The Pharmaceutical Benefits Scheme
The Pharmaceutical Benefits Scheme (PBS) was established in 1948, and
continues today as part of the Commonwealth Government's National Medicines
Policy. The PBS is governed by the National Health Act 1953.
The Government, through the PBS, subsidises the cost of medicines which
are listed on the PBS Schedule (the Schedule) for all Australian residents who
hold a current Medicare card.
Most of these medicines are dispensed by pharmacists for use by patients at
home, however other higher risk medicines are only accessible from specialised
medical services under supervision, such as chemotherapy medicines used in
Patients make a co-payment towards the cost of PBS medicines, which is
adjusted on 1 January each year in line with the Consumer Price Index
(CPI). From 1 January 2011, the co-payment for most PBS medicines is
$34.20, or $5.60 for patients with a concession card, with the remaining cost
of the medicines paid by the Commonwealth Government.
The Pharmaceutical Benefits
The Pharmaceutical Benefits Advisory Committee (PBAC) is an independent
expert body comprised of doctors, health professionals and consumer
representatives. The PBAC meets three times a year and is appointed by the Commonwealth
The main role of the PBAC is to assess applications for the listing of
medicines on the PBS Schedule, and to make recommendations to the Minister for
Health and Ageing as to whether particular medicines should be listed. New
medicines cannot be listed unless a positive recommendation is made by the
PBAC. In deciding whether a medicine should be listed under the PBS, the PBAC
takes into consideration the medical conditions the medicine is registered for
in Australia, its clinical-effectiveness, cost-effectiveness and safety in comparison
with other treatments.
The listing process
Only medicines registered on the Australian Register of Therapeutic
Goods, which is maintained by the Therapeutic Goods Administration (TGA), or
which have a positive recommendation that they be included on the register, can
be considered for listing under the PBS. The TGA assesses and monitors
medicines in Australia to ensure they are safe and effective.
In order to have a medicine listed under the PBS, an application for the
listing of the medicine must be made to the PBAC. There are five categories of
submission to the PBAC as outlined below:
Tier 1: Applications for the listing of new medicines where cost-minimisation
(or at least 'no worse than') is claimed, where pricing is based on a nominated
dosage relativity, and where the prices to pharmacist proposed are in accord
with the Pharmaceutical Benefits Pricing Authority (PBPA) methods of price
Tier 2: Submissions for new medicine listings where acceptable
incremental cost-effectiveness is claimed (or new medicine listings where cost-minimisation
is claimed but where pricing is not in accord with the PBPA criteria) and
applications for changes to listings, both cost-minimisation and cost-effectiveness,
and where the estimated net cost to the PBS is less than $10 million per annum
in any of the first four years of listing.
Tier 3: Any submission where the estimated net cost to the PBS is
estimated to be $10 million or more in any of the first four years of listing.
Secretariat: Submissions for minor changes to existing items. In
these cases, there is no need for the PBAC to consider efficacy, price is not
affected and there is no substantive financial impact on the PBS.
Other: Applications for minor changes to existing items that do
not have significant financial implications but do require consideration by the
PBAC because of their potential impact on the PBS.
The PBAC assesses the applications for listing under the PBS, and either
recommends that the medicine should be listed; or defers consideration pending
the receipt of further information; or does not recommend that the medicine be
listed. If the PBAC does not recommend the listing of a medicine on the PBS or
an extension of a current PBS medicine listing for an additional indication, an
independent review is available.
The PBAC may also make recommendations regarding the use of a medicine,
and any conditions or restrictions on those uses. The Minister of Health and
Ageing can only approve government subsidisation of a medicine under the PBS in
line with the independent recommendation received from the PBAC.
Following each PBAC meeting, the PBPA meets. This non-statutory
committee may recommend either a price range or a price ceiling for a medicine
which has been approved by the PBAC, following negotiation with the sponsor.
From 2001 until recently, Cabinet considered the subsidisation of
medicines which were expected to cost over $10 million per year in any of
the first four financial years of being listed. However, in early 2011 the Government
stated that all changes to the PBS which have financial implications will now
be considered by Cabinet, as discussed further below. A listing may be accepted
or rejected by Cabinet, and the final determination is confirmed by the
Minister for Health and Ageing.
The listing of medicines on the Schedule is authorised by the tabling of
legislative instruments by the Minister for Health and Ageing.
When listed, the medicine will appear on the Schedule.
Cost of the PBS
The total cost of the PBS is uncapped – it is driven by patient
utilisation of the medicines available. While the Government manages the price
of each medicine on the Schedule, as new medicines are added, and the utilisation
of medicines already on the Schedule grows, the cost of the scheme increases.
