Additional Comments by Coalition Senators
National Health Amendment
(Pharmaceutical Benefits Scheme) Bill 2010
(Provisions)
Support for the Pharmaceutical Benefits Scheme
1.1
Coalition Senators acknowledge the many strengths of Australia’s
existing Pharmaceutical Benefits Scheme (PBS). Overall the PBS delivers to the
Australian community a wide range of both older and newer prescription
medicines in a way that offers patients a high degree of confidence that they
are of high quality, safe and compared to the cost of medicines in some other
countries, reasonably priced.
1.2
Maintaining the integrity of the Scheme requires constant vigilance on
the part of the various regulatory authorities responsible for its
administration, including the Department of Health and Ageing (DHA).
1.3
Coalition Senators acknowledge that it is a particular challenge to contain
the costs of medicines listed on the PBS and that the reforms reflected in the
National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 aim to
address this issue.
1.4
The Coalition supports the $1.9 Billion savings measures sought to be
achieved by this Bill. These reforms build on the extensive reforms to the PBS
introduced by the Coalition Government in 2007. However, the extent and wide
ranging nature of the new reforms raise some significant issues of public
policy that in the view of Coalition Senators have not been adequately
addressed and should be reviewed before the Bill is permitted to proceed.
The Impact of the 2007 Reforms
1.5
The 2007 reforms to the PBS were among the most radical undertaken.
Among other things they involved the creation of two categories of formularies
for medicines, new pharmacy and wholesale support arrangements, the promotion
of generic medicines, the streamlining of approval processes for some
medicines, and the use of price disclosure techniques to secure cost savings. Given
their wide ranging nature, the reforms were to be implemented over a 10 year
period and in so far as price disclosure was concerned, applied to only a small
number of medicines (162) listed on the PBS.
1.6
In evidence before the committee witnesses noted that the changes
introduced by the 2007 reforms were to be implemented in stages and are only
now beginning to yield savings. Nevertheless a submission from the Pharmacy
Guild of Australia noted that several independent studies of the effect of the
reforms had shown that the savings being achieved by the reforms will be far
greater than anticipated and could well be near double original projections (in
the vicinity of $6 billion).
1.7
While Coalition Senators welcome these potential cost savings to the
PBS, they query the Government's reasons for introducing an extensive new set
of reforms when the Pharmaceutical industry has barely been able to adjust to
those of 2007. It is clear from evidence to the Committee that the new reforms
will be very disruptive to the pharmaceutical industry which requires a certain
business environment.
1.8
In addition, the 2007 reforms were implemented following an extensive
consultation by the Coalition Government across all stakeholders. As a
consequence they had widespread acceptance, no doubt a strong reason for the
fact that they will yield well in excess of anticipated savings to the PBS.
1.9
Given that those reforms were undertaken with the support of the
commitment of the whole industry, it is possible that with more comprehensive
negotiations with all relevant stakeholders, the existing identified savings of
$1.9 billion and possibly other savings could be made to the PBS. Broader
consultation would result in broader consensus and commitment and potentially
more equitable savings identified.
The rising costs of the PBS
1.10
The evidence before the Committee was that the costs of the PBS are
rising and will grow significantly in coming years. While the costs of all PBS
medicines are increasing (in both the F1 and F2 formularies) the evidence from
various witnesses, including the DHA was that the costs of medicines in the F1 category
is growing more quickly.
1.11
In its submissions and evidence to the committee the Generic Medicines
Industry Association (GMIA) noted that between 2005-06 and 2009-10 the cost to
the Government of F2 medicines had declined by 21.4 percent while the cost of
those in F1 formulary over the same period had risen by 35.4 percent.
Moreover, it is clear that the trend where F1 costs rise more rapidly than F2
costs will continue into the future.
1.12
Conscious of this trend, Coalition Senators are concerned that the
effect of the proposed reforms will be to extract all the cost savings from the
medicines in the F2 formulary and do nothing to contain the rapidly rising
costs in the F1 formulary. This will mean that the cost burden of the reforms
will fall exclusively on the companies and enterprises whose businesses are
built around the sales of medicines in this category of the pharmaceutical
industry. While some members of the Medicines Australia group selling generic
drugs will be affected, the implications for the businesses of the members of
the GMIA will be greater as they only sell generic medicines in this section of
the market.
1.13
The proposed reforms not only target the F2 section of the market, they
appear to have been designed to insulate F1 medicines (essentially patented
medicines) from price savings. The Committee received evidence that the cost
of these medicines in Australia was considerably lower than in some other parts
of the world and that the unique characteristics of the PBS are largely
responsible for this benefit.
