Bills Digest No. 13, 2022–23

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Rebecca Storen
Social Policy Section
16 September 2022

Key points The Bill proposes to reduce the Pharmaceutical Benefits Scheme (PBS) general co-payment from its current amount of $42.50 to $30.00 (subject to annual indexation) and enable pharmacies to apply an optional discount to the price of some PBS medicines. These amendments implement the Australian Labor Party’s election commitment to decrease the general co-payment to $30.00 from 1 January 2023. Patients generally pay a co-payment towards the cost of each PBS medicine, with a lower co-payment amount for concession card holders. Once patients have spent over a certain amount on PBS medicines they can qualify for the PBS Safety Net, under which general patients will then pay a lower amount for medicines and concession card holders receive medicines for free for the remainder of the calendar year.   The amendments proposed in the Bill will primarily benefit people who do not purchase a substantial amount of PBS listed medicines each year and who do not qualify for concession cards. The Bill will not modify the PBS Safety Net thresholds. For people with high medicine needs who would expect to reach the Safety Net threshold each year, the reduced general co-payment amount may have limited impact. It will also not change the concessional co-payment amount which will increase on 1 January 2023 subject to indexation while the general co-payment will be reduced by $12.50 and will not increase until 1 January 2024. As with the existing optional discount, pharmacies have the choice whether to provide the additional discount to general co-payments for eligible medicines (concessional co-payments will be ineligible). Pharmacists will not be reimbursed by the Commonwealth for providing the discount.

Contents

Purpose of the Bill
Background
Committee consideration
Position of major interest groups
Financial implications
Statement of Compatibility with Human Rights
Key issues and provisions

 

Date introduced:  7 September 2022
House:  House of Representatives
Portfolio:  Health and Aged Care
Commencement: 1 January 2023

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 September 2022.

Purpose of the Bill

The purpose of the National Health Amendment (General Co-payment) Bill 2022 (the Bill) is to amend the National Health Act 1953 (the Act) to:

• reduce the Pharmaceutical Benefits Scheme (PBS) general co-payment from its current amount of $42.50 to $30 (subject to annual indexation)
• enable pharmacies to apply an optional discount to the dispensed price of some PBS medicines.

As part of its 2022 election policies, the Government committed to reduce the PBS co-payment to a maximum of $30 per script from 1 January 2023, stating that the changes would ‘save Australians more than $190 million a year in out-of-pocket costs’.[1]

Background

Co-payments and the PBS Safety Net

Overview

The Australian Government subsidises the cost of many medicines for Australians through the PBS, with patients often contributing to the cost as well.[2] Patients pay a co-payment towards the cost of each PBS medicine, with the Australian Government generally covering the remaining cost (there are instances where people may pay more than the co-payment, for example if they choose a particular brand of medicine over another brand of the same medicine). This keeps otherwise expensive medicines affordable for people. Patient co-payments are currently set at $6.80 for concession card holders and a maximum of $42.50 for those ineligible for a concession (known as general patients). Under the Closing the Gap PBS Co-Payment Program, eligible Aboriginal and Torres Strait Islander people who would normally pay the full co-payment only pay the concessional rate, and those who would normally pay the concessional rate are not required to pay the PBS co-payment.[3]

The PBS Safety Net scheme is intended to protect patients needing a large number of medicines in one year from excessive out of pocket costs. Individuals and families who spend an amount equal to their Safety Net threshold on co-payments in a calendar year receive further prescriptions for that year for free (if they are concession card holders) or for the concessional co-payment of $6.80 (if they are general patients).[4]

The co-payments and Safety Net thresholds are indexed on 1 January each year in line with the Consumer Price Index (CPI) and are currently $244.80 for concession card holders and $1,457.10 for general patients.[5]

Medicines are also available through the PBS that are priced below the general co-payment amount and are referred to as ‘under co-payment’ prescriptions. These medicines do not attract a Government subsidy but account for approximately 30% of all prescriptions dispensed in
2020–21.[6]

The Australian Bureau of Statistics (ABS) estimates that in 2020–21, nearly 2 in 3 people have been supplied with at least 1 PBS medicine, with data showing that the supply of medicines increases with age and that people with a disability are more likely to be supplied with a medicine than people with no disability.[7] In addition, the ABS estimates that 1 in 7 people were supplied a PBS medicine using the Safety Net subsidy at least once, again noting that the use of the Safety Net increases with age and that people with disability were three times more likely to use the safety net as opposed to those without disability.[8]

Patient contribution to PBS medicines

Most PBS medicines are dispensed under section 85 of the Act through community pharmacies for people to use at home. Some medicines, under section 100 of the Act, are supplied through special arrangements where normal supply is not suitable (for example, IVF medicines available through the PBS).[9] In addition, there are allowances for some medicines to be on hand for free emergency use, this is traditionally known as a Doctor’s Bag (or, as referred to in the Act, Prescriber’s Bag).

