex-manufacturer price for the medicine and the wholesaler is entitled to be
paid the full wholesaler margin, competitive pressures mean that these prices
may be discounted as a way of winning or maintaining market share. While PBS
medicines are ultimately funded by Government and patient co-payments, it is
community pharmacies that purchase these medicines from wholesalers or
manufacturers and benefit from any discounting that is available.
The Fifth Community Pharmacy
Commonwealth remuneration to pharmacies supplying drugs under the PBS is
currently governed by the Fifth Community Pharmacy Agreement (5CPA), which was
agreed to in 2010, and expires in 2015. As described by the Department, the
recognises the key role played by community pharmacy in
primary health care through the delivery of Pharmaceutical Benefits Scheme
(PBS) medicines and related services.
The Pharmacy Guild of Australia notes that:
Since 1990, the Commonwealth Government and the Pharmacy
Guild of Australia have entered into a series of Agreements which set out the
remuneration that pharmacists will receive for dispensing PBS medicines and the
arrangements regulating the location of pharmacies approved to supply PBS medicines.
Over time these Agreements have increased in scope to provide for professional
pharmacy programs and services.
Pharmacy remuneration is one of four main elements covered by the 5CPA,
alongside electronic prescriptions, community service obligation arrangements,
and programs. Part 2 of the 5CPA:
constitutes an agreement between the Guild and the Minister
as referred to in section 98BAA of the Act which sets out the manner in which
the Commonwealth price is to be ascertained and to which the Pharmaceutical
Benefits Remuneration Tribunal must give effect in determining the Commonwealth
Clauses 8 to 11 of the 5CPA outline the elements that constitute
the dispensed price of drugs supplied through the PBS.
Reforms to the PBS in 2007 introduced a system of price disclosure, which
has operated to reduce the dispensed price of PBS medicines that are subject to
generic competition on the basis of sales information collected from pharmacies
and manufacturers. The 76.2% cut to the dispensed price of Docetaxel was
implemented under Expanded and Accelerated Price Disclosure (EAPD). EAPD was
introduced in 2010 as an extension to existing price disclosure arrangements,
and was agreed to in a Memorandum of Understanding between Medicines Australia
and the Commonwealth (the MOU).
The MOU was negotiated as part of a wider package of reforms to ensure PBS
sustainability. The content of this MOU was known at the time the 5CPA was
signed and accommodated within the Agreement. The mechanism underpinning EAPD
has remained unchanged since 2010.
Chemotherapy Drugs in the PBS
Pharmacies supplying chemotherapy drugs are able to recoup both the
dispensed price for chemotherapy drugs listed on the PBS, and additional
funding that recognises the extra preparation involved in supplying chemotherapy
drugs. This second stream of funding is administered under the Revised
Arrangements for the Efficient Funding of Chemotherapy Drugs Initiative (EFC) under
section 100 of the National Health Act.
The government first announced this initiative in the 2008-09 budget. The final
form of EFC was based on a proposal – the Alternative Funding Model for
Chemotherapy – prepared by chemotherapy pharmacy groups and submitted to
the Department of Health and Ageing by the Guild during the 5CPA.
The EFC covers chemotherapy drugs administered through infusion or injection, including
Docetaxel. Under the EFC, pharmacies can recoup additional fees for the
dispensing, preparation, storage, and dilution of chemotherapy drugs.
Currently, an in-house pharmacy at a private hospital can recoup $76.37 in fees
for each dose of a chemotherapy drug prepared for a patient.
Pharmacy groups have argued that the amount recouped in fees under the
EFC is not sufficient to cover the actual costs of preparing chemotherapy drugs
for supply to patients, as the processes involved are highly specialised and
complex. Each dose of chemotherapy drugs must be compounded for the individual
patient, and this requires the pharmacist to be involved in clinical
consultations with patients. As chemotherapy drugs are cytotoxic, community and
hospital pharmacies involved in their supply also invest in specialised equipment
and facilities to ensure that the drugs are administered in a way that is safe
for both the patient and any clinicians involved in preparing and administering
According to pharmacy groups, the extra funding received from Docetaxel
payments before the PBS price cut was cross-subsidising the expenses incurred
in the preparation of chemotherapy drugs by pharmacies working with private
hospitals and clinics. Although other chemotherapy drugs have been subject to
price disclosure, the 76.2% price cut for Docetaxel resulted in a $41.5 million
reduction in government funding of chemotherapy drugs. This reduction equates
to just over 20%, of the savings achieved to date as a result of price
disclosure applied to chemotherapy drugs.
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