Nicola Roxon (Gellibrand, Australian Labor Party, Shadow Minister for Health) Share this | Hansard source

Labor is completely committed to the Pharmaceutical Benefit Scheme and to strengthening it for the future. We do not deny that the changes in the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 are some of the most significant since Labor created the scheme, and we want to be confident it is going in the right direction. Labor’s history with the PBS goes back almost 60 years, when in June 1948 the then Labor government decided that penicillin should be made available to all Australians, rich or poor, free of charge. We have always since that time seen the PBS through a lens of what it delivers to consumers, in terms of price and sustainability of the overall system. We want to, and must, support changes that are aimed at increasing competition, rewarding innovation and maintaining access to medications for all Australians.

Labor’s fear with this package is that it is aimed at the first two, that is the increasing of competition and rewarding innovation, which is desirable, but it is not complemented by any further protections for consumers. In the past, the PBS has been the envy of others around the world for controlling costs to consumers yet having a workable and predictable system for industry. The principle underlying today’s PBS is that new drugs that are both effective and cost-effective should be made available to all Australians. This is regarded internationally as an excellent model for the robust assessment and funding of new medicines. These tests remain part of the new system proposed by the government.

The largely bipartisan approach to the PBS has been under some recent stress, with decisions made that might threaten the pillars—the national medicine principles which have been supported over time. These threats come from using the Intergenerational report to beat up on the PBS, to increasingly allow patient payments that push up the cost of drugs to consumers.

Labor’s approach to the PBS and to the proposed changes is based on three core principles: ensuring sustainability in the long term; ensuring patients can afford the drugs they need; and ensuring we utilise the PBS as part of a broader prevention strategy, including the best possible management of chronic disease. The bill certainly contemplates the first principle, and is clearly aimed at ensuring the sustainability of the PBS in the long term. You will see in my comments to come that we are yet to be fully satisfied it meets our second principle: ensuring that patients can afford the drugs they need. And the package does not deal in any way with our third concern: ensuring that we utilise the PBS as part of a broader prevention strategy. But I would like to note that Labor regards this as fertile ground for future attention.

I would also like to note, before I go into more detail on the bill, that Labor’s approach to health and medicines is not comprehensively defined just by our approach to the PBS. We know that our approach to science and research and our support for innovation and manufacturing policy are also vital planks in any debate we have about pharmaceuticals and the role they can play in health care. Labor wants to encourage research and innovation in the pharmaceutical industry, but we know that we cannot achieve everything we would like only through the PBS. We will continue to pursue these additional goals through our industry and research policy as well.

I mention Labor’s commitment to industry policy and supporting research, because of course there is always going to be some tension between consumers and government on the one hand and industry on the other in a system like the PBS, which is designed to ensure affordable access to the best medications. An entire industry policy cannot be driven simply through the PBS, even though it may be the most fundamental impact governments will have on the industry.

It is worth remembering that because the PBS covers a broad range of medicines, Australian patients have excellent access to the medicines that they need. And because there is a robust process for the expert assessment of the cost-effectiveness of new drugs by the PBAC, medicines are supplied at a price that the government can afford. But the principal challenge for any government, given the life-saving and life-extending potential of new medicines, is to ensure that the PBS continues to fund the medicines that deliver the best health outcomes. To be effective, the PBS needs to continue to enjoy the confidence of all Australians. Clearly this is an objective behind the government’s changes, and it is an objective we support. It is why there have been many months—more than months, in fact—worth of planning and discussion preceding these changes in the bill, and we acknowledge that industry has been well consulted and is generally supportive of the package. Of course, in coming to our view it is not insignificant to us that Medicines Australia, the AMA, the consumer health organisations and the Pharmacy Guild are broadly supportive of this package. Consumer groups, unfortunately, were not involved until a later stage of consultations, and it seems that academics and other advocates have hardly been involved at all.

In this context, it is a shame there is going to be so little time for the parliament to give this bill proper attention and that only a very swift Senate committee inquiry will be possible. Labor will still insist on this committee to ensure that our remaining questions can be answered, and we will reserve our right to move amendments in the other place if we cannot be assured that some of our concerns, which I will raise today, are addressed properly in the bill.

Given the fundamental importance of the PBS to the health of Australians, it would in our view have been a suitable courtesy to allow more time for the parliament to debate this bill and to allow for improvements to be proposed. It would also have been important in reassuring the broader community about the plans and the government’s intentions, particularly when it is such a complex package.