As shown in Table 1 below, the patient contribution for section 85 and section 100 medicines (excluding under co-payment prescriptions) was estimated at approximately $1.5 billion in
2020–21, with patient contribution for general non-Safety Net prescriptions estimated at approximately $568.5 million (this does not take into account the effect of the $1 PBS patient co-payment discount, discussed in the next section).[10] It is the people purchasing medicines who do not qualify for concessional arrangements or have a Safety Net card , shown in grey in Table 1, that will benefit from the proposed changes being introduced in the Bill.

Table 1      PBS subsidised prescriptions, government cost, patient contribution and average price (2020–21)

Section 85 and section 100, including Doctor’s Bag, excluding under co-payment prescriptions.

Patient Category	PBS subsidised prescription	Government Cost	Patient contribution*	Total cost**	Ave. price+
Concessional Non-Safety Net	144,098,300	$7,010,646,005	$917,783,821	$7,928,429,826	$55.02
Concessional Safety Net	50,743,086	$1,985,329,594	$0	$1,985,329,594	$39.13
Total Concessional	194,841,386	$8,995,975,600	$917,783,821	$9,913,759,421	$50.88
General Non-Safety Net	15,552,528	$4,414,990,093	$568,519,553	$4,983,509,646	$320.43
General Safety Net	2,813,685	$147,503,450	$17,923,996	$165,427,446	$58.79
Total General	18,366,213	$4,562,493,543	$586,443,549	$5,148,937,092	$280.35
Total (excluding Drs Bag)	213,207,599	$13,558,469,143	$1,504,227,370	$15,062,696,513	$70.65
Doctors Bag	360,456	$14,971,053	$0	$14,971,053	$41.53
Total (including Drs Bag)	213,568,055	$13,573,440,196	$1,504,227,370	$15,077,667,566	$70.60

*: the patient contribution does not include the effect of the $1 PBS patient co-payment discount
**: total cost includes cost to the patient and cost to the Government for PBS subsidised prescriptions
+: Average price is total cost divided by PBS subsidised prescriptions.

Source: Pharmaceutical Benefits Scheme, Expenditure Prescriptions Report tables 2020–21, Table 3(b).

In addition, under co-payment contribution from patients on PBS-subsidised medicines in 2020–21 was estimated at $1.4 billion dollars.[11]

In total, the Australian Institute of Health and Welfare estimates that people paid $3.2 billion towards PBS and Repatriation PBS (RPBS) prescriptions in 2020–21, equating to approximately 19% of the total expenditure on PBS and RPBS medicines that financial year. The Australian Government contributed the remaining 81% of total expenditure.

Recent changes to the safety net

In the 2022–23 Budget, the Morrison Government announced it would decrease the PBS Safety Net thresholds across the forward estimates, with the concession card holder Safety Net threshold changing to $244.80 and $1,457.10 for the general patient Safety Net threshold. These changes took effect on 1 July 2022.

It was estimated by the Government that these changes would benefit approximately 2.4 million people.[12] At the time, this announcement received mixed responses with some stakeholders expressing criticism that this measure would not mitigate rising prescription prices.[13]

Optional discount

Since 1 January 2016, pharmacists and dispensing medical practitioners have been permitted to offer consumers a discount of up to $1 on each PBS co-payment, as long as they absorb the cost of the discount. This discount can be offered to both general and concessional co-payments for each PBS medicine that is supplied, except for prescriptions subject to early supply rules. The discount can be offered when the medicine’s Commonwealth price (discussed below) is equal to or higher than the co-payment amount.

The discount is not mandatory, it is the choice of the pharmacist or medical practitioner whether they would like to give a discount, and the Commonwealth does not reimburse them if a discount is provided.[14]

As the co-payment amount paid by the patient is used to calculate their Safety Net amount, any discount offered by the pharmacist or medical practitioner will mean the patient will have to have more prescriptions that incur a general co-payment to reach the Safety Net threshold amount (but will mean they pay less for that particular script).

