G. Parliamentary Budget Office costing: Subsidising glucagon-like peptide 1 receptor agonist drugs (GLP-1 RAs) on the Pharmaceutical Benefits Scheme (PBS) for obesity and individuals with type 2 diabetes requiring intensive insulin therapy
1.1Person/party requesting the costing: Dr Mike Freelander MP, Australian Labor Party.
1.2Date costing completed: 4 April 2024.
1.3Expiry date of the costing: Release of the next economic and fiscal outlook report.
1.4Status at time of request: Submitted outside the caretaker period.
1.5Not confidential.
Summary of proposal
1.6The proposal would subsidise GLP-1 RAs on the PBS for people who are obese and people with type 2 diabetes requiring intensive insulin therapy.
1Fully subsidise the patient PBS co-contribution for all GLP1-RAs available in Australia for people with type 2 diabetes requiring intensive insulin therapy
2Fully subsidise the patient PBS co-contribution for all GLP1-RAs available in Australia for people with type 2 diabetes and who are obese requiring intensive insulin therapy.
3Fully subsidise the patient PBS co-contribution for all GLP1-RAs available in Australia for people with type 2 diabetes, with or without requiring intensive insulin therapy.
4Fully subsidise the patient PBS co-contribution for all GLP1-RAs available in Australia for people with type 2 diabetes and who are obese, with or without requiring intensive insulin therapy.
5Partially subsidise (50%) the patient PBS co-contribution for all GLP1-RAs available in Australia for people with type 2 diabetes requiring intensive insulin therapy.
6Partially subsidise (50%) the patient PBS co-contribution for all GLP1-RAs available in Australia for people with type 2 diabetes and who are obese requiring intensive insulin therapy.
7Partially subsidise (50%) the patient PBS co-contribution for all GLP1-RAs available in Australia for people with type 2 diabetes, with or without requiring intensive insulin therapy.
8Partially subsidise (50%) the patient PBS co-contribution for all GLP1-RAs available in Australia for people with type 2 diabetes and who are obese, with or without requiring intensive insulin therapy.
1.7The proposal would commence from 1 July 2025.
Costing overview
1.8The options in this proposal would be expected to decrease the fiscal balance by between around $1.1 million and $55.6 million, and the underlying cash balance by between $1.1 million and $54.4 million over the 2023-24 Budget forward estimates period (Table 1). This reflects an increase in administered expenses. The underlying cash balance impact differs slightly from the fiscal balance due to claims processing lags. This results in a very small proportion of claims processed in the year after the Pharmaceutical Benefits Scheme (PBS) prescription is dispensed and the expense is recorded.
1.9The proposal would have an ongoing impact beyond the 2023-24 Budget forward estimates period. A breakdown of the financial implications (including separate public debt interest (PDI) tables) over the period to 2033-34 is provided at Attachment A. Additional distributional information of recent patient usage is provided at Attachment B.
1.10The financial implications of this proposal are highly uncertain and sensitive to a range of assumptions, including the projections of prescription volume of the affected PBS items, the proportion of prescription volume associated with the treatment of type 2 diabetes in patients with obesity in the baseline over the costing period, any substitution effects associated with supply shortages and the introduction or discontinuation of GLP-1 RAs in the Australian market (for instance, Exenatide which was discontinued from the Australian market in December 2022), and any substitution effects between other treatments for type 2 diabetes. In particular, projections of prescription volume are significantly uncertain, reflecting an assumption that the availability of GLP-1 RA products will continue to be limited due to a worldwide shortage.
1.11There are further inherent uncertainties around the behavioural responses to the proposed policy change from patients, pharmacies, and medical practitioners.
1.12The proposal may also have further flow-on impacts to other public health expenditure such as the Medicare Benefits Schedule (MBS). However, these broader flow-on impacts are highly uncertain and, as such, have not been included in this costing.
Figure G.1Subsidising GLP-1 RA on the PBS – Financial implications ($m)(a)(b)
(a) A positive number represents an increase in the relevant budget balance; a negative number represents a decrease.
- Indicates nil.
Key assumptions
1.13The Parliamentary Budget Office (PBO) has made the following assumptions in costing this proposal.
- The prescription volume for the affected PBS items would be consistent with the estimates provided by the Department of Health and Aged Care over the period to 2028-29. Beyond this period, the volume of prescriptions is expected to increase at a steady rate, in line with the growth trends projected for the 2028-29 period.
- Around 27% of patients who are prescribed GLP-1 RAs for the treatment of type 2 diabetes would be obese.
- The proportion of prescription volume of GLP-1 RAs that are prescribed in combination with insulin would be around 18%, consistent with the average proportion of GLP-1 RA prescriptions associated with Streamlined Authority Code 5469 over the period from 2019-20 to 2022-23, as provided by Department of Health and Aged Care.
- The average PBS co-contribution per patient who is prescribed GLP-1 RAs for the treatment of type 2 diabetes and is obese would be consistent with the average PBS co-contribution per patient who is prescribed GLP-1 RAs for the treatment of type 2 diabetes.
- There would be no impact on departmental resources for the administering agencies, as the proposal is not likely to necessitate significant investment in ICT or other system upgrades.
Methodology
- The average PBS co-contribution per patient who is prescribed GLP-1 RAs for the treatment of type 2 diabetes was calculated for each type of PBS beneficiary (general patients and concessional patients) by dividing the total PBS patient contribution by the prescription volume under the parameters specified for each option, over the period from 2019-20 to 2022-23, and then grown in line with the Consumer Price Index (CPI).
- The increase in administered expenditure was estimated by multiplying the average PBS co-contribution per patient by the projected volume of prescriptions dispensed under each option, consistent with the Key assumptions discussed above.
- Financial implications were rounded consistent with the PBO’s rounding rules as outlined on the PBO Costings and budget information webpage.
Data sources
- The Department of Health and Aged Care provided data on historical patient contribution and prescriptions from 2019-20 to 2022-23, and prescription volume projections over the forward estimates for eligible PBS items.
- The Department of Finance and the Treasury provided indexation parameters as at the 2023-24 Mid-Year Economic and Fiscal Outlook.
- ADEA (2022). BYETTA® (exenatide) 5mcg & 10mcg pre-filled pens – Discontinuation from Australian Market. Accessed 20 March 2024.
- Australian Bureau of Statistics (2023). National Health Survey, reference period 2022. Accessed 26 March 2024.
- Australian Institute of Health and Welfare (AIHW) (2021). Australian Burden of Disease Study 2018: Interactive data on risk factor burden. Accessed 20 March 2024.
Note: The PBO's attachments have not been provided in this appendix. The full costings document, including the attachments, will be available on the PBO's website.