Sussan Ley (Farrer, Liberal Party, Minister for Health) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The National Health Amendment (Pharmaceutical Benefits) Bill 2015 will amend the National Health Act 1953 to implement measures in the PBS Access and Sustainability Package.

The bill contains changes to medicines supply and services designed to deliver a more sustainable Pharmaceutical Benefits Scheme (PBS), cheaper medicines for consumers, better value for money for Australian taxpayers, and continued and improved access to innovative medicines. It also includes measures from the successful negotiation of the Sixth Community Pharmacy Agreement (6CPA)—the new five-year agreement with the Pharmacy Guild of Australia, as well as the strategic agreement reached with the Generic Medicines Industry of Australia.

Cooperation and consultation

This package is the result of extensive consultation and negotiation across the whole PBS supply chain. The government has worked constructively over the past four months with the Pharmacy Guild of Australia, the Generic Medicines Industry Association, the Consumers Health Forum of Australia, Medicines Australia and other key stakeholders to develop a strongly supported package of measures that will ensure ongoing access to innovative medicines through a sustainable PBS. Not all stakeholders agree with all components of the package. However, all components have a solid body of support from across the stakeholder groups recognising that everyone must contribute in order to share the benefits.

For the first time, the negotiations regarding access to, and sustainability of, the PBS were not confined to the Pharmacy Guild of Australia and Medicines Australia. Instead, there was cross-sector consultation with over 20 stakeholder groups. Inputs and ideas were canvassed from all sectors, about all sectors. Meetings ranged from a roundtable, to group discussions, to one-on-one meetings. Ideas canvassed in these meetings have resulted in a broad package of over 20 measures which will achieve net savings of $3.7 billion over five years.

Key components of the package

The key components of the Access and Sustainability Package will modify the operation of the PBS to reduce costs for innovative and generic medicines via new PBS-pricing policies; increase pharmacy competition by allowing pharmacies to discount the copayment for subsidised medicines; create capacity to list new medicines by removing certain over-the-counter medicines from the PBS; change the structure of pharmacy remuneration to remove the link to PBS prices; and provide for pharmacy to expand its role in the community.

Together, the measures provide a fair and balanced approach, where all participants in the PBS contribute to the required savings, risks are managed, efficiencies are gained, and access to medicines and pharmacy services for consumers is improved. The changes will allow the PBS to respond to the increasing demand for very expensive medicines and allow pharmacy to continue to evolve.

Savings—pricing policy changes

F1 medicines—one-off five per cent reduction

The majority of savings achieved by the measures will come from PBS-pricing changes. The changes affect single-brand innovator medicines in the F1 formulary and multiple-brand medicines in the F2 formulary.

For medicines on F1, there will be a one-off statutory price reduction of five per cent on 1 April 2016 for all medicines which have been PBS-listed for at least five years. A similar one-off five per cent reduction will apply every April from 2017 to 2020 for other medicines when they reach their five-year anniversary on the PBS.

This is the first time the government has proposed statutory price reductions for F1 medicines. However, this is the fastest growing part of the PBS by price for individual medicines and by cost to the PBS. Every new drug is an additional investment by government in companies in the innovative medicines sector and contributes directly to that sector's growth.

Every four months, government invests new money in this sector by actioning the recommendations of the Pharmaceutical Benefits Advisory Committee (PBAC). In May 2015, this government announced that $1.3 billion of new high-cost listings had been approved to fund high-cost cancer treatments and medicines for the treatment of blindness associated with diabetes. The positive outcomes from the March 2015 PBAC meeting mean the Department of Health is currently negotiating another $2.5 billion of listing recommendations from that meeting.

This is a significant and continual pipeline of reinvestment and revenue for the innovator sector. It is reasonable that, after a period of time, a small percentage is recouped to help support further new listings. Delaying the reduction until five years after PBS listing recognises that manufacturers need time to recoup the investment in developing and bringing new medicines to market.

Price disclosure—remove originator

Price disclosure is important to the PBS as it allows market forces to play a part in the PBS, in a way that would not otherwise occur for subsidised prices. It makes medicines cheaper not only for government, but also for consumers.

Price disclosure will be accelerated for medicines that have been listed on the F2 formulary for three years or more. This will be achieved through the removal of the originator brand as part of the calculation of the weighted average disclosed price. Calculations will then be based on sales data for generic medicines only.

Removing the originator from the price disclosure calculation will result in increased price reductions for government and consumers because the weighted average prices will be lower. This is because originators tend to maintain higher prices than other brands and therefore draw the weighted average up.