We do acknowledge that in recent years some progress has been made on improving clarity and transparency in the procedures that are adopted by the Pharmaceutical Benefits Advisory Committee, both to patients who await the outcomes of the PBAC’s deliberations and to the sponsors of new medicines. There have also been some failed attempts at bringing about change, like the government’s 12½ per cent mandatory price reductions, which were not based on consultations and did not have wide industry support and, accordingly, have not been as successful as they might otherwise have been. We note that this bill now puts that policy and further extensions of it into legislation, with some attempt to have a more consistent foundation for it. Accordingly, this package has received much greater industry support.

I want to note for the record that the bill does not deal with a range of other changes that are linked to this package, such as payments to pharmacists who dispense generics or products at the benchmark price, the changes to the authorisation process and the community campaign to be run about generic drugs, amongst a number of other changes. The bill does not deal with the government’s shift of the PBAC to a full cost-recovery model. I raise this because central to the PBS is the fact that the PBAC should be robust and independent and should provide advice to government without fear or favour. As I have already flagged, we need the community as well as governments to continue to have confidence in this scheme. The PBAC needs to be independent of government and of industry, and we cannot see the justification for this move to the cost-recovery model. I have asked the government to reconsider this approach given the risk to the independence of the PBAC, or even to consider if cost sharing, perhaps between the government and industry, being the major stakeholders in the PBAC, would be more appropriate. I note the AMA has recently backed this call to ensure that independence is maintained.

I turn now to the PBS and the bill. Regrettably, the Howard government has a poor record with respect to the management of the PBS. Since 1996, under the Howard government expenditure on the PBS has fluctuated considerably. Because it failed to manage the growth in PBS expenditure, in 2005 the government implemented increases in the copayments that patients were required to pay when they had their prescriptions filled. As a result, three million fewer PBS scripts were filled in 2005-06 compared to the previous financial year. What is impossible of course to know is if this has simply achieved a sensible saving or if, as we suspect, more and more Australians, particularly pensioners, are forgoing their medication because of cost. We are now starting to see some research that backs that up. Last year we also saw the health minister approve special price increases for a range of commonly prescribed PBS medicines, including treatments for reflux, ulcers and blood pressure and commonly prescribed antibiotics. I will come to this in more detail later because these special payments are central to some of the concerns that Labor has about these reforms.

Once again patients were forced to pay more because of the Howard government’s inability to deliver on the implementation of their 12½ per cent generic price cut policy. The bungling and mismanagement around this policy is a worrying sign for how they will deliver on these changes to come, but we hope that in fact they may have provided some good learning for the government and that we will not be going through the same problems that we have gone through in the past. While you might have expected the government to look at a strategic approach to PBS spending in the intergenerational reports, in fact all we saw was the PBS being used as a scapegoat for rising health costs. In the first report there was a lot of focus on the cost of the PBS but little attention to what it and health prevention more broadly could save the community down the track. In the government’s most recent intergenerational report, the second one, the PBS estimates are scaled down slightly, but there is a continued neglect of the huge health challenge presented by the increase of chronic disease and zero attention paid to the prevention strategies needed to tackle it.

The government asserts that this bill will deliver massive savings—the estimate is $3 billion over 10 years. Labor is concerned that the government is hiding behind the general idea of savings without explaining that the savings are to the government and not to consumers. They might even, in a worst-case scenario, be at the expense of consumers. They also fail to clarify where their supposed savings of $3 billion over 10 years will actually come from. This will be an issue that the Senate committee will want to explore.

I turn now to the central components of the bill. Anybody who happens to be listening to parliament at the moment will be relieved to know that I am not going to go through this incredibly complex piece of legislation in enormous detail. The government’s explanatory memorandum and the bill itself do that. What I would like to do is give an overview and raise the issues that are of particular concern to us. The bill comprises one component of four interconnected measures of the government’s announced reforms relating to the PBS. The stated aim of these reforms is:

... to give Australians continued access to new and expensive medicines while ensuring the PBS remains economically sustainable into the future.

This is an aim which, of course, Labor shares. The aim, unfortunately, does not include restricting or minimising the price to consumers. Whilst the bill does not directly determine the price to consumers at all, it certainly does not actively protect them either.

