Nicola Roxon (Gellibrand, Australian Labor Party, Shadow Minister for Health) Share this | Link to 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.

Luke Hartsuyker (Cowper, National Party) Share this | Link to this | Hansard source

I welcome the opportunity to speak on the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007. I welcome the broad support for the aims of this bill as expressed by the member for Gellibrand, but I reject her notion that the government is mismanaging the PBS. This government has a strong record on economic management. This government has kept interest rates low, it has kept the economy growing and it has kept unemployment falling. We have done a great deal in economic management—and economic management is also important in the area of health. It is very easy to throw more and more money at the health system—anyone can do that—but the issue is to allocate those funds as efficiently as possible and to get the maximum benefit for the community out of a limited health budget. We would all like to spend more in virtually any portfolio area you care to name, but the challenge is to spend that money efficiently and effectively. The reforms contained in this bill aim to do precisely that.

In her contribution, the member for Gellibrand conveniently neglected to include the fact that the Pharmacy Guild has indicated that, for those non-concessional patients who are paying for drugs that cost in excess of $30.70, there will be a projected reduction in price of $2.73 for some 400 brands that are included under these reforms. The real purpose of these reforms is to provide a more economical framework for generics and, in doing so, leave that headroom and allow us to invest more heavily in the more expensive innovator drugs, those wonder drugs that provide cures for a whole range of complaints. So I certainly reject the notion put forward by the member for Gellibrand.

I would also like to reflect for a moment on another issue she has raised, which is that these reforms may somehow cause an increase in the price of F1 drugs. She is walking both sides of the street on this. She praises the actions of the PBAC, yet she says that the PBAC is going to be ineffective in allowing the price of F1 drugs to rise. The PBAC is a gatekeeper. It has a role in ensuring that new drugs coming onto the market are effective and efficient in terms of cost and from a clinical point of view. The member for Gellibrand clearly does not take that into account. Perhaps she will come to her senses later in the day.

The bill is another vital step in ensuring that our Pharmaceutical Benefits Scheme remains sustainable into the future. Sustainability is the key in this. As our population continues to age and as more expensive medications become available, it is essential that the government continues to implement measures which will work towards the sustainability of our PBS. The bill before us today is a further endorsement of this government’s key values when it comes to health service delivery. This has been evident across a range of key areas in the health portfolio. For example, the coalition government is strongly committed to Medicare as the most important pillar of Australia’s health system. We are proud of the fact that, on any objective criterion, the coalition government is, as the health minister constantly reminds us, the best friend that Medicare has ever had.

We are proud of the fact that the coalition government is committed to a balanced public and private system and strongly encourages those who want to take out private health insurance and, in doing so, take pressure off the public system. That is a very important fact. We often hear from the members opposite that the private health insurance rebate is the epitome of evil, a draconian measure that is wrecking our health system. But what we are really doing is encouraging people to take control of their own health issues, invest in their own health insurance and, in doing so, most importantly, take pressure off the public health system.

We are proud of the fact that the coalition government is delivering access to more-affordable medicines under the PBS. The legislation before us today is an extension of the coalition government’s commitment to a sustainable, accessible and world-class Pharmaceutical Benefits Scheme. It is a timely reminder of this government’s commitment to further improve our health system and ensure that it is sustainable in the years to come.

The government has a fine record when it comes to health service delivery. Since the coalition came to office, spending on health has more than doubled—from $20 billion in 1995-96, which was some 15 per cent of Australian government spending, to $48 billion in 2006-07, which is some 22 per cent of Australian government spending. Coalition government spending on public hospitals has increased to record levels under the new $42 billion Australian health care agreements. This is more than $10 billion of additional funding for public hospitals over and above Labor’s last agreement. As I noted before, the coalition government is the best friend that Medicare has ever had—and it is the best friend that the health system has ever had.

In 1995-96, Medicare expenditure was $6 billion. In 2005-06, it was $10.4 billion, an increase of 73 per cent—or 36 per cent in real terms. We have also seen bulk-billing percentages increase significantly as a result of government policy. Since 1 January 2005, Medicare patients have received a higher rebate from Medicare for all GP consultations. The rebate for all GP consultations has increased from 85 per cent of the Medicare schedule fee to 100 per cent of the fee. Additional incentives for GPs to bulk-bill concession card holders and children under 16 have had a very positive impact on bulk-billing figures around the nation, particularly in regional and rural Australia.

In my own electorate of Cowper, we have seen the percentage of bulk-billed GP consultations rise from 52 per cent in 2003 to 72 per cent in 2006—a dramatic increase indeed. We have also seen the introduction of the Medicare safety net in March 2004, under the Strengthening Medicare package. The safety net assists people to cope with the cost of out-of-hospital procedures such as MRI, CT scans, ultrasounds and visits to specialists. Medicare now meets 80 per cent of the out-of-pocket cost of Medicare services provided outside hospital, once an annual threshold has been reached. Approximately 1.5 per cent of Australians are today benefiting from the safety net.

All these initiatives have been complemented by an unprecedented commitment to the Pharmaceutical Benefits Scheme by this government. Since the government was elected in 1996, subsidies for prescription medicines via the PBS have increased from some $2.5 billion in 1995-96 to $6.17 billion in 2005-06, an increase of 148 per cent. The PBS is a crucial part of the Medicare system. More than 80 per cent of prescribed medicines in Australia are subsidised by the government. The PBS provides all Australian residents with affordable, reliable and timely access to approximately 2,600 brands of prescription medicines. The amount consumers pay towards their medicines is only around a fifth of the entire cost to the PBS.

The full cost of PBS medicines is now provided on the label, so consumers can see the real cost. When that measure was introduced, countless people in my electorate came up to me and commented on the fact that they did not realise how much the government was subsidising the medicines that they were using. They did not realise the incredible cost of many medicines to the taxpayer. As a result of that very small measure, many people in my area became much more aware of the importance of spending money on health wisely and much more aware of the fact that it is very important that patients use medicines wisely, because there is a very real and very great cost to government. They realised that there is not just a copayment that they pay but that the taxpayer is subsidising their health care to a huge extent. They were very mindful of that, and that was a very welcome measure.

Also, more than 300 additional medicines have been added to the PBS since 2005, which has added $1 billion to the cost of the PBS between 2005 and the 2007-08 financial year. To ensure the PBS remains sustainable and affordable, the government has previously introduced reforms. For example, in August 2005 new generic versions of existing PBS medicines have been subject to an automatic reduction of at least 12½ per cent in the government benchmark price. This is delivering around $800 million in savings over four years.

A key part of the coalition government’s commitment to the PBS is supporting community pharmacies. We are very much focused on the importance of community pharmacies. The coalition strongly supports the role that community pharmacies play in the Australian healthcare system. That is reflected in the fourth community pharmacy agreement, which sets out how pharmacies are paid for dispensing PBS medicines. The agreement is ensuring that Australians can continue to get the medicines they need at prices they can afford regardless of where they live. Under the fourth community pharmacy agreement, some $11.1 billion is being provided for the distribution and supply of PBS medicines over the period from 1 December 2005 to 30 June 2010. Total payments under the fourth agreement will be 28 per cent higher in real terms than those made under the third agreement. This equates to an average payment of $11.38 per PBS prescription dispensed, up from $9.93 under the third agreement, or a 6.2 per cent increase in real terms. Importantly, the current prohibition of pharmacies locating within supermarkets continues.

The legislation before us today builds on many of the initiatives which I have previously outlined and seeks to strengthen the sustainability of the PBS. We know that patents for over 100 medicines are due to expire over the next 10 years, providing a unique opportunity to make some changes to the PBS. Changes will be made to the pricing arrangements for medicines to make sure that the government pays reasonable prices for multiple-brand medicines without increasing the costs for patients and taxpayers. The fundamentals of the PBS will not change, however. Patients will continue to meet only the standard co-payments and in some cases they will pay less. The main changes will be in the way that the government prices those PBS medicines that are operating in a competitive market. These medicines will take a series of price drops and eventually will move to a system where the price that the government pays more closely reflects the actual price at which a medicine has been supplied to the pharmacy.

This bill is a very important piece of legislation because it will position the PBS for the future. It specifically seeks to change the way in which certain drugs are priced after they are listed on the PBS. The new pricing arrangements contained in the bill enable the government to realise the benefits of competition where drugs have multiple brands. This is an essential step in providing a sustainable PBS. The bill seeks to distinguish the price of single-brand drugs and those with multiple brands. To date it has been difficult for the government to pay competitive prices for multiple-brand drugs as these prices could flow on to other essential drugs, resulting perhaps in their withdrawal, which would not be welcomed by medical consumers.

The bill effectively divides the PBS schedule into two parts—one part for single-brand drugs and the other part for those which have multiple brands or which are interchangeable at the patient level with drugs with multiple brands. As a result, this bill will provide a minimum 12½ per cent price reduction in the price of any new bioequivalent brand of drug that lists, provided that the drug has not been previously subject to a 12½ per cent reduction. This 12½ per cent reduction will flow on to existing brands of that drug and other drugs in the same therapeutic group which share the same manner of administration as the new brand. This reflects government policy that has existed since 2005. Importantly, any drugs that have already taken a 12½ per cent reduction under the existing administrative arrangements will not be required to take a further 12½ per cent reduction, as I said earlier. The bill also provides for a price reduction of some two per cent per year for three years, commencing on 1 August 2008, for drugs where price competition between brands is low, or the F2A drugs. A one-off price reduction of 25 per cent on 1 August 2008 will apply for drugs where price competition between brands is high, or the F2T drugs.

To summarise these key changes, this bill will ensure single-brand medicines will retain their higher prices until such time as they become subject to competition, providing companies with greater certainty about the prices of these medicines. Meanwhile, the government will be able to pay a price that more truly reflects the market price for medicines operating in what is essentially a commodity market.

Price disclosure provisions for drugs are an important measure which will ensure the price that the government pays for a multiple-brand drug more closely reflects the actual price at which that drug is being supplied to pharmacies. This will be achieved by requiring that all new brands that list on what is known as the F2 classification are subject to new price disclosure requirements. Related brands of that drug provided by the same supplier will also be subject to price disclosure requirements along with any brands for which other suppliers volunteer to price disclose.

This bill also ensures there is a guarantee of supply of drugs. From 1 August 2007, suppliers listing a new bioequivalent brand of a drug on the PBS and suppliers of existing brands of what are known as F2 drugs will be required to guarantee the supply of these brands. The guarantee of supply period will be 24 months, or until another new brand of the drug is listed or until a further price reduction is offered in relation to the drug.

Suppliers will be required to notify the minister if they form the belief that they will fail to supply or will be unable to supply, or if they actually fail to supply. The guarantee of supply provisions will deter suppliers from supplying without a viable business model able to support their long-term participation in the market. Interruptions to supply are disruptive for patients and other suppliers. The provisions in the bill also ensure that the government is given as much notice as possible of possible supply failures so that it can take action on their impact on patients, prescribers and pharmacists.