In 2020–21, 25% of subscriptions dispensed by community pharmacies (excluding under co-payment prescriptions) were discounted (see Table 2 for details), with the vast majority of discounts being the maximum discount of $1.

Table 2      PBS and RPBS prescriptions dispensed by community pharmacies (2020–21)

Section 85 and section 100, excluding doctor’s bag and under co-payment prescriptions.

		Concessional prescriptions	General prescriptions	RPBS prescriptions	Total
Discounted	Number	48,452,938	5,200,560	1,107,722	54,761,220
	Percentage	25%	30%	15%	25%
Non-discounted	Number	144,074,462	11,911,695	6,383,171	162,369,328
	Percentage	75%	70%	85%	75%
Total	Number	192,527,400	17,112,255	7,490,893	217,130,548
	Percentage	100%	100%	100%	100%

Source: Pharmaceutical Benefits Scheme, Expenditure prescriptions report tables 2020–21, Table 15(a).

The $1 discount was introduced to enhance competition between pharmacies.[15] However, there have been reports that it has not led to equitable outcomes for people, as it is more likely to be applied to some patients (those that hold a concession card) and in urban areas. These findings have raised questions on why the co-payment amounts are not reduced so everyone who needs to make a co-payment can benefit.[16]

In 2018, the Turnbull Government stated it did not support recommendations to abolish the $1 discount and this discount continues to be available under the Act.[17]

Commonwealth price

The Commonwealth price for medicines is the amount remunerated to community pharmacies and is calculated based on a formula outlined in the Community Pharmacy Agreement (CPA),[18] and are given effect to through a Determination made by the Pharmaceutical Benefits Renumeration Tribunal.[19] This formula is made up of the ex-manufacturer price plus other applicable charges for the supply of PBS medicines. The components that make up the Commonwealth Price are outlined in Table 3.

Table 3      Components of the Commonwealth Price

Payment type	Value of payment
Wholesale mark-up (for Ready-Prepared Pharmaceutical Benefits)	Where the Ex-Manufacturer Price is up to and including $5.50		$0.41 per dispense
	Where the Ex-Manufacturer Price is over $5.50 and up to and including $720		7.52 per cent of the Ex-Manufacturer Price per dispense
	Where the Ex-Manufacturer Price is over $720		$54.14 per dispense
Administration, Handling and Infrastructure Fee	Tier One AHI Fee	For a Listed Brand with a Price to Pharmacists for Maximum Quantity less than $100	$4.28 per dispense of Maximum Quantity
	Tier Two AHI Fee	For a Listed Brand with a Price to Pharmacists for Maximum Quantity from $100 and up to and including $2,000	Tier One AHI Fee plus 5% of the amount by which the Price to Pharmacists for Maximum Quantity exceeds $100, per dispense of Maximum Quantity
	Tier Three AHI Fee	For a Listed Brand with a Price to Pharmacists for Maximum Quantity over $2,000	Tier One AHI Fee and $95 per dispense of Maximum Quantity
Dispensing fee (for Ready-Prepared Pharmaceutical Benefits)	$7.74 per dispense
Dispensing fee (for Extemporaneously-Prepared Pharmaceutical Benefits)	Dispensing fee for Ready-Prepared Pharmaceutical Benefits, plus $2.04, per dispense
Dangerous Drug fee	$4.80 per Dangerous Drug dispensed

Additional notes for payment types have been removed.

Source: Department of Health, Seventh Community Pharmacy Agreement, (Canberra: DoH, 2020), Table 2, 9.

Committee consideration

The Senate Standing Committee for the Selection of Bills recommended that the Bill not be referred to a committee for inquiry.[20]

Senate Standing Committee for the Scrutiny of Bills

The Committee had not reported on the Bill at the time of writing. 

Position of major interest groups

The Pharmacy Guild of Australia, Australian Patients Association, Chronic Pain Australia and Musculoskeletal Australia have issued a joint press release welcoming the introduction of the Bill. According to one news article, the Pharmacy Guild had sought a $20 reduction of the co-payment.

Financial implications

It is estimated that the Bill will have a financial impact of $696.1 million.[21] The Government had previously estimated that the cost of reducing the co-payment to $30.00 would cost $765.3 million over the forward estimates.[22]

Indexation arrangements for the general co-payment will be in line with the CPI from 1 January 2024.[23]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011, 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.[24]

Parliamentary Joint Committee on Human Rights

The Committee had not reported on the Bill at the time of writing. 