This bill amends the National Health Act and deals with changes to the pricing of PBS listed medicines. The central main change in the bill is the creation of formularies for all medications. These can be found in new sections 85AB and 85AC. From 1 August 2007 PBS medicines will be listed on two separate formularies. Formulary 1, or F1—and I fear the parliament will become very familiar with F1 and F2 over the coming weeks—will comprise approximately 450 single-brand medicines. These are generally new, innovative or niche medicines. However, it will not contain single-brand medicines which are interchangeable at the patient level with multiple-brand medicines. Formulary 2, or F2, will comprise approximately 230 multiple-brand medicines and any single-brand medicines which are interchangeable with multiple-brand medicines at the patient level. These are generally generics, off-patent drugs and different versions of older drugs. There will be a transitional pricing arrangement which will apply to F2 drugs with two subformularies being created.

The bill will also deal with ongoing price links between F1 and F2 drugs. There will not be ongoing price links across medicines listed in the different formularies. Reference pricing will continue to apply between medicines that are linked within reference pricing groups in the F1 category. Reference pricing will continue to apply within ‘therapeutic group’ premium groups and across different brands of the same medicines listed on F2. This is probably already sufficient to have lost many of our listeners, but I think it is important for us to have on the record the basic framework of the changes so as to be able to talk about some of the concerns we have. The bill also deals with pricing mechanisms. Over various stages in coming years, medicines listed on the F2 formulary will be subject to mandatory price reductions and will move to a system of price disclosure where the price that the government pays will reflect more closely the actual price at which the medicine is being sold into the market. Surely this is a desirable outcome. Weighted averages will be used to ensure that prices continue to drop when there are new market entrants in a competitive field. Complex mechanisms are included in the legislation which are designed to ensure that the markets cannot be manipulated at the government’s expense.

Finally, the legislation will protect supply by requiring the suppliers of new brands of medicines listing on the PBS to guarantee to supply for a minimum period and by imposing penalties if they fail to meet this commitment. This is found in new division 3C. This provision is needed to ensure that fly-by-night manufacturers do not set up, drive down prices, drive out competitors and then leave the market. This is obviously an important protection for us in this newer, more competitive model. Our concerns with the package fall into a number of different areas. The package is structured to bring down the price of generics and those drugs where there is competition, and to leave what is often called ‘headroom’ for new and innovative drugs. Labor support obtaining lower and more realistic prices for generics and rewarding innovation but we have some fears about the unintended consequences of these reforms which may put more financial pressure on consumers.

Some commentators argue that the breaking of the link between the innovative and more established drugs will make it easier for pharmaceutical companies to demand a higher price for the new drugs. They argue that reference pricing, whilst being maintained, will be fundamentally weakened. Dr Tom Faunce, for example, is strongly of the view that changes will severely weaken reference pricing and sees little benefit to the consumer and significant potential harm. Andrew Searles from the University of Newcastle argues that reference pricing between drugs that provide identical health outcomes will be broken. He acknowledges that drugs within the F1 formulary with the same therapeutic use will still be reference priced, but as the comparator changes there is uncertainty as to what this will mean for the price to government.

These issues need to be explored further in the Senate committee, and if the government is able to provide a clear explanation of why this will not happen that will certainly be welcome. We also acknowledge that it is possible that the broken link between these groups may mean that we will be able to drive prices much lower for the off-patent and generic drugs and that that will be of benefit to the government and the community. But the risk of government payments increasing significantly for F1 drugs as a result of these changes clearly needs to be assessed. I note, though, that in this particular example the increases will be borne by the government and not the consumer, so it will be the government that will need to keep an eye on pricing. At least the government has some capacity to affect it if it gets out of hand in the future in a way that might not be contemplated by these changes. The other risks to consumers are not as easily protected against for the obvious reason that the bargaining power of any individual consumer is next to nothing in this environment—unlike the government, which has significant bargaining power over the price set for new and innovative drugs.

Labor wants to be assured and convinced that there are adequate protections for consumers so that family budgets do not bear the brunt of the price reductions to government through increased costs at the pharmacy counter, so I will take some time to explain my fears and hope that the Senate process will flush out further whether or not they are substantiated. Labor is concerned that the plans to include an annual mandatory two per cent price cut to the price paid by the government for medicines on the PBS, on top of the 12½ per cent mandatory price cut which currently exists, could lead to higher costs to patients. Whilst savings to government in the context of keeping the PBS sustainable are vitally important, if the saving creates a risk that the differential will be recouped by passing it on to the consumer then this is of great concern to Labor. Whilst we support steps for sustainability and appropriate payment for innovation, our concerns centre on three issues: the risk of more special patient contributions, the risk of larger special payment contributions and the sustainability of the generics industry in general.

