Alex Somlyay (Fairfax, Liberal Party) Share this | Hansard source

That is right—like our IR system. There are many reasons for this rapid increase in cost. Medical research has provided new equipment, treatments and drugs which have increased our life expectancy. Not only are we living longer but we have better access to specialist health care. There are also more pharmaceuticals available to help us maintain our health and mobility for that extended number of years. We are using more drugs for more years. Another factor in the increasing cost of the PBS is our expectation of ageing well and the fact that we are probably better informed regarding treatments and drugs that are available to keep our bodies working, and working comfortably. Our expectations of active ageing have increased.

I knew an old farmer who spent six years in the ambulance corps of the Army in New Guinea during World War II. His name was Pat and he believed there was little that hot water, Epsom salts, methylated spirits, sulphur or friar’s balsam could not fix. If the situation was looking particularly serious, he might add a nip of brandy. But he seemed to care for family, visitors and stock on his property in much the same way. In his later years, with emphysema and heart failure, Veterans’ Affairs took very good care of Pat, to the extent that he complained that he rattled with all the medication he took to keep his lungs and heart working. Pat was my father-in-law. What I am trying to illustrate is that not only has medical research and the pharmaceutical industry developed enormously in 60 years but so have our expectations of being able to use those developments to extend our life and make it more comfortable. Health is no longer as simplistic and we, as a people, are probably no longer as stoic.

About 80 per cent of prescriptions dispensed in Australia are subsidised under the PBS. That is, you pay $30.70 for most PBS medicines, or $4.90 if you have a concession card, and the Australian government pays the rest—no matter how much that medicine costs. That cost to the PBS is currently around $6 billion per annum. I repeat: the Australian government currently pays about $6 billion per year to subsidise medicines under the PBS. On top of that, every year important new medicines are being listed on the PBS. For instance, since August 2006 more than $1.3 billion has been committed to fund access to new medicines, such as Herceptin for breast cancer and Levemir and Lantus for the management of diabetes. So the number of drugs, the cost of the drugs and the number of prescriptions issued each year are escalating. A wag said the other day, ‘If Moses came down from the mountain today carrying two tablets he would be wanting to put them both on the PBS.’

The Howard government does not want to change the fundamentals of the PBS. It does not want to endanger the security people have of knowing that, if they do become ill, the PBS will continue to shield them from the real cost of any necessary medication. However, as a responsible government we cannot ignore the spiralling cost of the PBS and must scrutinise the scheme to ensure best value in order to protect its long-term viability. We want to be able to provide access to new and expensive medicines for future generations—not just ours. We therefore need to make sure that, in paying for the drugs, we are getting the best value.

Over recent years, to ensure the scheme’s future sustainability, the government has introduced a range of measures aimed at containing the cost of medicines under the PBS. These measures include increased patient copayments, efforts to increase price competition through the development of a generic medicines industry in Australia, programs aimed at changing prescribing behaviour and improved monitoring of entitlements and items. With the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 we are not trying to limit people’s access to the drugs they need to make them well. We are trying to get the best value for our dollar in shopping for those drugs. We are loving the PBS to death unless we look after it, protect it and sustain it. As it says in the explanatory memorandum to the bill, the purpose of this bill is to position the PBS for the future by changing the way certain drugs are priced after they are listed. It states:

New pricing arrangements contained in the Bill enable the government to capture the benefits of competition where drugs have multiple brands providing the foundation for a sustainable PBS.

We want to ensure supply and, as far as possible, do so without increasing the cost to users of the PBS. To this end, we are changing the way the government price medicines that are operating in a competitive market. While we also want to be fair to our suppliers, we make the point to the pharmaceutical industry that the PBS is a large customer and not simply a milking cow.