It is always important that, when there are proposed changes to the Pharmaceutical Benefits Scheme, we carefully consider the impact on patients. Importantly, these changes do not impact on the fundamentals of the PBS. Patients will continue to have access to a choice of medicines. On the advice of the PBAC, medicines will continue to be listed to ensure their clinical effectiveness and their cost-effectiveness. There will be no reduction in the range or number of medicines.

Patients will continue to pay only the standard copayment contribution, currently $4.90 for concessional patients and $30.70 for general patients. There are also future benefits. Under the new arrangements, it is less likely that additional patient charges will be added.

Pharmacies will be helped to adjust to the new arrangements through a structural readjustment package. The package compensates pharmacies for the loss in remuneration that will result from mandatory price reductions for medicines in the F2 class and reflects the commitments made by the government to pharmacists in the fourth community pharmacy agreement. As a result of other amendments detailed in this bill, from 1 July 2007 40c will be paid to pharmacists for each prescription processed using PBS Online. This will encourage more pharmacists to join up to PBS Online, creating efficiencies in the administration of the PBS. From 1 August 2008, the fees that pharmacists receive for supplying a PBS medicine will increase. As well, there will be an incentive payment of $1.50 each time a substitute medicine is dispensed which costs the patient no more than the standard copayment.

These initiatives will help to ensure that patients are aware of their right to pay no more than the copayment for their medicines. This should lead to a greater use of medicines where there is no additional patient charge and more efficient eligibility checking and processing of prescriptions by pharmacists.

In conclusion, the previously mentioned measures are key components of a package of measures that comprise reforms to the PBS. They are a necessary step to ensure that the PBS remains sustainable in the future—the very sustainability of what this government is about: effective economic management at an economic level and effective economic management of the health system. I commend the bill to the House.

Jennie George (Throsby, Australian Labor Party, Shadow Parliamentary Secretary for Environment and Heritage) Share this | Link to this | Hansard source

I am pleased to have the opportunity to speak on the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 before us because it relates to issues of major concern to the people I represent in the electorate of Throsby—that is, access and affordability of health services and, specifically, access and affordability of medicines which are essential. As our shadow minister indicated in her contribution this morning, Labor is very committed to the PBS and to strengthening it for the future.

The origins of the PBS date back some 60 years, with the first benefits flowing in June 1948, when the then Labor government decided that penicillin should be made available to all Australians, rich or poor, free of charge. The origins of the scheme had always contemplated social equity outcomes and the principles of accessibility and affordability. There is no doubt that, since the forties, the PBS, as it operates in Australia, has become the envy of many people around the world for its ability to control costs to consumers while at the same time having a workable and predictable system for the industry as a whole. The principles which underlie our PBS are those which say that drugs which are both effective and cost-effective should be made available to all Australians, with a subsidy provided by the government to maintain a measure of affordability. On my understanding and from reading what other people say, it certainly has provided an excellent model for the robust assessment and funding of new medicines. Sometimes we may get a little anxious about the time it takes for the listing of medicines—for example, my colleague Sharon Bird, in the seat of Cunningham, and I ran a very forceful campaign about the listing of Herceptin. We would rather it had been put on the PBS earlier than when it finally was listed, but we do appreciate that there are measures that have to be undertaken to ensure that the analysis is rigorous and that the drugs are provided in a cost-effective manner.

Labor’s approach to the PBS and to the proposed changes outlined in this bill continues to be based on three core principles. The first is ensuring sustainability in economic terms for the long term, and that is particularly important with an ageing population. The second very important principle for communities of the nature I represent is that the drugs required continue to be affordable. As well, we should use the PBS as part of a broader prevention strategy, including the way we manage chronic disease. Our shadow minister addressed that matter in some of her concluding statements on this debate.

Overall, despite any limitations that we might see in the system, Australians do 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 Pharmaceutical Benefits Advisory Committee, medicines are ultimately supplied at a price that the government—and through the government, of course, the taxpayers—can afford.

I raise this matter because, in my early years as a member of parliament representing Throsby, it seemed to me that the whole future of our Pharmaceutical Benefits Scheme may have been at serious risk because it was placed on the negotiating table in the free trade agreement between Australia and the United States of America. No doubt at that time the US pharmaceutical companies—which make megabucks of profit from the supply of medicines—would have liked to have the fundamentals of our PBS taken away so that they could maximise their access to our markets at prices that would have been beyond the reach of many people in our communities. I will just quote a statement made by the US Undersecretary of Commerce, Mr Grant Aldonan, at the time that these negotiations were occurring. He said:

There is a sense of unfairness in the United States about these issues because you as consumers pay higher prices under a free market while consumers in Australia and elsehwere benefit from low-reference pricing under schemes like the PBS.

At that time, the community spoke up in support of the PBS. I think it was community protests about the possibility that the PBS might be undermined that led the government to adopt a much tougher stance towards the end of the negotiations than appeared apparent at the beginning. The facts speak for themselves. I refer to a study conducted by the National Centre for Social and Economic Modelling at about that time. It showed that the Australian PBS overwhelmingly benefited low-income earners and the aged. It showed that the poorest 20 per cent of Australians were getting 41 per cent of the benefits of the then $4.5 billion spent on this scheme. Professor Ann Harding—well known to many of us as a very competent economist—described in that report that the PBS was ‘socially just’ because in fact it delivered maximum benefits to low-income Australians and also helped those with poorer health who tended to be older Australians. She said:

The study shows clearly it is a very progressive, pro-poor scheme and it is on the basis that I think the PBS continues to enjoy bipartisan support and the confidence of the Australian community.

As I indicated earlier, at the time the free trade negotiations were occurring, there was a sense in which those very foundations of a very progressive ‘pro-poor scheme’, as Ann Harding described it, could be at risk. Had it been at risk at the time, let us have a look at a couple of examples of negative consequences. The Australia Institute—a well-known research and advocacy body—undertook comprehensive research which compared the prices of the most common drugs in the United States and Australia. The study found that the wholesale prices of the 10 most commonly prescribed drugs were from at least 74 per cent to a massive 306 per cent more expensive in the United States than in Australia.

If you look at the drug Celebrex, which is taken by a lot of Australians to treat arthritis, you will see that the wholesale price in Australia at that time was $24.97 compared to a massive $101.48 in the United States—that is, a 306 per cent increase in the US price over our price. The very common drug Ventolin, which many asthmatics use, costs $11.47 wholesale in Australia while in America that same drug costs $42.90—that is, a 274 per cent price differential. It is great that at the conclusion of those negotiations the foundations of the PBS remained in place, although analysis of those negotiations did point to some loopholes that were still potentially capable of being exploited in terms of the evergreening provisions.

Labor have no difficulty in continuing to assert our support for the PBS. We have no difficulty in saying we want to ensure its economic sustainability but we want to do it in a way in which needed drugs continue to be affordable and accessible to the people we represent. In that regard, I have to say that I think the government does not have a great record with respect to the management of the PBS. Since 1996, expenditure on the PBS has fluctuated considerably. The government has failed to manage the growth in PBS expenditure. In 2005, we saw the government implementing increases in the copayments that patients are required to pay when they have their prescriptions filled.

It is interesting to note that, as a result of those increases in copayments, three million fewer PBS scripts were filled in 2005-06 compared to the previous financial year. It is impossible to know with any certainty whether this reduction in the number of scripts filled was the outcome of a sensible saving measure or indeed, as I suspect, the outcome of the fact that more and more Australians, particularly pensioners and low-income earners, were forgoing their medication because of cost imposts.

Last year we also saw the Minister for Health and Ageing approve special price increases for a range of commonly prescribed PBS medicines, including treatments for reflux, ulcers and blood pressure and for commonly prescribed antibiotics. Once again, patients were forced to pay more because the Howard government was unable to deliver on the implementation of its 12.5 per cent generic price cut policy. So past experience leads me to feel somewhat anxious about whether and how the cost savings that flow from this bill will be affected. At the beginning of every year, many constituents complain to me about the ever-increasing costs of medicines and changes to the safety net provisions. At the start of this year, when the standard patient charge for prescription medicines rose by $1.20 to $30.70 and costs for concession card holders rose to $4.90, people contacted my office saying that, particularly if they are a low-income family with children, $30.70 per script—when in winter two or three children might come down with the same illness, as well as mum and dad—has a substantial impact on their disposable incomes.

So not only did the cost of filling prescriptions rise but also we saw the safety net provisions increase. The concessional rate for prescription drugs rose so it could only be obtained if families spent in the order of $960 in the year. For pensioners, the cap rose to $274. Each year we face endless cost rises, which strike at the heart of the issue of affordability and accessibility. That is bad enough, even though we assume that at the start of the year these charges will increase. What I saw happening in my electorate—and I presume other members have had complaints from their constituents—is that, on top of these increases in the cost of prescription medicines and in the safety net thresholds, hidden surcharges were applied to many common medicines as a result of the government’s inability to deliver price outcomes with the pharmaceutical companies. We were told that, when a cheaper generic drug entered the market, the government was automatically going to slash the price of rival medications by 12.5 per cent. If the drug company refused to price-cut—which is obviously what was occurring—it is the people I represent who pay the difference. Let me take you to a couple of examples that were brought to my attention. Medicines that had a surcharge applied are fairly common medicines. They included Zantac, for reflux and ulcers, for which the hidden surcharge was $4.18. For Tritace, a medicine for blood pressure, the surcharge was $3.25. For Zoton, prescribed for reflux, it was $3.63. For Amoxycillin, the antibiotic, it was $0.58.

It is the fear of the unknown as we go down the route of the amendments to this bill that causes me some concern. Forcing price reductions and trying to establish proper benchmarks in a competitive environment is all well and good, and it helps to ensure the sustainability of the PBS, but we have to ask the question: who is going to bear the costs? If the companies bear the costs, well and good, but if the ordinary citizen has to bear the cost, then that would cause the people on this side of the chamber some concern. I again point to the fact that in 2005-06 three million fewer PBS scripts were filled compared to the previous year. One can only speculate as to the reason for that, but certainly, in terms of the number of people who come to see me, the issue of affordability is becoming a serious matter.

So, in looking at the details of the bill, Labor has no difference with the stated intention of the reform to give Australians continued access to new and expensive medicines while the PBS remains economically sustainable into the future—that is fine as far as it goes. I will not go into the detail, because the shadow minister indicated the specific changes, but provisions cover the creation of formularies for classification of medicines to differentiate between single and branded and generic medicines, the removal of ongoing price links between formularies and the introduction of pricing mechanisms to reduce price to government, including price disclosures for all new brands. They are all welcome reforms. While savings to the government to keep the PBS sustainable are essential, if the savings result in the extra costs being passed on to the consumer, then that would be of great concern to me and the people I represent. The government argues—certainly in the second reading speech when the minister introduced the proposals, and publicly—that the changes will lead to savings of about $3 billion over 10 years, but in looking at the detail of the bill I cannot see the provision that will guarantee that these savings will happen in a manner that does not adversely affect consumers. This is a major flaw in the legislation which I trust will get detailed scrutiny and answers in the Senate.