The government’s mishandling in 2005 of the 12½ per cent price cut has already meant that a large number of medicines now attract a special patient contribution or an additional premium paid by the patient, and there is a risk that these new changes will increase the range of medications these apply to or the size of those payments. I must note here that both the government and the pharmaceutical industry argue strongly that the legislation will not cause more or higher special payments; nor, they say, will the market allow it. It is of course the opposition’s job, on behalf of consumers, to carefully scrutinise those assertions.

Currently the types of special patient contributions include brand premiums, therapeutic goods premiums and other special patient contributions. Section 85B of the current legislation allows the minister to determine that a special patient contribution be applied, but not the value of the payment per se. This bill does not change that, and the government argues that these two categories of payments are not a real concern because there will always be another bioequivalent available or a drug that is interchangeable at the patient level and at the benchmark price that a consumer can purchase. Obviously the other incentives that are not part of this package may help encourage pharmacists to encourage patients to use those interchangeable products.

It does appear that the bill meets one of Labor’s earlier concerns, which was that brand premiums themselves would not be reduced or may even increase to make up for the other reductions as the drugs they apply to take the mandatory price cuts. The government has assured us that, when the price reduction regime kicks in, the bill ensures that brand premiums on those existing medicines will also be reduced by the same percentage—for example, sections 99ACE(4)(a), 99ACF(1) and (2)(c) and 99ADH(3) and (4). I would like the Senate committee to carefully scrutinise those claims as well. However, arguments over price could still lead to new medications in the future attracting a brand premium, and it is unclear what power the minister would have to stop that, whether the changes make this more likely or whether there is any control over the size of those premiums.

The third category of other special patient contributions applies in quite limited circumstances, often where there is a unique formulation of a drug—for example, an oral form of a particular drug taken by children. Currently, in cases where a special patient contribution of this type applies, a doctor can ring Medicare and have the special patient contribution waived on clinical grounds. In this category, the bill provides a new section 84AH which exempts products similar to these from mandatory price reductions and price disclosure. Clear criteria are set out for when this would apply. It appears that this new section will mean that there will be no future need for these types of SPCs or for the authorisation process. It is not clear what will happen to those that currently attract an SPC, and we would like some more information from the government about whether in fact these categories are identical. These are the sorts of issues we want to flesh out in the Senate committee, so it is a shame that it is going to be such a rushed process.

As I said, the third concern is the impact of changes around generics, which is unclear from the legislation. Generics have not had the market share in Australia that they have had in other countries and these changes do not provide any price signal to consumers to encourage such use. The new benchmark price will apply to branded and non-branded generics, so again the impact will depend on the market behaviour of pharmaceutical companies—both the generic manufacturers introducing new generic products into the market and the originator companies that will be required to respond to the increased competition.

Our concerns in the generics area are around a range of issues. As I have said, the package does not include financial incentives for consumers to use generic medicines, although they certainly provide financial incentives for pharmacists to dispense them more often. The package creates separate formularies and, as I have said before, some commentators argue that this will erode the general principle of price referencing and therefore have an impact on the generic price. The protection of F1 medicines from mandatory price cuts may, as some people argue, encourage evergreening—that is, filing patents for new uses of an existing drug towards the end of a patent period to extend that period so that it will not be subject to competition from generics—as a tactic to delay the introduction of generic versions of medicines coming off patent, and that the price disclosure arrangements may erode the profits of Australian generic drug manufacturers and pharmacists.

The theme in common to these criticisms is that the reform does not do enough to facilitate—and indeed may lead to the erosion of—the development of the Australian generic medicines sector. Labor has always been a strong supporter of the generics sector as essential to increased price competition in the Australian medicines sector, to reduced costs to government and to the flow-on of the future sustainability of the PBS. So we are concerned about these issues being raised.

University of Newcastle researcher Andrew Searles notes that the success of these reforms assumes a ‘reasonable degree of competition’ in Australia’s generic medicines industry. Whether, in the current environment, this assumption is reasonable or not is uncertain. For one thing, we know that there are significant commercial associations between some generic manufacturers and some brand manufacturers, which, given the way the new formularies will work, may mean there will be different incentives and disincentives in place for the price at which a generic manufacturer—or an innovative manufacturer producing a non-brand product—might want their drug to enter the market. Kim Sweeny from the Centre for Strategic Economic Studies describes the generics industry as ‘highly oligopolistic’ and of course that has an impact on whether or not the competition that is necessary for this change to work is actually in place.