1.14
While Coalition Senators acknowledge that the structure of the PBS is
one of the great strengths of the way medicines are made available to the
Australian public, they do not accept that the Commonwealth should not do all
it reasonably can to drive cost savings in all sectors of the pharmaceuticals
market, including the F1 category.
1.15
Far from seeking to secure costs savings from F1 medicines, these
reforms establish significant barriers which will almost certainly limit the
possible extent of savings. The MOU between the Commonwealth and Medicines
Australia, for example, explicitly rules out the creation any additional
therapeutic groups except in a very narrow set of circumstances. The Committee
received evidence, most notably from DHA, that therapeutic groups were a well
established way of securing significant cost savings for the PBS. Under the
MOU new groups cannot be created for four years, a prohibition that could deny
the Government hundreds of millions of dollars of savings to the PBS.
1.16
The wide consultation with stakeholders prior to the implementation of
the 2007 reforms ensured wide acceptance and commitment to reform. A certainty
that yielded savings well in excess of those anticipated. Arguably, had the Government
in this instance consulted with all stakeholders and achieved agreement to
reforms, it is possible that broader parameters of reform, and in turn, greater
savings could have been achieved.
The Negotiation of the MOU between the Commonwealth and Medicines Australia
1.17
In its evidence to the Committee DHA argued that the reforms proposed in
the 2010 Bill reflect essentially the contents of the MOU first signed between
the Commonwealth and Medicines Australia in May 2010 and later re-signed with
some minor amendments in September this year.
1.18
Coalition Senators are deeply concerned by other evidence to the
Committee, including from DHA, which made it clear that the only party with
which the Commonwealth had any serious negotiations about the contents of the
MOU was Medicines Australia.
1.19
Several other parties with a direct interest in the contents of the
agreement and likely to be seriously and materially affected by its provisions
were excluded from participation. Indeed the GMIA only learnt of the existence
of the MOU a few days before it was publicly announced in conjunction with the
2010 Commonwealth Budget. Other key parties such as Pharmacy Guild of
Australia, Consumers Health Forum, and the National Pharmaceutical Services
Association were not included in the negotiations.
1.20
At least in relation to the members of the GMIA, the supposed explanation
for their exclusion from the negotiations was that they held a relatively
modest, even insignificant, proportion of the pharmaceutical market in
Australia. Coalition Senators noted however, that the evidence on the extent
of company's market shares was contentious and that there is an absence of
reliable data on the matter. Whatever its actual share, it is clear that the
result of GMIA's exclusion from the MOU negotiations is that its legitimate
concerns about various aspects of the MOU - now enshrined in the Bill - were
ignored to the considerable detriment of its interests.
1.21
Coalition Senators consider the failure to involve all the relevant
parties (not merely GMIA) in the negotiations over the MOU, to be a profound
shortcoming in the process leading up to the development of proposals for
reform of the PBS. It has resulted in a set of reforms that achieve far less
than might have been possible had the Commonwealth attempted to secure a wider
degree of cooperation. In addition, some of the reforms are materially
damaging to key sectors of the pharmaceutical industry and highly likely to
reduce competition in this market.
1.22
Finally, the failure of process has led to a schedule of changes to
industry marketing arrangements that will be administratively difficult to
implement and likely to prove highly disruptive to the smooth flow of medicines
through the wholesale and retail pharmaceutical markets.
Shortcomings in the substance of the legislation
1.23
In submissions to and in evidence before the committee reference was
made to a number of problems and shortcomings with the proposed reforms that if
not addressed could well frustrate the effective implementation of the
legislation and undermine its policy design. Coalition Senators consider that
these issues need further consideration and review before the Bill passes
though the parliament.
The dates that trigger the start of
the reforms and the points at which they progress
1.24
The Bill proposes a series of dates (relating to matters such as price
disclosure and the reduction of medicine prices) which are integral to the
progress of the PBS reforms over the period of the legislation.
1.25
In view of the time it has taken for the Bill to pass through the Parliament,
the massive increase in the number of medicines which will become subject to
price disclosure and the administrative burden being imposed on drug
manufactures, wholesalers and retailers, Coalition Senators believe that these
dates should be reviewed and discussed with industry representatives with a
view to developing a revised timetable for change.
Medicines subject to price
disclosure and the administrative procedures involved in efficient and accurate
data collection.
1.26
The Bill proposes a very large increase (from 162) in the number of
medicines that will become subject to price disclosure over the period of the
reforms. Some of the evidence before the committee highlighted the severe
imposition that this is likely to have on business costs and profitability,
medicine supply lines and industry accounting systems throughout key parts of
the pharmaceutical sector.