These PBS reforms are far-reaching and complicated. They are put forward at a time when the rate of growth of the PBS is less than inflation, despite the listing of expensive new products such as Herceptin, which I referred to earlier. They also come at a time when there is growing recognition that many patients go without needed health care and essential medicines because of increasing costs. As well as being mindful of ensuring the sustainability of the PBS into the future, in my view there should be in-depth scrutiny and expert assessment of the health and social costs of the changes encompassed by this bill. In other words, we need more than the bottom line economic indicators of success. We also need to see whether the savings that are going to be affected by the changes to the pricing of medications do not have any deleterious economic and equity outcomes.

With those remarks, let me reiterate what I said at the beginning of my speech, which is that Labor is committed to the PBS. As indicated by the comments of Professor Ann Harding, the PBS has clearly been a very progressive and pro-poor scheme which has served the interests of our nation and our citizens very well. With an ageing population there is the added dimension of economic sustainability, but again I pose the very important consideration that the economic sustainability and the cost savings which are going to be effected should be done in a manner that does not compromise the fundamental principles of the PBS. From the time we provided penicillin free of charge to all, whether they be rich or poor, one of those fundamental principles is the continued access to, and affordability of, essential medications.

Lindsay Tanner (Melbourne, Australian Labor Party, Shadow Minister for Finance) Share this | Link to this | Hansard source

Hear, hear!

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

For nearly 60 years, the Australian government’s Pharmaceutical Benefits Scheme has provided all Australians with reliable and timely access to the medicines they need, at a cost that individuals and the community can afford. Not only has the PBS scheme served Australians well over those 60 years but it has also proved itself to be one of the best drug subsidy systems in the world. We should be proud of that. We should be proud of this program. It is a scheme that has served Australians well under both Liberal and Labor governments. The problem is not its effectiveness or the benefit it gives all Australians: the problem is its cost. It is a very expensive program. It is an uncapped program, and its cost has been spiralling recently at an increasing rate. This concern about cost is not a new issue. I can remember the debate going on in 1971-72, when I was working as an economist in the health department. The Labor Party, in opposition, were proposing that in government they would buy a drug company and, through price competition, would force down the price of pharmaceuticals in Australia. It was my job to write a report saying why that would not work. Anyway, Labor were elected to government. They promptly took my report, changed the recommendations and went ahead and bought a drug company called Fawnmac, which was used to try to reduce the price of pharmaceuticals. The Fraser government then came in and used my report to sell the company. So this issue is not new.

Lindsay Tanner (Melbourne, Australian Labor Party, Shadow Minister for Finance) Share this | Link to this | Hansard source

It’s very flexible.

Alex Somlyay (Fairfax, Liberal Party) Share this | Link to 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.

Chris Hayes (Werriwa, Australian Labor Party) Share this | Link to this | Hansard source

Health care and health spending face multiple competing objectives and a vast array of expectations, both realistic and unrealistic. The facts are relatively straightforward. We have an ageing population—a population that has an increasing number of people suffering from chronic conditions, and advances in medical technology, particularly in pharmaceutical treatments, are becoming increasingly expensive. This is the dichotomy that we face, and it is what the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 is addressing. If we add to that the expectation of the public, particularly the sick, that modern technology can come up with cures for all sorts of diseases, quite frankly, we have the recipe for a difficult public policy problem, certainly when looking at the economic aspects of balancing that dichotomy.

We have the option of increasing health costs to either government or the consumer—the patient. The worst possible option is to increase the health costs to both government and the consumer. In fairness to the government, it has introduced this bill as part of a package of four interconnected measures announced as reforms to the Pharmaceutical Benefits Scheme. The stated aim of the PBS reform package is to ‘give Australians continued access to new and expensive medicines while ensuring the PBS remains economically sustainable into the future’. They are noble sentiments and, much like the other motherhood statements that we hear from this government, you would like to believe that the government delivers this.

The bill before us amends the National Health Act and deals with the price changes to the PBS. It includes: the creation of formularies for classification of medicines, which is primarily aimed at dividing innovative and generic medicines; the removal of ongoing price links between the formularies; the introduction of pricing mechanisms to reduce price to government through stated price reductions for medicines coding to formulary classification and requirements as to price disclosure for all new brands; principles for the calculation of the weighted average price; and the requirement for suppliers of new brands of medicines listed on the PBS to guarantee supply for a minimum period and imposing penalties for failure to meet this commitment.

The main change in the bill is the creation of formularies for all medications. From 1 August 2007, PBS medicines will be listed on two separate formularies. Formulary 1 will comprise some 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 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 the generics, the off-patent drugs and different versions of older drugs.

A transitional pricing arrangement will apply to F2 drugs, with two sub-formularies being created. There will be no ongoing price link across medicines listed on the F1 and those in the F2 category. Reference pricing will continue to apply between medicines that are linked within reference pricing groups on formulary 1. The reference price will continue to apply within the therapeutic group premium—TGP—groups and across different brands of the same medicine listed on formulary 2.

As I mentioned earlier, this bill deals with components of changes to the PBS that were announced in November 2006. These changes are set to come into effect from 1 August of this year. I note that if they are not able to come into operation by that date it will cause serious and substantial cost to the industry itself. The PBS is one of the most remarkable elements of health policy within the developed world. It is a means through which the public can access medicines it needs at affordable prices, while allowing new medicines to be developed and introduced. It is a model that, quite frankly, most of the developed world would love to be able to emulate. There are costs to this. In 1948-49 the PBS cost the federal government a grand total of around $298,000. Some 40 years later, it reached the billion dollar mark. PBS costs have continued to rise. In the 2005-06 period, the government paid just over $6 billion in PBS subsidies. This is expected to reach approximately $6.5 billion by 2006-07.

The cost of the PBS has increased, but it must also be remembered that the PBS has given Australians access to medicines that many would not have had access to had it not been in place. A rise in a budget item of the magnitude of the PBS is going to be a cause for concern of, quite frankly, governments of any persuasion. But the question must be asked: does simply tightening the purse strings make for a better system or does this start to act as a progressive destruction of a system that, while not perfect, is widely considered to be a good one?

The main driver for these changes—these so-called reforms—that the government has set about introducing is the alarmist conclusion that was reached in the first Intergenerational report. The Intergenerational report predicted that the PBS would grow from 0.6 per cent of GDP in 2002 to 3.4 per cent of GDP by the year 2042, a five-fold increase. The Intergenerational report assumed that the growth rate of the PBS would continue but neglected to consider the changes that might occur or factors that might come into play that would reduce the growth in the cost of the PBS system. The government’s reaction to the conclusion drawn in the Intergenerational report has provided the basis on which it has set about reining in the cost of the PBS.

I posed the question earlier: will the simple tightening of the purse strings of the PBS arrive at what Australians really want? I am concerned, and I am sure I am not alone in this, that simply tightening the purse strings may result in the denial of access to new and innovative medicines to Australians. The experience of New Zealand is one that warrants careful consideration. The New Zealand government considered cost at the expense of patients. Medicines Australia reports that, since the turn of the century, Australians have been able to access some 23 innovative new medicines on the PBS, while New Zealanders have gained access to only two. The first Intergenerational report focused a great deal on the cost of the PBS but largely neglected the benefits of early intervention. I note that the recently updated Intergenerational report has scaled back the estimates of the growth in the PBS, but once again it largely ignores the benefits—both social and economic—of proper management of chronic diseases and the benefits of prevention programs.

In examining the multiple dimensions of health care, it is important that we consider the important role of prevention. Medicines funded under the PBS play a vital role in prolonging the activity and working lives of Australians. Pharmaceutical treatments have the potential to improve productivity and workforce participation and contribute to savings in other areas of the health budget. Responsible spending on the PBS contributes to economic growth and should be seen as an investment, not just a cost. To continue to improve participation in the workforce it will need to be maintained, to enhance the health of our ageing population. Continued access to medicines through the PBS will play a significant role in that aim alone. Increasing the participation rate in our workforce will have a significant impact on the productivity of this country.

Medicines can never be the be-all and end-all of health care. Medical treatments are a support mechanism, but consideration should be given to the benefits of lifestyle factors, such as exercise and diet. Medicines form part of our total health plan, but they are in a support role. They nevertheless play a significant role in ensuring the health of our population, and in doing so they contribute to the productivity of our nation.

We can always do better. We can always manage our healthcare system better, and the way we manage our medications can no doubt improve. By treating symptoms and extending life, medicines improve people’s activity and functions in their daily lives, including their physical, social, emotional and cognitive wellbeing. The economic dimensions of health care—its role in increasing and improving workforce participation and productivity—mean that healthcare spending should also be considered an investment in the social wellbeing of our population. It should not just be considered from a one-dimensional cost perspective alone.

Earlier this year the Productivity Commission released a report that estimated that the benefits to the Australian economy of health promotion and disease prevention could increase GDP by around six per cent. Early intervention programs preventing and treating diseases all contribute to minimising the need for costly treatment after disease becomes established.

This package is structured to bring down the prices of generics and those drugs which were there in competition, and to leave headroom for new and innovative drugs. Labor supports obtaining lower and more realistic prices for generics and rewarding the development of innovative medicines. This support does not come without qualification. I do not want to see a situation emerge where the unilateral consequences are greater cost pressure being imposed on patients. I am concerned that the plans to include an annual mandatory two per cent cut to the price paid by the government for medicines on the PBS, on top of the 12.5 per cent mandatory cut which already exists, could lead to higher health costs for patients obtaining medicines. It is important that a solution does not emerge where the Australian government’s saving comes at the cost of the patient. We need always to be mindful that we do not want to repeat the exercise or the experiences of New Zealand.

In a recent survey in my electorate of Werriwa on the main things impacting on family budgets, the cost of medicines and seeing doctors came in the top three. It stood alongside, and very close to, the increase in mortgage repayments and the increase in petrol prices. So when you talk to local residents in Werriwa—in Minto, Ingleburn, Liverpool, Hoxton Park and other suburbs—you talk to real people out there, real families. And the cost of medicines is certainly something that is very much factored into the weekly budgets of many young families. It is important in every change we make to the PBS and to health care that we keep the consumers of health services—the patients—central in our considerations. This is not passing the buck; this is not just moving a line item from one to another. Cuts to medicines should not be passed on as costs to be absorbed by local families alone. Simply examining the cost side of health care in isolation is a short-term approach and should be avoided at all costs.

I understand that there are some 2,000 new medicines in the pipeline, developed mainly by private sector organisations, for mental health and for the treatment of a wide range of conditions, including cancers and cardiovascular disease, just to name a few. A survey commissioned by Medicines Australia reported that 92 per cent of respondents agreed:

... subsidising the latest innovative medicines through the PBS so that they are available for all Australians who need them, is a good investment for the nation.