The first price reduction day under this policy will be 1 October 2016.

It takes time for generic brands to acquire market share. In Australia generic medicines tend to achieve 50 per cent market penetration by year 3.

To ensure free-market competition principles have a chance to be established and multiple supply sources secured in the Australian generics market, all brands of a drug will be retained in price disclosure calculations in the early years of brand competition. This is why the originator will be removed from the calculation after three years. With less than 50 per cent of F2 medicines undertaking discounting after three years due to market dynamics reaching a floor price, this measure will only affect those medicines that are still engaged in significant market competition. In this way, medicines not undertaking significant discounting are still protected by the existing safeguards in the system.

My department will consult with pharmaceutical companies regarding implementation well in advance, to ensure they understand the effect of the new calculation method for their brands.

P rice disclosure—protection for low volume medicines

The bill will also provide a mechanism to protect low-volume, high-need medicines where there is little room for price reductions. This will reduce the risk of essential medicines becoming unviable and being withdrawn from the Australian market.

Price disclosure—flow-on reductions to drugs in F2 combination items

For combination medicines on the F2 formulary, flow-on pricing rules will be changed to enable price disclosure reductions to be proportionately flowed on from single-molecule medicines to combination items.

At present, there is a loophole in the price disclosure framework. It has allowed some companies to avoid flow-on price reductions of component medicines by listing a second brand of their own combination drug. Under the current policy, combination items in F2 have price adjustments only if there is a price disclosure reduction due to direct competition between brands of that item. It has resulted in an inconsistency between the pricing of component medicines and the combination item, providing companies with a revenue windfall at the expense of government. This practice has already cost the government, that is, taxpayers, some $250 million.

This change will address the anomaly by ensuring appropriate price reductions are applied to combination items on the PBS and ensuring that the PBS pays the right amount for the same drug treatment.

Sixth Community Pharmacy Agreement (6CPA)

For the pharmacy sector, the Sixth Community Pharmacy Agreement provides revised remuneration arrangements that will enable pharmacy to innovate and transition from a focus on medicines supply to medicines management and pharmacy services. The terms of the agreement increase the transparency and accountability of community pharmacy remuneration and remove linkages to drug prices; introduce mechanisms to ensure that expanded health services are cost-effective and clinically appropriate; and provide for a review of pharmacy remuneration and regulation arrangements.

Extension of expiry for Pharmacy Location Rules

The current Fifth Community Pharmacy Agreement expires on 30 June 2015, as does the legislation which underpins the use of Pharmacy Location Rules. Amendments in the bill will enable location rules, and the Australian Community Pharmacy Authority which administers them, to continue until 30 June 2020.

Pharmacy L ocation R ules

Pharmacy Location Rules have been in place since 1990. Their purpose is to ensure a suitable geographic spread of pharmacies approved to supply PBS medicines, including in rural and remote regions of Australia.

There has always been considerable interest in the regulation of community pharmacy. There has also been frequent criticism of the existence of Pharmacy Location Rules. Most recently, the National Commission of Audit, the Competition Policy Review by Professor Ian Harper, and the Productivity Commission Research Paper: Efficiency in Health have all suggested that the location rules affect competition and that they should be revised or removed.

The Australian National Audit Office's review of the administration and negotiation of the Fifth Community Pharmacy Agreement also questioned whether the government receives value for money for expenditure on remuneration for community pharmacy.

Review of pharmacy remuneration and location rules

Because the details of the Pharmacy Location Rules are determined separately, the effect of extending the expiry is that current arrangements can continue without interruption past the end of June.

Pharmacy Location Rules have been reviewed in the past and have been updated several times as a result. Whether they should remain in their current form or be updated in the future will be considered as part of the independent review of Pharmacy Location Rules and remuneration.

This comprehensive and publicly accountable review will be conducted over the next 18 months, and its findings published within two years of the 6CPA commencing. It will cover pharmacy remuneration, Pharmacy Location Rules and wholesaler arrangements. The review will allow the government to be better informed about components of the PBS supply chain and to ensure distribution and supply of medicines is cost-effective, and regulations are appropriate to their purpose. Sixth Community Pharmacy Agreement—investment and changes

Through a robust negotiation process the government and the guild have come to an agreement on a package of additional funding and structural reforms that will benefit the sector and most importantly consumers, and in the long term will demonstrate value for money for taxpayer dollars.