1.27
While Coalition Senators acknowledge that some of these concerns may be
overstated, they are conscious that these reforms involve a massive upheaval in
the pharmaceutical industry and especially in the businesses of those companies
trading in the generics sector. Coalition Senators are not persuaded that some
of the key issues necessary for the reforms to proceed successfully and
efficiently and without interruption to the supply of the medicines have been
adequately thought through.
1.28
The failure of DHA to include key parties into their negotiations over
the reforms have made this a more acute and critical issue than necessary. To
ensure the smooth introduction of these reforms, Coalition Senators believe
that these key issues need to be addressed with all industry representatives.
The effects of reforms on
Pharmaceutical Wholesalers
1.29
Medicines wholesalers are a critical part of the pharmaceutical industry
and will be required to make considerable adjustments to their businesses as a
consequence of these reforms. The impact of the price changes scheduled to
occur in April 2012 is likely to be especially severe and could risk continuity
of medicines supply.
1.30
Coalition Senators consider that the DHA needs to engage members of the
National Pharmaceutical Services Association in comprehensive discussions to
address these matters.
The classification of statins
medicines
1.31
Some of the submissions to the Committee drew attention to anomalies in
the classification of certain medicines listed for sale on the PBS. An example
is the group of medicines know as statins, whose purpose is to reduce
cholesterol. There was evidence to the Committee that of the five medicines in
this category three are listed in the F2 formulary but two newer statins –
rosuvastatin and atorvastatin, are listed under F1.
1.32
While Coalition Senators are aware that the later two medicines are
still under patent and are therefore typical of many of the medicines listed in
the F1 formulary, they also note that pharmaceutically these medicines work in
a similar way to the three medicines listed under F2. These medicines will
come off patent in 2012 and from that point forward they will deliver cost
savings to the PBS and hopefully to consumers.
1.33
At the moment, however, under their current classification, they are not
subject to the same competition as those other medicines. The evidence to the
Committee was that were these two newer medicines reclassified into the same
therapeutic group as other statins, it would have the potential to save the PBS
perhaps billions of dollars over several years.
1.34
With the costs of the PBS rising and those of F1 medicines rising more
quickly than those in the F2 category, Coalition Senators believe the possible
reclassification of rosuvastatin and atorvastatin into the existing statins
therapeutic group deserves at the very least close investigation.
Conclusion
1.35
In summary, Coalition Senators believe the so-called 2010 reforms to the
PBS have been handled very ineptly by the Government. Firstly, key sections of
the pharmaceutical industry with manifestly material interests in the nature of
the reforms were excluded from the negotiations that led to the MOU which is
now the basis of the Bill before the Senate.
1.36
Secondly, in some important respects the reforms are ill-considered
targeting, for example, only medicines on the F2 formulary and overlooking the
opportunity for considerable cost savings to the PBS and patients through
reforms to the F1 listings.
1.37
Finally, some of the key administrative elements of the changes
introduced by the reforms are ill-thought through and could well have highly
disruptive impacts of the way pharmaceuticals are delivered on to the
Australian market.
1.38
Coalition Senators are very conscious of the need to continue to contain
the rising costs of medicines listed under the PBS. They therefore support the
general thrust of the reforms in the Bill currently before the Senate. As a
matter of good public policy, however, the burden of the reforms should be more
equitably shared amongst all the affected parties and especially more evenly
between members of the Medicines Australia group and the GMIA.
1.39
In light of this need, the deficiencies of process and misgivings over
the content of some of the reforms, Coalition Senators consider that the Bill
should not be supported in its present form but should be represented at a later
date following a proper and comprehensive negotiation process or alternatively,
that this Bill be withdrawn and a new Bill be introduced.
Coalition Senators therefore recommend that:
Recommendation 1
1.40
The MOU negotiated between the Commonwealth and Medicines Australia be
set aside.
Recommendation 2
1.41
The Commonwealth undertake a fresh set of negotiations to develop a new
MOU which will secure the identified $1.9 billion cost savings in a more
equitable manner.
Recommendation 3
1.42
All parties possessing a material interest in the outcome of the
proposed reforms or whose material interests are affected by the reforms be involved
in the negotiations, including the members of the GMIA, the Pharmacy Guild of
Australia and the National Pharmaceutical Services Association.
Recommendation 4
1.43
The National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010
be amended in light of the contents of the new MOU and be represented to the Parliament
in amended form for reconsideration and approval or alternatively, that the
Government withdraw the National Health Amendment (Pharmaceutical Benefits
Scheme) Bill 2010 and a new Bill be introduced.
Senator Judith Adams
Senator Sue Boyce
Senator Concetta Fierravanti-Wells
Senator Russell Trood
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