I could not agree with that quote more. The expectation that new medicines will be developed and, more importantly, made available to all Australians at an affordable cost is at the core of the community’s expectations for the management of the healthcare system. My constituents are deeply concerned about what they consider to be the Americanisation of the Australian healthcare system. They hear stories about the 47 million people with no health insurance in the United States, the other 40 million with minimal health care and those who face very real budgetary considerations about whether or not they can afford the treatment they need. They worry about the future of our healthcare system as it applies to their families. Healthcare has always rated near the top of the list of concerns of the Australian public.

The PBS, and access to high-quality medicines at an affordable price, is considered by many to be the cornerstone of Australia’s health system. It is important that we balance the competing tensions around its cost and continued effective operation. Labor’s approach to health care involves the recognition of the broader impacts of high-quality health care and the role that prevention and chronic disease management plays. Health care is not simply about healing the ill but also about always having in place a system where people receive treatment when they need it. Health care is both a cost and an investment in the future. For Labor health care goes hand in hand with our overall economic strategy and what is good for the long-term future of this country. Labor do not intend to treat the PBS in the way that this government has tended to—that is, as simply a line item of expenditure. There is no denying that the PBS needs to be managed wisely so that it continues to play an effective role while also delivering the best value for money for both the government and patients.

Whilst there are some concerns with this bill, which we hope will be fleshed out in the Senate committee process, I am supporting the bill. I am mindful of the fact that in the past when this government has set about the process of health reform it has, unfortunately, meant a diminution of access to services for some of the most vulnerable in our community.

Mal Washer (Moore, Liberal Party) Share this | Link to this | Hansard source

The National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 proposes a number of amendments to the National Health Act 1953. The bill enacts a series of measures to provide Australians with continued access to new and expensive medicines whilst ensuring the Pharmaceutical Benefits Scheme, the PBS, remains economically sustainable into the future.

For nearly 60 years the PBS has provided affordable access to a wide range of medicines for all Australians. The scheme has proven itself to be one of the best drug subsidy systems in the world and around 80 per cent of prescriptions dispensed in Australia are subsidised under the PBS. With new and more effective medicines helping us lead longer and healthier lives, the PBS is growing each year. The cost of the PBS is currently around $6 billion per year, and changes need to be implemented to ensure its sustainability. In recent times the Australian government has been paying too much for multiple-brand, off-patent drugs. In order to correct this and protect the price being paid for patented drugs, medicines on the PBS will be separated into two groups, each subject to different pricing arrangements. There will be no price links between the groups, allowing the government to reduce the price paid for medicines operating in a competitive market whilst protecting single-brand and patented medicines from unsustainable price reductions.

From 1 August 2007 PBS medicines will be placed either in formulary 1 and formulary 2 or outside these formularies for certain combination medications. Medicines in the formulary 1, or F1, group include both on-patent and off-patent medicines that cannot be substituted by other brands or medicines. They are single-brand medicines and are not subject to price competition in the market. The amendment bill also allows for co-marketed brands to be included in this group. A pharmaceutical company may release their new patent drug under more than one brand for different consumer groups. However, once the new drug’s patent has expired, other companies may introduce new brands of the drug into the market. When this occurs the brand will then be placed in formulary 2, or F2.

Approximately 450 single-brand medicines, with PBS expenditure of $3.2 billion, will be listed in F1. There will be no mandatory price reductions for these medicines and any existing price linkages will be retained within this group. Medicines that are listed under many brands, and those that are interchangeable at the patient level with a multiple-brand medicine, will be placed in formulary 2. Approximately 230 medicines, with PBS expenditure of around $2.8 billion, will be listed in F2. Statutory price reductions will apply to medicines listed in this group. There is already a 12½ per cent price reduction when a new brand of medicine is listed on the PBS. This mandatory price reduction will continue, along with further reductions.

From 1 August 2008 there will be a price drop 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. There will be a one-off price drop of 25 per cent for medicines where price competition between brands is high. These are F2T grouped medicines. Separating F2 medicines between those with low competition and those with high competition has been done on the basis of information provided to the department by stakeholder groups involved in the selling and purchasing of medicines. Amoxycillin is an example of a high-competition drug which would be included in F2T. Around 100 drugs, currently costing the PBS around $2 billion a year, would fall into this category.

As mentioned earlier, medicines that are interchangeable at the patient level are included in the F2 pricing structure group. These medicines provide a similar health outcome and may be safely substituted with one another for most patients in most cases. These interchangeable medicines are known as ‘therapeutic groups’. The Pharmaceutical Benefits Advisory Committee, the PBAC, will be required to provide advice to the minister about the formation of any new therapeutic group. This is essential as some drugs may provide similar outcomes as other drugs but are superior in certain circumstances. In this case they should remain in F1 where their price will be protected. Failure to do this could see companies withdrawing their drug from the PBS due to lack of profitability.

Not all medicines will be listed within F1 or F2 pricing groups. Medicines which are a combination of two or more drugs, at least one of which is on the PBS, will be listed outside these formularies. Generally the pricing of these combination medications will be based on the weighted price of their component medicines. However, the PBAC can advise whether a specific combination medication has advantages over alternative therapies. For example, the specific combination may result in improved compliance, improved efficacy or reduced toxicity. In these cases it may be appropriate for the combination product to receive a higher price than simply the price of its components.

Another major change to be implemented with this bill is price disclosure. Price disclosure will be phased in for medicines that operate in a competitive price environment—that is, those drugs in the F2 pricing group. Companies will be required to disclose the prices at which they actually supply their medicines to wholesalers or pharmacies. This will introduce price transparency, allowing taxpayers, through the government, to pay a fair price in a competitive market environment.

Drugs which are still under patent and are therefore listed in pricing group F1 must retain their pricing confidentiality. It must be remembered that Australia represents one per cent of the global pharmaceutical market. Patents last 20 years from filing and it takes a drug typically around eight to 10 years to reach the market. This gives the pharmaceutical company 10 or so years of exclusivity on the market to recoup costs of development. If we were to publish the cost of these drugs, then the other 99 per cent of the market—that is, Europe, the United States, China, et cetera—would know. The drug may be marketed differently in different countries and would therefore be at a different pricing. It is unlikely that other countries would be happy to pay more for a drug than Australia pays. As a result, pharmaceutical companies would simply stop selling drugs which are under patent to Australia. This has occurred in New Zealand, where they have adopted price disclosure on patented drugs. For Australia to have access to new innovative drugs and to retain pharmaceutical companies and their associated research arms, we must keep patented drug prices confidential.

The bill also includes a guarantee of supply for any new brand listing in the F2 group and for currently listed medicines for which price reductions are offered. From 1 August 2007, companies must guarantee a supply period of 24 months or until a new lower priced brand is listed. Failure to comply with this guarantee will result in penalties, including delisting that brand or other brands from the PBS, or refusing to list new brands of that company. This guarantee will help address some concerns of cheap overseas produced drugs being dumped on the local market. There is also other trade legislation already in place which further deals with the issue of illegal dumping.

Another change being implemented which is worth commenting on is streamlining the way that doctors can access ‘authority’ approvals for prescribing certain medicines. From 1 July 2007, doctors will be able to authorise the prescriptions they write for around 200 of the 450 PBS items that currently require a pre-approval phone call to Medicare. This will apply to medicines for the treatment of long-term chronic conditions, such as diabetes and osteoporosis, where the patient and the doctor are both very familiar with the condition and medication.

The reform package announced in November last year also established the Access to Medicines Working Group, which had its first meeting in April. This group, which involves the Department of Heath and Ageing and Medicines Australia, will provide advice and recommendations relating to the timely and appropriate access to effective new medicines.

This bill and associated reforms introduce necessary changes that ensure that the PBS is sustainable into the future without changing the fundamentals of how it works. There will be no reduction in the range or number of medicines, and patients will continue to pay only the standard copayment contribution. Key industry stakeholders, particularly Medicines Australia, the Pharmacy Guild and the Australian Medical Association, all support these reforms. And, most importantly, the largest stakeholder of all, the Australian public, will benefit the most from these reforms. I commend the bill to the House.

Harry Jenkins (Scullin, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak on the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007. In doing so I make the comment that, in the debate so far, the importance of the Pharmaceutical Benefits Scheme has been well and truly canvassed. No member from either side of the parliament would have any great problem in agreeing that, as the Pharmaceutical Benefits Scheme has developed, it has become a very important plank in Australia’s healthcare system. Regrettably, when we talk about the Pharmaceutical Benefits Scheme we often do it in isolation from the rest of the health budget. I get a little amused when we hear comments in a debate like this on the need to have a sustainable PBS and, as the member for Cowper asserted, that the measures contained in this bill position the PBS for the future. I think that if we reviewed the different debates about the PBS we would see similar comments made quite often.

I would acknowledge that what is intended by this piece of legislation is a pretty big step—a great departure from the way in which the Pharmaceutical Benefits Scheme has presented drugs on the listings in the past. I do not intend to go into too much detail about the nature of the formularies and the two listings; I think that those very complex matters have been discussed quite sufficiently by others in the debate. I would just reflect that this debate really concerns me because it is very much an insiders’ debate. It is so technical that you really have to have had a great interest in the matters before you to actually understand what is going on.

This government’s policy development in these matters has been characterised by closed-door—though no longer in smoke-filled rooms—discussions with different interest groups. Then finally, when the legislation pops up, there is this opportunity for the Australian public to perhaps peruse it and have some input. I find that just a little disquieting. So I think it is quite proper that the member for Gellibrand, as the shadow minister and lead speaker for the opposition on this piece of legislation, has indicated that we are going to use the Senate processes to pose a number of questions that concern us about the contents of this bill. That should not be churlishly taken by those opposite as some form of attack for attack’s sake on the government. When we confront a change of this dimension it is proper that it not be given a cursory two- or three-hour debate in the House of Representatives—often with members not really being across the fine detail of the proposition—but rather that it be made open to public discussion, such as a Senate committee would provide.

I thought that the member for Moore, with his medical background, gave a very good overview of what is intended here. I have no dispute with the way he presented the facts and no dispute with the way he presented the comments from the interest groups that are out there in the public domain. But all this arose out of the minister’s announcement back in November 2006 and only came to light again, as this piece of legislation, last week.

The importance of the Pharmaceutical Benefits Scheme can be seen from the fact that it gives access to over 600 medicines, produced in 1,800 forms and marketed as 2,600 separately branded pharmaceuticals. And it does so to make sure that all Australians have access, in equity, to those drugs. The universality of the PBS has been one of the hallmarks of the system. It enables the health professionals—the medicos, the pharmacists and all those who are involved in the system—to provide these drugs to patients and to provide the advice that is required to patients. The PBS safety net ensures that the financial burden on those with chronic illnesses is appropriately lessened. Additionally, it ensures that concession health card holders and the like, who might otherwise be impeded by a lack of resources, can access these drugs.

Having said that, in the past I have related my concern at witnessing people lined up in pharmacies having to make decisions about whether they could afford the drugs they needed for the winter colds of four kids, having to juggle the family budget to gain access. This is not a reflection on the government and the other pressures that are on family budgets. But, where an illness is not planned for, families often have to make those decisions and, as many have said in the debate, the purpose of the PBS is to ensure that these drugs are accessible.