Key issues and provisions

Overview of the amendments

To achieve the proposed changes, the Bill will amend Part VII of the Act which contains the relevant provisions governing the operation of the PBS.

The Bill will introduce a new general co-payment amount of $30 (it is currently $42.50) and a new, optional discount for eligible prescriptions.

For people with high medicine needs that would expect to reach the Safety Net threshold each year, the reduced general co-payment amount may have limited impact. While their general co-payment will be less for each script, they will still need to reach the Safety Net threshold amount (which is not modified by this Bill) before they are eligible for the Safety Net concession card (which enables them to pay the concessional co-payment amount for the remainder of the calendar year).

The Bill does not propose changes to the Safety Net threshold for general patients. However, the Bill, for the purposes of meeting the Safety Net threshold, will take into account the price paid for prescriptions eligible for increased discounting (less the actual discount). The Bill also does not change the Safety Net threshold or co-payment for concession card holders or enable increased discounting for prescriptions for concession benefit and card prescriptions.

Key provisions

Subsection 87(2) of the Act specifies the co-payment amounts that an approved pharmacist or approved medical practitioner may charge a general or concessional patient. Subsection 87(2) enables a pharmacist or medical practitioner to charge the person specific amounts depending on their circumstances, differentiating between:

• concession card holders
• people with a PBS Safety Net card (meaning people who have met the Safety Net threshold for the year)
• general patients.

Paragraph 87(2)(e) specifies the arrangement for general patients who have not reached the Safety Net threshold and for concession card holders where the prescription is for an early supply of a specified medicine. Currently the provision states that they can be charged $28.60, less any allowable discounts (defined under subsection 87(2AAAA) to mean the optional discount of not more than $1). However, the $28.60 was inserted into the Act in 2004, to apply from 1 January 2005,[25] and is subject to annual indexation under section 99G of the Act. The actual amount that a person may be charged under paragraph 87(2)(e) is currently $42.50.

Item 5 will remove the reference to $28.60 (less any allowable discount) and will insert 2 new subparagraphs enabling the pharmacist or medical practitioner to charge either:

• the general patient charge amount (less any allowable discount) (proposed subparagraph 87(2)(e)(i)), or
• if the supply is eligible for increased discounting, then an amount that is less than the lowest amount chargeable under proposed subparagraph 87(2)(e)(i) but greater than nil (proposed subparagraph 87(2)(e)(ii)).

Item 7 will insert proposed note 3 at the end of subsection 87(2), which specifies that the lowest amount chargeable would be the amount charged if the pharmacist or medical practitioner gave the maximum allowable discount (which is something they can nominate to do, it is not mandatory).

Item 1 will insert a definition for general patient charge amount into subsection 84(1) of the Act which specifies the amount of $30. It also notes that this amount will be adjusted each year under section 99G (see below).

In practice, these amendments will mean that the pharmacist or doctor can charge the patient:

• $30 (minus up to $1), as defined by the general patient charge amount, or
• for medicines that meet the criteria for increased discounting (discussed below), a general patient can be charged less than $30 (the general patient charge amount) but must be charged more than $0, depending on the optional discount the pharmacist or doctor has chosen to give the person.

Proposed section 87AA will introduce a new discounting option (referred to as ‘increased discounting’) that pharmacists and medical practitioners will be able to choose to apply, if the following requirements are met:

• It is for a supply under a ‘general benefit prescription’
  • defined in subsection 84(1) as a prescription other than:
    • a concessional benefits prescription
    • an entitlement card prescription or
    • a concession card prescription.
• The supply of the medicine to the patient is not an early supply of a specified medicine.
• At the time of supply, the Commonwealth price for the medicine was greater than the general patient charge amount and less than or equal to the increased discounting upper Commonwealth price which is specified as $42.50 (proposed subparagraph 87(AA)(c)(ii)).[26]
  • The general patient charge amount and the increased discounting upper Commonwealth price will be subject to indexation.

Section 84C of the Act provides for the circumstances where a person is eligible to be issued with a concession and entitlement card for the supply of PBS medicines upon reaching the relevant general or concessional Safety Net threshold. Item 4 inserts proposed subparagraph 84C(4)(c)(ia) to allow prescriptions eligible for increased discounting to contribute to the patient’s Safety Net threshold where the amount charged to the patient is less than the general patient charge amount (less any allowable discount) but greater than nil.