The first step of the reformed pricing measures under this bill is to introduce classifications, called formularies, of all medicines under the PBS. There will be two separate formularies—F1 for single-brand medicines and F2 for multiple-brand medicines where there is competition. A medicine can only be listed on one formulary and there can be no price links between the two. A medicine will move from F1 to F2 when a new brand is listed, thereby introducing competition for that product. The National Health (Pharmaceutical Benefits) Regulations will set down the formularies at the commencement of the legislation on 1 August 2007.

Currently, it is difficult to impose price reductions on multiple-brand medicines even when the government knows that they are being discounted to pharmacies. Classifying medicines into formularies with no price links between them allows the government to reduce the price paid for those medicines operating in a competitive market, while still protecting single-brand medicines from unsustainable price reductions. This means that we want to pay competitive market prices for drugs under the PBS where there is competition, but we do not want to endanger the supply of medicines where there is no alternative supplier.

The government and pharmaceutical stakeholders have worked cooperatively on the development of criteria to determine in which formulary each drug should be placed. F1 formulary will retain their listed price—there will be no price reduction for them under this legislation. Giving F1 providers greater certainty helps to ensure the availability of those medicines to patients, without affecting the price of other medicines.

However, F2 formulary—that is, those medicines which have multiple brands operating in a competitive market, and which are interchangeable at the patient level—will have price reductions from 1 August 2008. There will be a price reduction of two per cent a year for three years for medicines where price competition between brands is low—these are referred to as F2A medicines—and there will be a one-off price reduction of 25 per cent for medicines where price competition between brands is high—these are referred to as F2T medicines.

The price disclosure provisions in the bill are to ensure that the price the government pays for a multiple-brand drug more closely reflects the actual price at which that drug is being supplied to pharmacies. Drugs listed on F2 will be subject to new price disclosure requirements that include indirect financial benefits provided to wholesalers and pharmacies, as well as price discounts. Price disclosure will introduce transparency to the pricing arrangements for PBS medicines and allow some of the benefits of market competition to flow back to the PBS.

Under this bill, suppliers listing a new bioequivalent brand of drug on the PBS, as well as suppliers of existing brands of F2 drugs who offer price reductions, will all be required to guarantee the supply of those brands for 24 months, or until another brand of that drug is listed. The reason for this is to deter companies from supplying a medicine without a viable business model to support their long-term participation in the market. Obviously, interruptions to the supply of a prescribed medication impact on patients, doctors and pharmacists.

Nothing in this bill changes the relationship between the PBS and the patient. It is all about ensuring that the amount the government pays for drugs listed on the PBS reflects competitive market prices. It is about ensuring the sustainability of the PBS.

I believe that the PBS is a resource that can be likened to water. Until recently, most of us living in Australian cities turned on our taps without giving too much thought to the scarcity of our water resources. Many of us left taps and hoses running, simply because we were not conscious of the need to conserve water. People generally were not deliberately doing the wrong thing. They were simply doing automatic, routine things without even thinking about the impact of those routine actions on our water supply. A plethora of campaigns has now made us much more aware of this resource when we turn on a tap, and most of us try to use what we need with minimal waste.

With the PBS, as with water, you have to address the two sides—the supply and the use—when trying to protect its sustainability. This bill addresses supply problems by trying to ensure that we purchase the supplies—the medicines—at a competitive market value. At the same time, maybe we need more public education on conserving the PBS through use; on the effect on the PBS of taking more than we need; and on unnecessarily stockpiling medicine supplies. I know it has been done before, but we do forget. As is the case with water, you do not want to endanger anyone, but every little bit helps.

A positive step along these lines is the community education campaign that the Minister for Health and Ageing referred to in his second reading speech. This will be undertaken to ensure that both patients and health professionals are aware of the safety and benefits of generic medicines, which often cost less. All medicines in Australia, including generic ones, must meet the same high standards of safety and effectiveness. So it makes sense, all else being equal, to use a less expensive brand, because it is helping to maintain the affordability of the PBS into the future. As is the case with water, if we all take small steps to protect the viability of the PBS, we will protect it for the future. I commend the bill to the House.

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