I have tried to take an interest in the Pharmaceutical Benefits Scheme for a long time. Listening to the debate, I realised that it had been a long time because today, for the first time, I heard the PBAC—which I take as a spelt-out acronym, P-B-A-C—referred to as ‘pea-back’, a word which I related to a legume returning! I do not know whether that is now the common jargon of this field, but if it is I had missed it until today.

Anyway, I think the PBAC will remain the PBAC—a body which is called upon, on behalf of the Australian public, to play a very important role, not just in the Pharmaceutical Benefits Scheme in isolation but in the whole health system. This is what I want to stress about this debate. It is disappointing that, when we talk about the sustainability of the PBS, we do it in isolation. I note that a number of my colleagues on this side of the House have emphasised that we have to remember that, for the large cost of the PBS—and it is nearly $6 billion a year—there are advantages to other aspects of our health system. Using drugs appropriately, and making sure that new drugs are accessible and used, can be ‘preventive measures’—can mean patients do not require more expensive medical procedures. Perhaps at some stage we should take a collective deep breath, step back and—in the context of the Treasurer’s Intergenerational report and the myriad reports that have come out about the way in which, as our population ages, there are going to be costs on this and that—not just zero in, in health, on the expanding costs of the PBS but look at it in the context of our overall health spend. It may be that we are not looking at the other expanding parts of our health budget where the appropriate use of modern drugs can prevent or lessen expenditure. So I hope that at some stage we will actually see that as a public debate.

My other interest in this debate is that it continues our struggle to get generics well and truly accepted. It is not as if the concept of generics is a new one. I remember that it was back in the days of Labor government that we first used pricing differences—using generic drugs, out-of-patent drugs—as a lever to lessen the costs in the PBS. And yet now, further down the track—and it is not a criticism; the point is that it is a fact admitted to by the need for this bill—this government has had to go to another level to try to continue to put downward pressure on drug prices, by using, yet again, the advantage that is given by the supply of generic drugs to put pressure on drug patent holders.

That of course is why we are coming up with the formularies—F1 and F2 drugs. It is to try and drive home the message by giving an advantage to the Australian public through taxes and through accessibility to lower price drugs if they choose not to take the least costly generic alternative and want to stick with the main brand. One of the original difficulties is in trying to convince the public that a generic drug is the same as a drug that has come out of patent. People do not simply take this on trust. I note that the government is going to devote resources to ensuring that people have more information so that they can be properly informed and have a great deal of confidence when they choose to use generic drugs.

In respect of generic drugs, a piece of jargon that has been important in the past is ‘bioequivalence’. What bioequivalence means is that, when patients use a generic drug—in which the active substance is packaged together with different binders, in different shapes and using different dyes to give it different colours—they get an equivalent outcome. I use the word ‘equivalent’ because it is important for the points I want to go to. When you use jargon like ‘bioequivalent’, people say: ‘Wait a minute, what’s at the edges here? Can we be confident?’ Over the last decade or so, we have had an argument about making sure that people can be confident about using drugs on the basis that they are bioequivalent.

Here is a definition of ‘bioequivalent’ that I found on the internet: ‘The condition in which different formulations of the same drug or chemical are equally absorbed when taken into the body.’ That is not a bad definition—it is much better than the one I fumbled with—and that is what we are looking for. When a drug comes out of patent it is important to get generic drugs on the market.

I note that one of the sets of amendments which have been circulated by the government will add to different parts of the legislation the word ‘biosimilar’. For example:

Schedule 1, item 34, page 12 (line 13), after “bioequivalent”, insert “or biosimilar”.

That comes as a bit of a surprise to me, because today is not only the first day I have heard of PBAC pronounced as ‘pea-back’; it is also the first time I have come across the notion of ‘biosimilar’. In the short time during which I have been trying to research this, I have not reassured myself that I really understand what this is. I think I understand it enough to know that it is part of a global discussion in the pharmaceutical industry and it is something that we need to get our heads around. I note that nobody on the government side has mentioned it—many of their contributions were on the basis of ‘bioequivalence’. I am not taking a shot at them, but, when the minister wraps up the second reading debate or when he moves these amendments during consideration in detail, we need to have a very full discussion of this concept, because it adds a new dimension to the way in which drugs will be adjudged.

In work done in the European Commission and in the US administration, there have been a number of interesting discussions about what is really meant by the term ‘biosimilar’, which is a different concept from ‘bioequivalent’. We ought to be careful that we are not looking at things that are interchangeable—and that will take some getting used to. At this early stage, I do not want to be part of a process that would cloud people’s confidence about using drugs that are listed on the basis of being biosimilar. I do not want to be seen to be creating tension in terms of people being satisfied that they can use these sorts of drugs. Again, trawling through the internet would indicate that this term has been around for several years, but only recently is it getting greater currency as a medico-legal term. Drugs of this type have been approved under the European Commission. This suggests that these classes of drugs arise out of biotechnological processes. I do not know why there is such a great departure from what has happened in the past. Is it that different processes are going to be used to create a generic drug once the original drug is off patent? If so, why do we have to move to the use of a new terminology and not still use the bioequivalence argument, which is really about the way a person reacts to the drug in a clinical situation?

It does worry me that there will have to be a full explanation, when one of the sources that I have—World Wide Words—that is trying to define biosimilars says:

Biosimilars are closely related to the brand of drugs that they’re designed to replace but they’re not necessarily identical—hence the name.

This goes back to that type of insider debate that I think we are having about the PBS, about therapeutic groupings and the like. Members like the member for Moore have the great advantage of being involved in the prescribing of drugs and being able to get their heads around this issue, unlike those of us who are here as representatives of the people and who do not have a detailed knowledge of pharmacology and the like. As we will be bridges to the community in ensuring that people can have confidence when these types of drugs are listed, we need a fuller explanation of what these issues are about. I am just a little concerned—and I apologise if I have got the wrong handle on this—that this new concept is to be tacked onto the bill by way of additional government amendments at the consideration in detail stage. In the global environment, because this is a new concept in the legal sense—perhaps not in the pharmaceutical industry sense—we need to get our heads around it.

I think we have agreement that what is intended by this bill is worth going forward with. The member for Gellibrand and others have outlined the provisos that the opposition have and these can be fully covered by a proper process in the Senate. That is not to say that the thing that is imagined in this package cannot be successful. I will try not to be too alarmist by saying that, if you have the starting point that Medicines Australia appear to have come up with this idea, we should jump to the conclusion that it is wrong—they have an important role to play.

Throughout the years of the Hawke and Keating governments there was a realisation by the Labor Party that, if we wanted the public to have access to these really important drugs, we had to have the pharmaceutical industry onside. And there has to be a balance between the impost on the consolidated revenue and the proper reward for these drug companies when they are moving forward. It seems simple when you say it that way, but these are multinational and transnational conglomerates who can get higher prices in overseas markets. We have been very successful in putting a lid on their prices and we are trying to screw them down even more, but at the same time we want them to continue. So, with those provisos, I support this legislation. (Time expired)

Ken Ticehurst (Dobell, Liberal Party) Share this | Link to this | Hansard source

The National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 proposes a number of amendments to the National Health Act 1953 to provide Australians with continued access to new and expensive medicines while ensuring the Pharmaceutical Benefits Scheme remains economically sustainable into the future. The Pharmaceutical Benefits Scheme provides Australians with access to a diverse range of medicines, allowing choice between different medicines for patients and doctors at an affordable price for individuals as well as for the community. Patients who use medicines listed in the PBS are only required to pay a standard co-contribution payment, with the Australian government subsidising the rest of the cost associated with supplying and purchasing the medicine. This is an important scheme as it greatly benefits many Australians who, without it, would be unable to afford many of the treatments which are offered, some at discounted prices, leading to a lower quality of life for patients. In 2005-06 the Australian government paid just over $6 billion to subsidise around 170 million prescriptions. That averages out at about eight scripts for every person in Australia.

The proposed amendments to the PBS have been brought about by an increasing incidence of the government paying too much for many medicines where there is a competitive market operating. In the next 10 years over 100 patents for medicines that are part of the PBS will expire, providing us with the opportunity to make some positive changes and allowing us to secure the future of the PBS. Restructuring the pricing arrangements will ensure the government pays reasonable prices for medicines without increasing the costs to patients and taxpayers.

One of the main changes proposed in this bill is the separation of PBS medicines into two formularies—F1 and F2—each with different pricing arrangements. Medicines where there is only a single brand listed will be referred to as F1. It will contain both on-patent and off-patent medicines that are not substitutable with other brands or medicines. With this formulary, there will be no mandatory price reductions, and existing price linkages will be retained within this group. This means that single-brand medicines will retain their higher prices until they become subject to competition, providing companies with a greater certainty about the prices of these medicines. This allows the Australian government to ensure these medicines remain subsidised by the PBS, hence continuing their availability at affordable prices. Medicines where there are brands listed and groups of medicines that are interchangeable between patients will be referred to as F2.

There is already the requirement for a 12½ per cent price reduction when the first new brand of a medicine is listed on the PBS. This amendment bill proposes to further reduce these prices as more brands of the same medication subsequently become available. These additional reductions will reduce the price that the government pays for medicines that are subject to competition between suppliers whilst ensuring that patients will not pay more for them. Under these new pricing structures, patients will remain largely unaffected, as they will only be required to continue paying the mandatory co-contribution payment. This is currently $4.90 for concessional patients or $29.50 for general patients. This is highly beneficial to patients, as the price restructuring has the potential to increase the savings for patients who use the F2 medicines and over time the cost of their medication may reduce to a price below the general copayment.

Another major benefit to patients as a result of these proposed amendments is that it is less likely that additional patient charges will be added or that medicines will be withdrawn from the PBS in the future. The proposed amendments also aim to address the pricing of combination medicines that are made up of multiple medicinal components. Currently, the PBS system pays no more for combination products than it does for medicinal component parts. However, sometimes a combination medicine may have some advantage over alternative therapies or may fulfil multiple medicinal purposes. In those cases, it may be more appropriate for the combination product to receive a higher price than that of its components, as it performs more functions than the one component on its own.

These proposed changes also allow for the Pharmaceutical Benefits Advisory Committee to advise whether a specific combination product has advantages over alternative therapies, which the minister may take into consideration when deciding on the price. The proposed amendment will allow for any price change of a component, due to price disclosure, to flow on to any combination product that contains that component. This is an improvement on the previous inconsistent pricing structure of combination medicines, where any price change of a component, due to price disclosure, would not flow on to any combination product which contained that component. The usual pricing rules for combination products will still apply. Also, a combination medicine will be priced according to the weighted price of its components. This amendment to the pricing of combination products will ensure that they are reasonably priced and reflective of their components, as well as their therapeutic advantages, providing added assurance to patients of value for money.

Concerns of industry groups regarding the ability of the minister to make decisions regarding therapeutic groups have also been addressed in this amendment bill. Therapeutic groups are medicines which are considered interchangeable because they provide a similar health outcome and, in the majority of instances, can be safely substituted for each other for most patients. One of the provisions in the PBS amendment bill is the requirement that the PBAC provide advice about the formation of new therapeutic groups. This advice, however, will not be binding, allowing the minister to retain a large amount of discretion.