Over the 10 years to 2004–05, the cost of the PBS increased by about
13 per cent annually. The increasing costs of the PBS can be attributed to
various factors including the listing of new medicines, increasing prescribing
and utilisation of existing medicines and an ageing population.
Successive governments have attempted to contain the increasing costs of
the PBS through various measures such as increases in patient co-payments,
one-off price cuts, statutory price reductions and the extension of price
The 2007 reforms of the PBS implemented many of these measures including:
Formularies – medicines under the PBS were divided into
two separate formularies, F1 comprising single brand medicines (except those interchangeable
at a patient level with multiple brand medicines) and F2 comprising
multiple brand medicines and single brand medicines interchangeable at the
patient level. The division was intended to address the difficulty the Government
experienced in paying competitive (lower) prices for multiple brand medicines
by separating single brand medicines from multiple brand medicines for the
purposes of reference pricing.
At the time, the F2 formulary was
further separated into two parts, F2A (medicines where price competition between
brands was low) and F2T (medicines where price competition between brands
was high) until 1 January 2011 when the two sub-formularies were intended to be
merged to form a single F2 formulary.
Pricing – pricing rules for the medicines on each
formulary were specified; in particular the circumstances in which price
reductions would occur. In summary, the following pricing rules were applied:
a minimum 12.5 per cent reduction in the price of any
bioequivalent or biosimilar brand of a medicine upon PBS listing (so long as
the medicine had not previously been subject to a 12.5 per cent reduction);
from 1 August 2008, a staged 2 per cent price reduction
every year for three years for medicines in F2A; and
on 1 August 2008, a one-off price reduction of 25 per cent for medicines
Price disclosure – price disclosure provisions for
medicines listed on the F2 formulary were introduced to ensure that the
price the Government paid for multiple brand medicines more closely reflected
the actual price at which those medicines were being supplied to pharmacies.
The price disclosure requirements were applied to all new brands of a medicine
listed on F2A from 1 August 2007. Upon merging the F2A and F2T sub-formularies
(originally scheduled for 1 January 2011), the price disclosure
requirements are to apply to all medicines listed on the F2 formulary.
Prior to the Government's announcement of Cabinet deferral of
consideration of particular medicines on 25 February 2011, the most
recent attempt to manage the increasing cost of the PBS was through the Memorandum
of Understanding (MOU) signed between the Commonwealth Government and Medicines
Australia, as discussed below.
Memorandum of Understanding between the Commonwealth Government and
On 6 May 2010, the Commonwealth Government and Medicines
Australia signed an MOU with effect until 30 June 2014. The intent of
the MOU is to:
...promote the efficiency and sustainability of the PBS and
support, by the provision of a stable pricing policy environment, a viable and
responsible medicines industry in Australia, consistent with the objectives of
the National Medicines Policy.
The details of the MOU were announced as part of the 2010–11 Budget,
with the expectation that the measures would deliver $1.9 billion in
savings over the following five years, largely through price reductions
for certain PBS medicines, and the extension of price disclosure arrangements.
The MOU covered the following issues:
strengthened price disclosure arrangements;
price reductions for certain medicines listed on the PBS;
the creation of new therapeutic groups;
the consistent treatment of brands of medicines sold at the same
parallel TGA and PBAC evaluation and assessment processes;
a managed entry scheme from 1 January 2011;
timing and maximum timeframes for PBS pricing negotiations and
consideration by Cabinet; and
resolution of issues in good faith.
Following the 2010 Federal Election, and the subsequent extended
caretaker period, the commencement date for one of the key pricing measures in
the MOU, price disclosure, was delayed from 1 October 2010 to
1 December 2010. Consequently the MOU was re-signed on 28 September 2010
to reflect the change in the commencement date.