Section 99 of the Act sets out the circumstances where a pharmacist or a doctor who has supplied a PBS-listed medicine is entitled to reimbursement from the Commonwealth. Paragraph 99(2)(b) of the Act provides that an approved pharmacist or doctor is entitled to be paid, by the Commonwealth, the difference between the Commonwealth price of the item and the co-payment charged (less any allowable discount).

Item 11 inserts proposed subsection 99(2C) which provides that when the supply of the medicine to the patient is eligible for increased discounting, the pharmacist or doctor can be reimbursed the difference between the Commonwealth price of the item and general patient charge amount except where the amount charged for the supply is less than the general patient charge amount but greater than nil (in this case, the pharmacist or doctor is not entitled to reimbursement from the Commonwealth).

Item 16 introduces the indexation arrangements for the general patient charge amount and the increased discounting upper Commonwealth price, which would result in:

• the general patient charge amount first being indexed on 1 January 2024 and
• the increased discounting upper Commonwealth price being indexed from 1 January 2023.

As such, while the general co-payment will be reduced to $30 on 1 January 2023 under the proposed amendments and remain at that amount for the calendar year, the concessional co-payment will be subject to indexation on 1 January 2023 and thus would be anticipated to increase for the next calendar year.

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[1].      Australian Labor Party (ALP), Cutting the Cost of Medications, ALP policy document, Election 2022.

[2].      For further information on the PBS see, Rebecca Storen, Rosalind Hewett and Emma Vines, The Pharmaceutical Benefits Scheme: A Quick Guide, Research paper series, 2021–22, (Canberra: Parliamentary Library, 2022), 2.

[3].      Storen et al, The Pharmaceutical Benefits Scheme, 2.

[4].      Storen et al, The Pharmaceutical Benefits Scheme, 2.

[5].      ‘PBS Safety Net thresholds’, Services Australia.

[6].      ‘Medicines in the health system’, Australian Institute of Health and Welfare.

[7].      ‘Pharmaceutical Benefits Scheme Supplied Medications’, Australian Bureau of Statistics (ABS).

[8].      ‘PBS supplied medication’, ABS.

[9].      For more information, please refer to The Pharmaceutical Benefits Scheme: A Quick Guide.

[10].    In 2020–21, the general co-payment was $41.30, and the concessional co-payment was $6.60. The safety net threshold was $1,497.20 for general patients and $316.80 for concessional patients.

[11].    The Pharmaceutical Benefits Scheme (PBS), PBS/ RPBS Report on Under Co-Payment Prescriptions 2020–21, Spreadsheet, (Canberra: Department of Health and Aged Care, 2021).

[12].    Australian Government, ‘Part 2: Payment Measures’, Budget Measures: Budget Paper No. 2: 2022–23, 105.

[13].    Emma Vines, ‘Health Overview’, Budget Review 2022–23, Research paper, 2021–22, (Canberra: Parliamentary Library, May 2022), 110.

[14].    Paragraph 99(2)(b) of the Act.

[15].    Alex Grove, ‘National Health Amendment (Pharmaceutical Benefits) Bill 2015’, Bills Digest, 121, 2014–15, (Canberra: Parliamentary Library, 2015), 5.

[16].    S. King, W. J. Scott and J. Watson, Review of Pharmacy Remuneration and Regulation – Final Report, report prepared for the Department of Health (DoH), (Canberra: DoH, 2017), 35–36.

[17].    DoH, Australian Government Response to the Review of Pharmacy Remuneration and Regulation, (Canberra: DoH, 2018), 8.

[18].    DoH, Seventh Community Pharmacy Agreement, (Canberra: DoH, 2020). “Commonwealth price” is defined in subsection 84(1) of the Act.

[19].    Commonwealth price (Pharmaceutical benefits supplied by approved pharmacists) Determination 2020.

[20].    Senate Standing Committee for the Selection of Bills, Report, 4, 2022, 8 September 2022.

[21].    Explanatory Memorandum, National Health Amendment (General Co-payment) Bill 2022, 2.

[22].    ALP, Cutting the Cost of Medications.

[23].    Explanatory Memorandum, 2.

[24].    The Statement of Compatibility with Human Rights can be found at pages 3–4 of the Explanatory Memorandum to the Bill.

[25].    See item 7 of Schedule 1 to the National Health Amendment (Pharmaceutical Benefits Budget Measures) Act 2004.

[26].    Item 13 of the Bill amends section 99F of the Act to insert a definition for ‘increased discounting upper Commonwealth price’, which refers to the amount specified in proposed paragraph 87(AA)(c)(ii).

 

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