The Department of Health and Ageing, in conjunction with Medicines Australia, have also formed a working group to discuss ways in which Australians can be assured of continued access to new medicines. This working group will consider issues relating to the evidentiary requirements for submissions to the PBAC, as well as ways in which to streamline the process of listing medicines on the PBS. In addition, the amendment bill aims to introduce a system of compulsory price disclosure for companies listing new brands of medicines in the F2 category on the PBS. They will be required to disclose the prices at which they actually supply their medicines to wholesalers or pharmacies, whilst other companies which have brands of that medicine already listed on the PBS may voluntarily participate in disclosure; but, once they elect to do so, they may not revoke their decision.

This is a big advantage as it will increase the ability of the minister to more accurately determine, in accordance with the regulations, the weighted average disclosed price of a medicine. If the difference between the current price and the weighted average disclosed price is 10 per cent or more, the price of the medicine will be reduced to that disclosed price. This is a huge benefit to patients, at it ensures that the price they are paying for medication is a true reflection of the actual cost of the medication, reducing the instances of high mark-up of products.

A company failing to comply with price disclosure requirements will be deemed as committing a criminal offence, with a penalty of $33,000 for corporations. In addition, the minister may also delist that company’s brand, or its other brands, from the PBS or may refuse to list new brands of that company. In deciding to take these actions, the minister may take into account a range of factors, such as the number of times the company did not comply with price disclosure requirements and the reasons for noncompliance. Furthermore, any new brand listing on F2, plus any brand of medicine on the F2 list that offers a price reduction, will be required to have a guarantee as to supply of that medicine.

This will guarantee the supply of all new brands listed on the PBS from 1 August 2007 and the already listed medicines for which price reductions are offered to all patients who require these medications. This will significantly help patients on these medications, as the guarantee of supply period will be 24 months, or until another new brand is listed, or a further price reduction is offered for another already listed medicine. Any company which believes that it will be unable to supply, or has failed to supply, will be required to notify the minister. A criminal penalty will apply for failure to notify the minister. There is also a $33,000 fine for a corporation.

Companies which fail to supply or which are unable to supply may have that brand or other brands on the PBS delisted or they may be refused the listing of new brands. These tough measures introduced with respect to noncompliance with the new price disclosure and supply guarantee measures are another advantage for patients, as they aim to ensure that companies adhere to their commitments. Patients have a right to know that the prices that they are paying for their medications are truly reflective of manufacturing costs. They also have a right to have a continual, guaranteed supply of medications available to them. Patients do not need the added stress of costs often incurred by having to change their medications because they are too expensive or unavailable. These reforms aim to further ensure patients’ quality of life by increasing the accountability and compliance of companies which supply the medication.

Pharmacists will also greatly benefit from the proposed reforms. From 1 July 2007, pharmacists will receive 40c for each prescription that they process using the PBS Online system. This will encourage more pharmacists to use PBS Online, which will increase efficiencies in the administration of the PBS, also benefiting customers through faster processing and delivery of their medications. Pharmacists will also receive an incentive of $1.50 each time they dispense a substitute medicine that costs the patient no more than the standard copayment. These initiatives will help to ensure that patients are aware of their right to pay no more than the copayment for their medicines. They should also increase the use of medicines where there is no patent charge, through more effective and efficient eligibility checking and processing of prescriptions by pharmacists.

Doctors too will benefit from the amendment bill. As from 1 July 2007, they will be able to authorise prescriptions for approximately 200 of the 450 PBS medications without having to gain pre-approval from Medicare Australia via a phone call. This will significantly benefit the 70 per cent of patients whose scripts currently require an authority approval from Medicare and will mean that doctors will be making about 30 per cent fewer calls to Medicare to obtain pre-approval. This will reduce the unnecessary administrative burden on doctors so that they can focus more on their patients’ health needs.

The proposed amendments aim to further protect patients from higher out-of-pocket costs by getting better value from market competition among brands of generic medicines. The fundamentals of the PBS will not change, with patients continuing to meet only the standard copayment and in most cases paying less. The main changes will be in the way the government prices medicines when operating in a competitive market, reducing red tape for pharmacists and doctors to benefit all Australians. I commend the bill to the House.

Sharon Grierson (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

I rise today to speak on the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007. It is always important to restate and acknowledge that the PBS is a Labor initiative. The PBS was established almost 60 years ago when the government of the day decided that penicillin—a wonder drug, as we now know—should be made available free of charge to all Australians, regardless of where they lived or how much they earned. For 60 years the PBS has, in its many forms, tried to ensure affordable access for all Australians to essential medications.

Labor has always tested the PBS against outcomes for consumers in terms of price and the sustainability of the overall system, ensuring Australians have affordable access to the drugs which deliver the best health outcomes. Labor’s approach to the PBS and to the proposed changes is based on three core principles, which we test this bill against: ensuring sustainability in the long term; ensuring patients can afford the drugs they need; and ensuring that we utilise the PBS as part of broader preventative strategies, including the best possible management of chronic disease and prevention of disease. Regrettably, this bill does not deal with this third principle. The government’s approach has been one of bandaids and election grab bags of one-off handouts rather than a holistic approach to ensuring that the health needs of Australians are met, in full cooperation with state governments. Australians as health consumers, no matter where they live, test quality of life against their health care—access to health services and their overall health and wellbeing. Until we see the PBS delivering in a holistic way for the health needs of this country, we would always find the government’s approach regrettable.

Labor remain concerned that this package will not pass the test of affordability for patients and will not pass on enough savings to consumers. I will return to this aspect of the bill in more detail later. The bill is one of four interconnected measures in the government’s announced reform of the PBS. The government’s 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’. That is perhaps the most bipartisan approach, which we have always supported with the PBS. It is essential that the PBS is managed well, that government costs are managed efficiently and that the cost-benefit analysis is done in an independent way, particularly when assessing drugs to go on the PBS. That is something we give full, bipartisan support to.

Labor will always support changes that are aimed at increasing competition, rewarding innovation and maintaining access to medications for all Australians, and this bill contains some measures to support those aims. We would also say to the government, ‘Let’s match that with a really concerted effort on research and on support for innovation through the education and health portfolios.’ That would have to be acknowledged as an area where we do not see enough effort from this government. Also, we are concerned that this new bill does not provide any further protection for consumers. Lack of protection for consumers remains a real issue of concern for Labor.

The bill amends the National Health Act and deals with changes to the structure and pricing of PBS listed medicines and includes the creation of formularies for classification of medicines, primarily in dividing innovative and generic medicines; removal of ongoing price links between formularies; the introduction of pricing mechanisms to reduce the cost to government; staged price reductions for medicines according to formulary classification and requirements as to price disclosure for all new brands; principles for the calculation of the weighted average price; and requirements for suppliers of new brands of medicines listing on the PBS to guarantee supply for a minimum period and imposing penalties for failure to meet this commitment. If you think that sounds complex, it is. These are very complex reforms and measures. That is one of the reasons why this bill definitely requires closer scrutiny by a Senate committee.

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 are required to pay when they have their prescriptions filled. We now know that the one-off increase in patient copayment resulted in three million fewer PBS prescriptions being filled in 2005-06 compared to the previous financial year. It is absolutely clear that more and more Australians, particularly pensioners, are forgoing their medication because of cost. For members of parliament in their electorates, it is both alarming and terribly sad to hear a constituent say, ‘It’s okay, I’m halving my dosage of that drug so I can continue to take it.’ We should all be aghast at the implications for health care of those sorts of strategies, which go to the heart of questions about cost and affordability.

We know that families which may have two or three children suffering asthma or another chronic illness sometimes have to make choices—choices about who will have medication and who will not, about which prescriptions can be afforded. I hear too often from GPs in our Hunter Urban Division of General Practice that many patients do go to the doctor, but that is the end of it—they do not then go and fill the prescription recommended; they just hope they will get better. That is a terrible public health outcome.

Researchers with the National Centre for Social and Economic Modelling examined the distributional impact of the PBS on different groups in Australian society. Based on data from 2001-02, their report found:

The PBS is highly progressive, with PBS benefits declining from six per cent of the disposable income of the poorest 20 per cent of Australians to 0.3 per cent of the income of the most affluent 20 per cent ... as a result; two-fifths of PBS outlays were directed at the poorest one-fifth of Australians.

That would be a desirable outcome. The study also found that older Australians receive far greater benefits from the PBS than younger Australians, and that women receive higher benefits on average than men. It is the highly progressive nature of the PBS that is increasingly threatened by the Howard government’s mismanagement. Its highly progressive nature ensures that the people who need it most, the elderly, the chronically ill and the poor, and particularly people who find it hard to afford medication and health care, benefit the most. That is a marvellous feature of the PBS and one that should never be compromised. Last year we saw the health minister approve special price increases for a range of commonly prescribed PBS medicines, including treatments for reflux and ulcers, blood pressure and a commonly prescribed antibiotic. Once again, patients were forced to pay more because the Howard government was unable to deliver on the implementation of its 12.5 per cent generic price cut policy, a policy that did not deliver intended benefits to people. The bungling and mismanagement around this policy is a worrying sign of how the government will deliver on the proposed changes within this bill. Instead of using the PBS as the scapegoat for rising health costs, as we saw in the Intergenerational report, the government should really do some serious work on the social and economic benefits of the PBS and preventative health measures.

The government claim that this bill will deliver massive savings—$3 billion—but they are hiding behind the general idea of ‘savings’ without explaining that the savings are to government and not to the consumers or that they might, in the worst-case scenario, be at the expense of the consumer. So it may be a case of cost-shifting to consumers. The government have also failed to clarify where their supposed savings of $3 billion over 10 years will come from; neither do we see a commitment that those savings will go into health care. Labor will insist that this bill go to a Senate committee so that this issue and other matters of concern to Labor can be examined in detail. Labor will also reserve our right to move amendments if we cannot be assured that some of our concerns are properly addressed in this bill.

The bill comprises one component of four interconnected measures. Unfortunately, it does not include measures aimed at restricting or minimising the price to consumers. There is no consumer protection to be found in this legislation. The central change in the bill is the creation of formularies for all medications. From 1 August 2007, PBS medicines will be listed on two separate formularies: formulary 1, or Fl, will comprise approximately 450 single-brand medicines. However, it will not contain single-brand medicines which are interchangeable at the patient level with multiple-brand medicines. I have read some background briefs, and when you are looking at categorising drugs by their molecules and by their replacement brands it is a rather difficult bill to understand completely. 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. A transitional pricing arrangement will apply to F2, with two subformularies being created.

There will be no ongoing price links across medicines listed on Fl and those listed on F2. Reference pricing will continue to apply between medicines that are linked within reference pricing groups on Fl. Reference pricing will continue to apply within therapeutic group premium groups and across different brands of the same medicine listed on F2.