The 6CPA is a strong package which will deliver up to $18.9 billion to community pharmacy and wholesalers over the next five years. This is an increase of over $3 billion on the 5CPA. And this does not include an estimated $4.8 billion in under co-payment scripts that provide additional revenue to community pharmacy. In total, the potential revenue for this sector from the PBS is $23.7 billion over the next five years.

This investment will be vital to manage changes that may arise from the review of pharmacy remuneration and to transition to new models for dispensing medicines and pharmacy services.

Increasing pharmacy competition by allowing discounting of co-payments

This bill will also allow pharmacies to discount the patient co-payment for PBS medicines by up to $1 per prescription. This discount is not mandated. Pharmacies can choose whether to offer a reduction and they can also decide the level of the discount, up to the $1 maximum.

This will be the first time that PBS legislation will allow pharmacists to offer reduced PBS patient co-payments. The change will increase competition between pharmacies and benefit patients by reducing out-of-pocket costs at the point of sale.

At present there is inequity in the system. General patients—that is, non-concessional patients—already access over 70 million scripts per year for less than the patient co-payment amount of $37.70 and those prices are discounted by pharmacists based on market competition. The final price paid by the general patient can be counted towards their safety net.

But concessional patients cannot benefit from these practices, as all PBS prescriptions are priced above the concessional co-payment amount of $6.10 because we, the government, pay pharmacy a dispensing fee of $6.76 plus mark-ups. To offer a concessional patient a medicine such as amoxicillin at the discounted price of $5.90 that could be offered to a general patient, the payment would not count towards their safety net. Alternatively, they must pay the higher price of the concessional co-payment in order to register the payment towards their safety net. This is not a fair outcome.

Consumers, particularly concessional patients, will benefit from paying less for their medicines under this measure. More affordable medicines is an important outcome for patients. It is important to remember that more than 80 per cent of concessional patients do not reach the safety net threshold so they will benefit from cheaper medicines under this measure.

The average concession card holder uses 17 scripts per year. They could save $17 per year, while average concessional patients over 65 could save $43. High medicine users will still have the full protection of their safety net, but could benefit from reduced monthly costs for their medicines in the lead-up to reaching the safety net and thereafter receiving their medicines free of charge.

Extending safety net early supply rule

In conjunction with the changes for patient co-payments, the safety net early supply provisions will be amended to include a wider range of medicines and a wider range of resupply intervals. This will allow the use of a medicine, the listed quantity and the resupply interval for a medicine to be better aligned.

Safety net early supply arrangements have been in place since 2006, when the current policy, known as the Safety Net 20 day rule, was introduced. Under the policy, the financial incentive for patients to obtain excess supplies of PBS medicines in advance of treatment need is removed. If a repeat dispensing of a prescription is obtained earlier than the specified resupply date, the person's usual co-payment applies—not the reduced safety net amount—and the payment does not count towards the safety net threshold.

These rules currently apply to certain medicines used for chronic conditions and for which the resupply interval is 20 days. The changes in the bill will enable early supply rules to apply to PBS medicines as recommended by the PBAC and for any resupply interval appropriate for that medicine.

Early supply rule medicines and implementation

The change to the early supply rules is being made on the basis of recommendations from the PBAC. The committee has recommended additional medicines it considers suitable for inclusion under early supply rules. It has also advised on medicines it considers are not suitable for inclusion under the extended rule. These include treatments for cancer, palliative care items and medicines with high dosage variability.

Existing arrangements that allow pharmacists to dispense an early repeat supply with the usual PBS subsidy but with no safety net benefits will continue.

This measure was strongly supported in the stakeholder consultations as experience with the measure for over eight years shows that it is a good quality use of medicine measure, and has not disadvantaged patients. Early supply rules promote responsible use of PBS entitlements, discourage waste, and reduce the quantity of unused medicines in the community.

Removing over-the-counter medicines from the PBS

While it is not part of this bill, there is an important opportunity to mention another measure which will be implemented as part of the PBS Access and Sustainability Package. This is the removal of low-cost over-the-counter medicines from the PBS.

Over-the-counter items are a class of medicines that can be sold directly to a consumer without a prescription from a healthcare professional. Some relieve aches, pains, and itches. Others treat conditions such as athlete's foot.

The majority of subsidised medicines dispensed on the PBS are prescription only medicines. However, around 20 million prescriptions, about 10 per cent of the total, are for over-the-counter medicines.

Most of the PBS prescriptions for these items are dispensed for concessional patients who have reached the safety net threshold. While they are free of charge to the patient, the effect for the PBS is very different.

In 2013-14, there were 6.7 million prescriptions for paracetamol supplied at cost to government of $73 million; 1.1 million prescriptions for aspirin at a cost of $4 million; and for antacids 219,000 prescriptions for $2.6 million.