Announcement of listing deferrals
On 25 February 2011, the Minister for Health and Ageing, the Hon. Nicola
Roxon MP, announced the deferral of the listing of seven medicines under the
PBS. The deferred listings were for the following medicines:
dutasteride with tamsulosin hydrochloride (Duodart®), supplied in
Australia by GlaxoSmithKline Australia to treat enlargement of the prostate gland;
paliperadone palmitate (Invega Sustenna®), manufactured by
Ortho-McNeil-Janssen Pharmaceuticals for the treatment of schizophrenia;
oxycodone/naloxone (Targin®), supplied in Australia by
Mundipharma for the treatment of chronic pain and to provide relief from
constipation which is a typical side effect of opioid analgesics;
budesonide with eformoterol (Symbicort®), supplied by AstraZeneca
Australia for the treatment of severe asthma and chronic obstructive pulmonary
botulinum toxin type A (Botox®) extension, distributed in
Australia by Allergan Australia for the treatment of hyperhidrosis (a severe
dalteparin sodium (Fragmin®), supplied in Australia by Pfizer
Australia to prevent the formation of blood clots and to treat Deep Vein
nafarelin (Synarel®), distributed in Australia by Pfizer
Australia for the treatment of endometriosis and in vitro fertilisation (IVF)
The minister explained that in most cases, for those medicines for which
listing had been deferred 'there are existing, or alternative treatments that
are already available, or there's no additional clinical benefit', and that
priority has been given to life-saving medications.
The committee considers that as well as representing a profound
misunderstanding of the role that different medicines within a given class can
have on patient wellbeing, this justification had never before been used as an
excuse to defer consideration of PBAC recommendations.
It is also important to note that, for one of the medicines, Botox® used to treat
hyperhidrosis, no alternative treatment is available.
It was stated that deferred listings would be automatically reconsidered
for listing by the Government 'when circumstances permit', but the minister was
unable to advise of a timeframe within which the medicines would be reassessed.
Only after the deferral announcement, did the minister seek the input of
the industry, through Medicines Australia on the structure of the deferral and
As a consequence of the minister's 25 February 2011 announcement,
the Portfolio Budget Statements 2011–12 explained that 'the listing of
some medicines would be deferred until fiscal circumstances permit' and
outlined the Government's new position that all listings with a financial
impact will now be considered by Cabinet:
Given the need for fiscal discipline to achieve the
Government's intention to return the Budget to surplus in 2012–13, all changes
to the PBS with financial implications will be considered by the Cabinet.
The deferral of the listing of these medications was characterised as a
cost-saving measure 'in difficult financial and fiscal circumstances' to ensure
the continued sustainability of the PBS into the future.
The minister focused solely on the cost of new medicines: 'Ultimately, just
because a drug is proven to be clinically and cost-effective, doesn't mean it's
the most urgent or pressing way to spend finite taxpayer money'.
The minister maintained that the deferral was in keeping with the MOU
with Medicines Australia, as the timeframe for considering applications had
...unlike in the old days if there were financial pressures
or if there were reasons that a Government didn't want to list a medicine, they
just deferred considering it in Cabinet, or let it get lost for six or 12
months, to a lot of frustration from the pharmaceutical industry.
We are complying with the terms of the agreement and have
brought forward all of those applications...we've made a decision that a number
of medicines won't be listed at this time. We're being public about that. We're
making sure that everyone, who is an applicant in the pharmaceutical industry
and the consumers, have that information available to them.
The committee considers this is nothing less than a mischievous attempt
to avoid admitting that this constitutes a breach of the MOU. It is nonsensical
to assert that 'consideration' is met by a deferral, itself a refusal to make a
Stakeholders have voiced a significant degree of concern regarding the Government's
decision to indefinitely defer the listing of medicines which have received a
positive recommendation from the PBAC. Many organisations have raised concerns
regarding the impact of the decision on patients, their families and carers,
the impact on the integrity of the PBAC assessment system, and the lack of
transparency surrounding the Cabinet's decisions regarding which medicines to
In the past it has been very rare for a medicine which has received a
positive recommendation from the PBAC not to be listed. In 2002, an exception
to this process occurred when the then Minister for Health, Senator the Hon.
Kay Patterson, decided not to list Viagra®
under the PBS, despite the medicine receiving a positive recommendation from
the PBAC. The advice received from the PBAC had noted that the listing of that
particular medicine might have a significant budgetary impact on the PBS. This
decision also caused significant concern throughout the industry at the time.
A further exception took place in 1994 in relation to nicotine patches,
which were assessed as cost-effective in the long-term but were not considered
to be affordable in the short-term due to expected demand for the product.
In light of significant stakeholder concern regarding the
25 February 2011 announcement, the minister attended a roundtable
conference with peak health consumer organisations, the Consumers Health Forum,
the Australian Medical Association, Medicines Australia and the Generic
Medicines Industry Association on 29 April 2011 in Melbourne.
Following the roundtable, the Consumers Health Forum stated:
The stakeholder groups at the meeting appreciated the Minister's
willingness to attend and to hear their views. However, the discussion at the
meeting has not reduced our high level of concern about this decision.
Navigation: Previous Page | Contents | Next Page