18 June 2007
The Government’s plan to reform the Pharmaceutical Benefits Scheme ("PBS") has gained further momentum with the introduction of the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 into Federal Parliament on 24 May 2007.
The reforms have been met with some criticism from industry groups, and will affect a number of stakeholders within the industry, including manufacturers, pharmacists and pharmaceutical wholesalers.
The key elements of the reform package are:
The Bill was passed by the House of Representatives on 31 May 2007 without significant comment from the Opposition and is currently in the Senate. If passed, the reforms will take effect from 1 August 2007, although changes to pharmacy incentive arrangements will commence from 1 July 2007.
Establishment of formularies
From 1 August 2007, the Pharmaceutical Benefits Schedule will separate medicines into two formularies:
Formulary 1 (F1), which will comprise single brand medicines that are not subject to price competition in the market; and
Formulary 2 (F2), which will comprise multiple brand medicines and any single brand medicines that are interchangeable with multiple brands that operate in a competitive market.
The F2 formulary will be further divided into two sub-formularies:
Statutory price reductions applying to formularies
There will be no statutory price reductions for F1 medicines. However, when a new brand of an F1 medicine is PBS-listed, the medicine will be transferred to the F2 formulary and will be subject to the F2 pricing arrangements.
From 1 August 2008, there will be reductions in the prices of F2 medicines:
no price reduction, or a price reduction totalling no more than 25 percent phased over the remaining patent life, for certain F2T products to be specified in the Regulations.
The price reductions will in most cases be mandatory, but some exemptions may be granted at the Minister's discretion. The Bill also exempts some medicines from price reductions until such time as they become subject to competition. Other exemptions for price reductions will be granted for medicines that have a unique formulary or serve the particular needs of a sub-population of patients.
Price disclosure requirements
The PBS reforms also aim to improve the level of transparency in the pricing arrangements for multiple brand medicines listed on the F2 formulary. From 1 August 2007, a company listing a new medicine on the F2A formulary must disclose market price data to the Department of Health and Ageing. In addition, other sponsors of brands that are administered in the same way will be invited to voluntarily disclose market price data.
Penalties of up $33,000 apply for companies that fail to comply with price disclosure offences. Other penalties include delisting a brand from the PBS or refusing to list new brands of the defaulting company.
Guaranteed supply
To prevent supply interruptions to patients, the Government has proposed that suppliers listing new or existing brands of F2 drugs guarantee supply of the drug for a period of 24 months or until such time that another new brand of that drug is listed. In the event that there is a failure to comply with supply requirements, penalties including delisting that brand or another brand from the PBS may apply. The supplier may also be prevented from listing new brands on the PBS where they did not meet supply requirements.
Compensation of pharmacies and wholesalers
The structural reforms are expected to impact on profits for pharmacy operators and, as such, the Government is introducing incentives to compensate for the loss in remuneration. From 1 July 2007, pharmacists will receive an incentive of 40c for every prescription that is processed using PBS Online. In addition, pharmacists will receive an increase in payment from 1 August 2007 for supplying a PBS medicine and a payment of $1.50 each time a substitute medicine is dispensed which costs the patient no more than the standard co-payment.
To compensate pharmaceutical wholesalers for the impact of the new pricing arrangements on wholesale margins, additional funding of $69 million over three years will be added to the Community Services Obligation Funding Pool. Wholesalers can access this funding pool if they meet specified service standards.
Access to Medicines Working Group
To assist with the implementation of the changes and consider issues relating to timely and appropriate access to new medicines, the Department of Health and Ageing has formed the Access to Medicines Working Group. The group, which comprises of member stakeholders from the sector, first met on 19 December 2006 and will be frequently engaged to seek feedback on a range of issues.
Public awareness campaign for generic medicines
The Government intends to launch a community education campaign to positively reinforce the safety and economic benefits of generic medicines. The campaign is expected to comprise print, radio and television advertisements, and will particularly target concession card holders and people with chronic long term conditions.
Impact of the changes
The PBS reforms are expected to save the Government more than $580 million over the next four years, and $3 billion over the next 10 years. The changes will begin to take effect from 1 July 2007, but a number of key changes will commence from 1 August 2007 and others will commence along an extended timeline up until 1 August 2012.
The Minister has argued the changes will lead to lower prices for generic medicines, which will in turn create headroom to put new and innovative drugs on the PBS. The Opposition, however, believes that the complex changes will be of little benefit to consumers and the breaking of the link between innovative and established drugs will enable pharmaceutical companies to demand a higher price for new medicines.
Industry groups have also expressed some opposition to the reforms. John Montgomery, the head of the Generic Medicines Industry Association, said that the PBS F1 changes "dismantle reference pricing, encourage 'evergreening' and provide no incentive for the use of true generics". In addition, Medicines Australia has expressed concern over the proposed premium restrictions, stating that they are not in keeping with the intent of the PBS reform, will affect the viability of some companies and will reduce patient choice.
For further information on the Bill and the effect of the reforms, please contact