As such, some commentators have predicted that the reforms in the bill may actually increase the cost of the PBS over the longer term. This claim has been denied by the medicines industry peak body, Medicines Australia, and it is virtually impossible, I think, to evaluate without fairly advanced market modelling. It may be that the government has that, and certainly that could be provided to the Senate committee. But I suspect, from our briefings, that it does not and that we are hoping to make these changes and see if we can affect the way the market will operate in the future without really having done sufficient modelling to know if that will be the case. There are so many variables that it may, in fact, be a very difficult task.

Labor recognises that innovation has value and that the best way to ensure that the PBS can continue to fund new medicines is to ensure that the market for generic medicines is characterised by greater competitiveness, transparency and disclosure—and, of course, price benefit to government and consumers. We hope that these changes will deliver that, but we believe that more scrutiny is required and it may be, as I have said, that the government will be able to assure us that these changes will support, rather than damage, any of those outcomes.

In conclusion, Labor’s approach to health is basically a compassionate one: we must care for those around us who are ill and need our support. But our approach is also one that goes hand in hand with our economic strategy. Clever health spending should be seen not merely as a cost but rather as an investment in the nation’s future. The PBS, more than any other area, suffers from the refusal by the government to see health expenditure in this way. The Howard government is always running the PBS up on the cost side of the ledger—often in quite an alarmist manner, as it did in its first intergenerational report—without looking at the potential savings that can be derived from the proper and responsible use of appropriate medicines.

Expenditure on pharmaceuticals and the PBS is an investment as much as a cost, but of course we need to manage and drive it to keep it effective and responsible, to control the budget bottom line. But we need to also make sure that, whilst doing this, we do not pretend that the cost of the PBS should be looked at in isolation. It would be false economy to take steps just to have savings in the PBS if we were not sure what the outcome would be elsewhere.

Broadly, we think that the government are taking the right approach in making these changes to ensure the future sustainability of the PBS, but we urge them to take a much broader view generally in the way that they regard this very significant part of the health portfolio and the spending in it. Drugs play an important role in the management of chronic disease. They have always had a huge impact on many of our constituents’ everyday lives and they increasingly will.

Medicines funded under the PBS play a vital role in prolonging the active working lives of Australians. Used responsibly, medicines have the potential to improve both workforce productivity and participation, in addition to saving money in other parts of the health system. Responsible spending on the PBS contributes to improved economic growth and should be seen as an investment, not just a cost. To continue to improve participation in the workforce, we will need to maintain and enhance the health of our ageing population. Continued access to medicines through the PBS will play a significant role in improving productivity in the future.

Most people understand that medication is not the answer to every health problem—that lifestyle factors such as exercise and diet have a substantial role to play in ensuring the health of our population. And we can always get better at how we use and manage medications. Some of the recent initiatives involving pharmacists—for example, their home medication reviews—are positive ones, especially for patients at high-risk times like discharge from hospital.

Medicines can positively contribute to workplace productivity and economic growth. By treating symptoms and extending life, medicines improve people’s activities and functions in daily life, including their physical, social, emotional and cognitive wellbeing. These all contribute to a person’s ability to participate in the community and the economy—and it is a value we must not forget.

Of course, the importance to the community is very much weakened if any changes we make to the PBS make pharmaceuticals more expensive for our constituents. The government are adamant that their changes do not do that. We would like some time, through the Senate committee process and some continued briefings from the department, to be satisfied that our primary concerns about the impact on consumers are not substantiated. We will be delighted if the government can assure us of that. But we suspect that their record is not so great that we will take just simple assurances without having some more substance behind the notes and briefings that have been provided so far.

I have set out, I hope, in this House the areas of our major concerns. It does appear that a number of them have been taken account of and will be covered by this bill. We welcome that. If we can have some satisfaction in terms of the other concerns that we have raised, it may be that we will be able to support the bill in its current form in the Senate. But we do reserve our position to move amendments in the Senate, following the work of the Senate committee and if we are not able to receive the assurances that our constituents will be protected.

The cost of pharmaceuticals is already going up. I know many of the other members on this side of the House will be raising that issue when they speak. The cost has gone up significantly over time. We have data from the Australian Institute of Health and Welfare and other research organisations showing that people are forgoing healthcare treatments because of cost, and we do not want to contribute to or exacerbate that with this package. And we hope that the government, the industry and stakeholders, who no doubt will be involved in giving evidence to the Senate committee, will be able to satisfy us that those concerns will be met.

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