The savings on subsidising paracetamol alone would fund the potentially lifesaving drug ipilimumab for late stage melanoma.

In recommending these changes the PBAC was also clear in recommending those over-the-counter medicines that should remain listed on the PBS. These include medicines listed for use by Aboriginal and Torres Strait Islander people and palliative care listings.

It is no longer possible, and it is not in the interests of patients or taxpayers, to continue to subsidise relatively low-cost, non-essential items that are available directly from pharmacies.

Remove over-the-counter medicines from the PBS—implementation—risks support

There have been claims that this change will increase the risk of adverse drug events and that it will compromise consumer safety because patient demand and PBS prescribing might shift to other more expensive prescription products.

Prescribers are highly aware of those risks and are also aware of their professional responsibility and need for clinical judgement to manage the risks.

The department will be monitoring usage patterns of prescription therapies to assess whether there are signs of transfer prescribing or inappropriate use.

PBAC changes

This government came to office promising to respect the independence of the PBAC and to improve listing times on the PBS. We have demonstrated that commitment by actioning all PBAC recommendations and improving the monthly listings from eight per month under Labor to 30 per month since October 2013.

As part of continuing initiatives to improve the operation of the Pharmaceutical Benefits Advisory Committee, a number of changes are proposed to build capacity for the committee and streamline processes for listing drugs on the PBS.

PBAC membership changes

The first step to streamlining the process and improving the listing time frames for medicines on the PBS is to increase the number of PBAC members.

Over recent years, there has been a marked increase in the number and complexity of submissions made to the PBAC. Five years ago, the average number of major submissions considered at each meeting was 19. The average number of major submissions today is more than 30. The agenda for the March 2015 meeting included the largest number of submissions ever with 40 major submissions and 21 minor submissions.

Over the last year, the PBAC has considered an average of nearly $4 billion worth of submissions at each meeting. The estimated cost of new listings from the November 2014 and March 2015 meetings alone is more than $4 billion over five years.

Submissions for new medicines are involving increasingly complex new technologies, biological products, drug-test combinations, and very high treatment costs. Assessing the comparative cost-effectiveness of these therapies requires detailed consideration by committee members skilled in assessing matters relating to health economics, epidemiology, therapeutic options and patient outcomes.

In spite of this dramatic increase in workload and complexity, there has been no increase in the size of the PBAC since 2006. It has been operating with a chairperson and 17 members since that time.

To respond to this, amendments in the bill will increase the number of members by three to a total of 21, and establish a new position of deputy chairperson.

The amendments also provide for industry to be one of the professional groups from which members can be nominated. They also provide for engagement with a broader range of consumer groups through expanding the range of nominating bodies and facilitate the option of a second consumer position on the PBAC.

Changes to r egulations

For some measures, amendments to regulations and legislative instruments will be required. Consultation with interested stakeholders will be conducted regarding those changes. This will ensure companies, health providers and consumers have an opportunity to provide comments regarding implementation and understand how changes affect their businesses, their prescribing practices and their access to medicines.

Summary

The government has worked constructively with pharmacy, the pharmaceutical industry, and medical and consumer groups to develop a strongly supported package of measures.

The package contains savings contributions from all sectors of the pharmaceutical supply chain, with benefits to consumers through cheaper medicines, enhanced pharmacy services, and funding for access to innovative medicines.

The changes in this bill are sensible and necessary. The savings contributed from price reduction for medicines on F1 formulary are reasonable and the policy is not something we should step away from. All new listings represent new funding, which is a direct reinvestment in the innovator medicines sector.

The changes to price disclosure for originator brands on F2 acknowledge that Australians should be benefiting further from the competition that occurs at the generic end of the market.

Together these will create capacity for the listing of new, expensive medicines which would otherwise be unaffordable for most people—for example, medicines such as trametinib for the treatment of BRAF-positive metastatic melanoma, costing $437 million over four years.

The revised PBAC membership structure will provide more flexibility for handling a complex workload and help to streamline consideration of applications for PBS listings.

Closing and acknowledgements

Many people have worked hard to put these measures together and many more contributed their experience and ideas.

I would like to thank all stakeholders who have worked with the government in recent months to develop the proposals and costings.

This is a balanced package of measures which, taken overall, provide fair outcomes for pharmacy, the medicines industry and consumers. It is also a reasonable deal for the Australian community who, as taxpayers, are the real funders of the PBS.

I thank the House.

Debate adjourned.