Over various stages in the coming years, medicines listed on F2 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. 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 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 imposing penalties if they fail to meet this commitment. This provision is needed to ensure that fly-by-night manufacturers do not set up just to drive down prices and drive out competitors, then abandon the market.

Some excellent work around these reforms has been done by academics. One in particular, whom I would like to quote, is Andrew Searles, from the University of Newcastle, who has undertaken postgraduate research. His view is that the reforms are overly complex. I would have to agree with him. I am sure that there are people who can analyse it a lot better than we can, but his view is that the complexity conceals the impact of these new formularies, particularly their impact on reference pricing. There is a risk, then, that the changes will lead to higher prices for Australians paying for medicines. He also points out that F1 will not be subject to mandatory price cuts and, most importantly, that reference pricing in this formulary will be reduced from that which previously existed. While reference pricing will still apply within F1, medicines in F1 will not be reference priced to those in F2, which we have spoken of, even if they provide medical health outcomes. It is Mr Searles’s belief that this would be likely to lead to prices for medicines in F1 that are higher than would have prevailed before the reforms, and that would make that group of medicines more expensive. That needs to be looked at very closely by a Senate inquiry.

Again, when we analyse the F2 formularies, which will be subject to mandatory price cuts, we find that much will depend on whether the medicines are listed in certain subcategories, F2A or F2T. Despite those initiatives, there is a risk that generic prices will not fall to the levels paid by New Zealand, for example. One of the reasons is that if there is not a competitive market, if there are not enough competitors in the generic drug-producing market, you will not see true competition and you will not see prices fall as we would all hope. It is true to say that these reforms do encourage the wider use of generic medicines in Australia—and that is a very worthwhile inclusion—but only as long as the generic pricing market is competitive enough to get those prices down. The reforms also create a stakeholder reference group, but the group does not include consumers or patients, and it certainly does not include taxpayers. Consumer groups were included at a later stage, but initially they were not involved in the discussions.

I share the concerns listed by people such as Andrew Searles. I put on the record the very real danger that these reforms will not result in improved affordability of medicines for Australian patients. Andrew Searles has argued in his paper that reference pricing between drugs that provide identical health outcomes will be broken. He acknowledges that drugs within F1 with the same therapeutic uses will still be reference priced, but as the comparator changes there is uncertainty as to what this will mean in terms of price. So the creation of formulary 1 may well result in higher medicine prices.

There are a great number of issues in this legislation that need to be considered. There has been discussion by academics and commentators that, since the signing of the FTA with America, we have seen some differences in the pharmaceutical market and that those differences build up and perhaps impact on the pricing of drugs generally and on the price the Australian government pays. Any policy that is introduced by the government regarding the PBS will undoubtedly involve some tension between meeting industry needs, meeting government’s costing needs and providing affordable medicines to Australians. It is important that we ensure this legislation goes before a Senate committee so it can be measured against those goals. Is this the most cost-effective way for government to ensure the PBS is efficient and can be sustained over time to deliver those goals of affordable medicines to all Australians? Is it arranged in a way that promotes competition in the pharmaceutical industry? Is it arranged in a way that rewards innovation in new drugs and entrepreneurship? Does it protect the independence of the Pharmaceutical Benefits Advisory Committee? One would always hope that it would.

I note the recent commentary on the government’s shift of PBAC to a full cost-recovery model. The PBAC have always taken their advisory role very seriously and have been very professional in ensuring that the drugs that are absolutely essential and have been rigorously assessed are placed on the PBS. They do it independently—and we would hope they would always do it independently—without fear or favour of government intervention. Therefore, giving them financial autonomy, rather than financial dependence, would be essential. If they have to operate on a full cost-recovery basis they will be at risk of compromising their decisions and their outcomes and that would be unfortunate.

In conclusion, it is important that this set of reforms be looked at by a Senate committee. It is regrettable that the process will be very short and that very little time has been allocated, but to get it right it is worthy of further scrutiny and input from interested Australian academics, consumer groups, advocacy groups and, of course, the pharmaceutical industry. I support the bill but note that the shadow minister, the member for Gellibrand, Nicola Roxon, has reserved her right to move amendments to the bill pursuant to the outcome of the Senate inquiry.

Judi Moylan (Pearce, Liberal Party) Share this | Link to this | Hansard source

It is a wonderful opportunity to speak to the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 because clearly medications have moved ahead in recent times; prescription medication saves the lives of thousands of people and indeed improves the quality of life of many Australians. The member for Newcastle was right when she said that this is complicated—it is—and there are tensions to be managed. But I think the government has struck a good balance between managing those tensions and trying to deal with the complications of such a bill.

As the scope of medications continues to widen and the price of some medications is well beyond what is paid by the consumer, the government or taxpayer meets the ever-increasing difference between what that medication actually costs and the cost to the patient. This bill seeks to change the pricing arrangements for medicines to ensure that the government receives better value for money for multiple-brand medicines without increasing the costs for patients and making sure that taxpayers get value for money in the dispensing of medicines.

These measures will ensure that the Pharmaceutical Benefits Scheme remains economically sustainable while ensuring that more Australians will have access to new and sometimes very expensive medications. Often the high cost of medications is not due to the price of manufacture but rather the arduous task of developing and testing drugs prior to manufacture and sale. This development process can take years before drugs go through a barrage of tests prior to government agencies declaring them safe for public consumption.

The Pharmaceutical Benefits Scheme provides a great service to the public by ensuring that access to a wide range of medicines is available. By effectively managing the scheme, the government will continue to support the listing of new and cost-effective medicines. Patients meet only the standard copayment of $4.90 for concessional patients and $30.70 for general patients. In some cases patients may pay less. The Pharmacy Guild has estimated that 400 brands will fall into this category.

The copayment is a responsible policy that encourages people to use medication as prescribed and to discourage the stockpiling of medications. There would not be a medicine cupboard in the country that does not have one or two bottles of unused prescription pills. At the same time the government has recognised the hardship that some people with chronic illness can experience due to the very high cost of daily pharmaceuticals and has provided a safety net for them—and quite rightly so. No-one ever knows when they are going to be in that situation. I think it is important, in a country like Australia, that we do make provision for people who have chronic illnesses and for whom medical and treatment costs are very high.

The Pharmaceutical Benefits Scheme will continue to provide a safety net, to make sure that medications are affordable for patients with high-use requirements. Medicines will continue to be dispensed to the public through community pharmacies, which I think is a very positive thing, but with a greater degree of transparency about the level of pharmacy remuneration, ultimately resulting in better use of government expenditure on medications.

The government announced in November 2006 that it would carry out a reform of the scheme to ensure good value for money, and this bill gives effect to that policy announcement. Since the announcement there have been a series of discussions with the relevant industries and industry representative organisations, including the Pharmacy Guild, Medicines Australia and the Australian Medical Association. These key stakeholders and others have indicated their general support for these reforms.

A structural adjustment package will be provided for pharmacy and pharmaceutical wholesalers through amendments to the community pharmacy agreement, including support for online claiming and incentives to dispense medicines that do not have additional patient charges.

The measures also include a method of streamlining the manner in which doctors can access ‘authority’ approvals for prescribing certain medicines. This has been raised with me by GPs in my electorate as I have done my rounds. They feel they spend far too much time on this process. This will reduce the red tape and allow doctors to get on with the business of looking after their patients—the business of doctoring.

The capacity for government to continue to fund new life-saving and life-enhancing medications well into the future relies on good management of the scheme and on managing those tensions that the member for Newcastle referred to. Having established the Parliamentary Diabetes Support Group in 2000, I have worked, along with my colleagues the member for Lyons, the member for Moore and other members, including Senator Barnett, to encourage the listing of appropriate and important new medications for those with type 1 and type 2 diabetes. Over that time we have seen a number of products come onto the market which improve both the quality of life for many people with diabetes and mortality rates.

Long-acting insulin, for example, helps people who are prone to hypos or blood glucose levels dropping dangerously low during the night when they are at rest and at risk of falling into a coma. These drugs have been particularly welcomed by parents of children with type 1 diabetes. You can imagine how concerning it is if they do not pick this up during the night by testing—and some families do that during the night—as the child may be in a coma by morning. So this was a very important listing. If we do not manage the Pharmaceutical Benefits Scheme properly and carefully, it could prevent some other medications from becoming available. As I said, I know that for many diabetics the listing of this medication on the PBS has been very welcome. We need to continue to carefully manage our resources.

Type 2 diabetes now affects 246 million people worldwide, and the numbers are growing very rapidly. For all those who are diagnosed, it is estimated that almost an equal number remain undiagnosed. Apart from the known drugs such as insulin—including, of course, the long-acting insulin—in recent times there have been a number of new medications listed. These products slow the progression of type 2 diabetes, and there are more products in development as we speak. We were advised of another one being looked at to come onto the market shortly.

Diabetes is a dangerous condition which, untreated, can lead to loss of eyesight, kidney disease and an increased risk of heart disease and stroke. It is the leading cause of limb amputation, meaning that every 30 seconds someone in the world loses a limb due to diabetes. In fact, few people realise that diabetes causes the death of 2.8 million adults, representing one death every 10 seconds globally.

In Australia, 7.4 per cent of the population has diabetes—they are the ones we know about—according to an AusDiab study in 2000. The social and medical costs were estimated in that same study to amount to about $6 billion annually. The human cost of diabetes is what most of us are deeply concerned about—that is, reduced quality of life and high mortality rates. By listing these types of medications on the PBS, there is a reasonable chance that the progression to dependence on daily insulin injections can be slowed, thus saving costs but, more importantly, improving the quality of life and longevity of those diagnosed with diabetes.

I am aware that there are many other chronic illnesses and conditions that in the past would render people unable to work and function, and in extreme cases result in early loss of life. It truly is a miracle of modern medicine that advances in pharmaceuticals can and do enhance quality of life and extend life for many people. That is where some of the tensions come in in managing cost, because what we do not want to do is stop innovation in the production of new medications that can not only reduce ongoing health costs but improve quality of life and reduce mortality rates. It is important to manage the tensions, but I think the government is mindful of that and has taken that into consideration in the development of this bill.

To continue to maintain access to all Australians, the government must ensure pricing structures that represent value for money for patients and for taxpayers. These measures will reduce the price government pays for medicines that are subject to competition between suppliers. It is important that patients also fully understand and are aware of the benefits of generic medicines. There will be a public education campaign to consumers, especially to those who are high users of PBS services, so that they fully understand what the changes are. It is particularly important to let consumers know that generic medicines have to meet the same very high standards of safety and effectiveness as any other medications. These are sensible measures to ensure the continuation of the excellent Pharmaceutical Benefits Scheme, a scheme that has wide public support. I commend those who have worked to bring about the changes which are the subject of the bill today.

Jill Hall (Shortland, Australian Labor Party) Share this | Link to this | Hansard source

At the commencement of my contribution to this debate on the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007 I would like to acknowledge the role that the member for Pearce plays in her leadership in the Parliamentary Diabetes Support Group and for the fine work that she has done in that area. I know that she is very committed to seeing that there are enormous advances in the treatment and diagnosis of diabetes in Australia. Her contribution within and outside of the parliament has made an impact and will continue to make an impact. I felt that it was important to acknowledge her contribution in that area.

The member for Pearce highlighted the tensions that exist. It is not only with diabetes; it is also with cancer, epilepsy and many other diseases that exist within our community. Each and every day, members of this parliament are approached by their constituents about one drug or another that could possibly benefit the illness that they suffer from. These drugs are assessed by the Pharmaceutical Benefits Advisory Committee and then they can be listed on the PBS if they are deemed suitable. That goes to the core of the issue. There is that tension that exists between medications that provide hope to all Australians and the other side of the argument, that there is a cost associated with them. For any government, no matter what their persuasion, the one thing that confronts them is the balancing of that: providing the best possible medication to all Australians whilst on the other hand ensuring that the Pharmaceutical Benefits Scheme survives. This has been a conflict for all governments, be they Labor governments or Liberal governments, over a long period of time.

I will touch a little on the Pharmaceutical Benefits Scheme. As we all know, it provides universal access to prescription medicines for all Australians, in the same way that Medicare provides universal access for Australians to obtain health care. It is one of the central components of the Australian health system. It has operated for almost 60 years. It evolved from a limited scheme that provided access to lifesaving drugs and disease prevention, and which commenced in 1948. These drugs were free of any charge and they were available to all Australians. Since then, the scheme has changed in the way it operates. It provides access to many more drugs. It provides access currently to 600 medicines that are available in 1,800 forms and are marketed under 2,600 different brand names. Approximately 160 million prescriptions were prescribed in the year 2005-06. That is a lot of prescriptions. That is providing benefit to a lot of Australians. I think that we need to recognise just how vitally important the Pharmaceutical Benefits Scheme is in Australia.

A hundred prescriptions come off patent over the next decade. This creates some form of conflict or tension, as has been mentioned by previous speakers. The coming off patent of these prescriptions over the next decade creates the opportunity for more generic drugs to be listed. I am a person who is very supportive of the use of generic drugs, as I think are most people within this parliament. Any way their use can be further enhanced should be supported. The cost of a prescription is $30.50 or, for pensioners and concessional patients within Australia, $4.90. This is visited twice a year, and additionally in special circumstances, such as in 2005 when there was the 30 per cent increase in the cost of prescriptions. The prices are constantly revisited because it is essential that the government is able to maintain the Pharmaceutical Benefits Scheme in the way it has over the years. It is so important to us as a nation that the Pharmaceutical Benefits Scheme remain viable.

The government has estimated these proposed changes will save $580 million over the next year, or a projected $3 billion over the next four years. The sustainability of the Pharmaceutical Benefits Scheme is what this legislation is all about. As I have mentioned, governments over the years have been very mindful that the Pharmaceutical Benefits Scheme is one of the best schemes in the world for providing medication to a nation’s people. I think it is imperative that we do all in our power to ensure that it remains sustainable.

It has been deemed that the cost of the Pharmaceutical Benefits Scheme is going to continue to increase. There was a high percentage increase in the amount that was spent on the Pharmaceutical Benefits Scheme a few years ago when Celebrex was listed. Quite often you will find that when a specific drug is listed on the PBS there will be an increase in the amount that is being spent on the PBS.

The Intergenerational report initially projected that 3.4 per cent of GDP would be spent on the PBS by 2044-45. Instead that has now been revised down to a 2.5 per cent increase in GDP for the same period of time. So the government should show some caution when it is looking at the future increases in the Pharmaceutical Benefits Scheme. As I mentioned, the listing of Celebrex was one drug that caused a spike in the PBS.

Sustainability has always been the common theme of governments. Legislation is aimed at containing costs and ensuring the sustainability of the scheme. Options to ensure the sustainability have over the years been the introduction of a copayment; competition through the development of a generic industry in Australia, which I think we should be totally committed to; programs aimed at changing prescribing practices; improved monitoring of entitlements to pharmaceutical benefits; and deletion of certain items. I think we have to be very careful when certain items are deleted from the PBS. The deleting of calcium supplements has caused some concern among many of my constituents.

Going to the actual details of the bill, it is one component of four interconnected measures in the government’s announced reforms of the Pharmaceutical Benefits Scheme. It gives Australians continued access to new and expensive medicines, while ensuring that the PBS remains economically sustainable into the future—a point that I think I have probably laboured to date. It is a creation of formulas for classification of medicines, primarily in dividing innovative and generic medicines; removal of ongoing price links between formulas; introduction of pricing mechanisms to reduce price to government; staged price reduction for medicines according to formula classification and requirements as to price disclosure for all new brands; principles for the calculation of weighted average prices; requirements for suppliers of new brands of medicines listing on the PBS to guarantee supply for a minimum period; and imposing penalties for the failure to meet these criteria.

The legislation also deals with restructuring the PBS to form two formulas to differentiate between single- and multiple-brand medicines, reducing the price that the government pays for medicines that are subject to competition between suppliers. We all know that this competition is vital if we are to keep a lid on the price of our pharmaceuticals. The bill also deals with providing a structural adjustment package for pharmacies and pharmaceutical wholesalers, including support for online claiming and initiatives to dispense medicines that do not have additional patient charges. These charges were implemented through amendments to the community pharmacy agreement signed on 2 March. It also deals with streamlining authority approvals for some medicines, reducing red tape and giving doctors more time to spend with their patients. Medicines that are subject to the new streamlining authority provisions will be listed in the regulations, I understand. It also deals with establishing a working group to consider issues relating to continued access to new and innovative medicines for Australians through the PBS, and the government has made some of these announcements already.

I think it is important to note that, whilst we are very supportive of any legislation that is going to ensure the sustainability of the Pharmaceutical Benefits Scheme, I have a slight concern that the government did not provide information on alternative pricing reforms. I note that the shadow minister for health will be looking to see whether or not we need to move any amendments after the legislation has been examined by a Senate committee. The fact that no alternative information was provided made it difficult to evaluate the rationale for the measures in this bill in relation to other possible approaches and to get a very clear sense of the government’s purpose for introducing the legislation.

The separate formulas will achieve some savings, hopefully, and ensure that PBS medicines are available. They should force some price cuts—and I know that is the rationale of the government—due to a more competitive environment with multibrand medicines where they are being frequently sold to pharmacists.

One other point that I would like to place on the record is that the use of pharmaceuticals actually reduces the nation’s health costs. Unfortunately, we have a dual system of government: the federal government is responsible for the Pharmaceutical Benefits Scheme, Medicare and other aspects of our health scheme; and the states are responsible for our hospitals. I would argue very strongly that the use of pharmaceuticals actually reduces the burden of illness on Australians and therefore reduces the burden of illness on our health system.

I think it is very difficult to actually understand and fully calculate how the use of pharmaceuticals impacts on the overall cost of providing health care to the nation, and I would be very interested to see some research done in that area. It may highlight that, whilst the PBS is increasing and whilst there is definitely a need to ensure that it does not skyrocket out of control—otherwise we will not have the PBS system that all Australians enjoy—it is also very important to look at the benefits to our health system of having drugs supplied through the PBS. Quite often in this House we just look at the cost and compartmentalise different aspects of the health system and different aspects of government. My argument is that we should be very mindful of the vital nature of the PBS and of the benefits it supplies to the Australian people. I think it actually does reduce health costs in other areas and that we should be mindful of that fact.

I can see the Minister for Health and Ageing is in the House and that he would like to sum up on this legislation, so I will conclude my comments at this point. In doing so, I would like to re-emphasise that we need to constantly embrace new medications and new treatments. We need a very strong PBAC out there to evaluate medicines and to make sure that those that are listed on the PBS will deliver the desired outcomes not only to the people who will be taking those medications but to the government as a whole. In addition, we need to recognise that a conflict of interest exists between the cost of medications, health outcomes and the sustainability of the Pharmaceutical Benefits Scheme. But at all costs we must ensure that the PBS remains strong and that it is there to support the Australian population into the future.

Tony Abbott (Warringah, Liberal Party, Leader of the House) Share this | Link to this | Hansard source

in reply—I thank members who have participated in the second reading debate on the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007. They have all expressed their strong support for the PBS, which is good. Of course there is no question that this government believes passionately in the PBS, which is one of the three great pillars of our Medicare system which, for 50-odd years, has delivered affordable, high-quality, life-saving and life-enhancing medicines to the Australian people.

As many speakers in this debate have observed, the costs of the PBS have increased very quickly over recent times. The changes in this legislation are designed to ensure that the Pharmaceutical Benefits Scheme is sustainable into the future. Essentially, these changes are designed to deliver better prices for generic drugs. If we have better prices for generic drugs, we have more headroom for new, innovative and cost-effective drugs in the system. That is what these changes are designed to bring about.

A number of speakers, including the last speaker, have gone through the outline of the bill. I do not propose to waste the time of the parliament by repeating what has been said. I believe that a number of concerns have been raised, particularly by members opposite. Let me briefly deal with them. There is an understandable anxiety on the part of everyone here about ensuring that costs to patients do not rise. We have co-payments in our system which were increased a year or so back. The increases were supported, I hasten to add, by members opposite. It was a very responsible thing for members opposite to do. Some of them appear to have amnesia now about the fact that they did support those copayment increases, but I think it is important just to put it on the record again that they did.

There are anxieties about premiums. I can assure all members, including those opposite, that the provisions for premiums are essentially unchanged. There will be no premiums on top of the copayments without the approval of the government. Companies certainly are not able to increase premiums willy-nilly. There is anxiety on the part of members opposite about the number of drugs which are dispensed with a premium and I am pleased to say that, as a result of changes arising from PBS reform, pharmacists will have an additional dispensing fee for dispensing a premium-free drug. There is anxiety about the impact on the generic industry. The government recently announced a major marketing campaign to support the generics industry and to alert people to the qualities of the generic drugs on the market here in Australia. I am pleased to see that that is an advertising campaign that members opposite are happy to support.

Finally, there is a question about the distinction between bioequivalent and biosimilar drugs. Essentially ‘biosimilar’ and ‘bioequivalent’ refer to drugs which are interchangeable at the patient level. ‘Bioequivalent’ refers to simple molecules which are interchangeable; ‘biosimilar’ refers to much more complex drugs which are still interchangeable but which do not necessarily have the same molecular structure.

I want to stress that the role of the Pharmaceutical Benefits Advisory Committee will not change. I would also like to stress that the prices for patients of quite a number of drugs will fall under these measures. The Pharmacy Guild estimates that, when these measures flow through the system, they will produce about 400 drugs beneath the copayment that will therefore be subject to fierce price competition, from which patients will benefit. There has been a great deal of consultation with the industry over these changes. I know that these changes are difficult for some sections of the industry in particular; I want to thank them for their cooperation and the constructive attitude they have brought to dialogue with the government.

Finally, let me just say that there will be a Senate inquiry into this bill. The government will carefully consider any recommendations that come out of that inquiry and we may well move further government amendments in another place as a result. I commend the bill to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.