Wednesday, 5 March 2014
National Health Amendment (Simplified Price Disclosure) Bill 2013; Second Reading
I take this opportunity to thank senators for their contribution to this debate, in particular this morning: Senator McLucas, Senator Di Natale and Senator Xenophon. I can assure you that this government understands the very real interest that senators and Australians in general have for the Pharmaceutical Benefits Scheme. Australians rely on the great work done by this country's network of community pharmacies for access to the medicines they need. We also rely on other groups right across the pharmaceutical supply chain, from the pharmaceutical companies to wholesalers, who all work together with government to deliver timely access to medicines at a cost individuals and the community can afford.
Australians want and expect a world-class health system, and we want it for them. The PBS is a key part of that health system. It is world class and it is a major government investment in the health of Australians, but that investment needs to be sustainable. The PBS currently costs about $9 billion per year. We have heard over past months that there was negative growth in the PBS in 2012-13 compared with the previous year. I am pleased to see the pricing policy introduced by the Howard government in 2007 is working to maintain the system. However, we must not lose sight of the fact that prior to this average growth in the PBS was nine per cent and over the longer term is expected to rise to between four and five per cent annually. This reflects that we have a growing ageing population with an increasing incidence of chronic disease, and Australians have higher expectations for access to new, innovative and expensive medicines in the future. The bottom line is the PBS will only continue to remain sustainable if we manage it responsibly. This bill is part of that responsible management, particularly in the tight fiscal environment that we face.
The government is taking seriously the future of Australia's budget. In 2007, Labor inherited a $20 billion surplus. In 2013, we inherited a projected $30 billion deficit. At the time this price disclosure measure was announced by the former government in August 2013, the savings of $835 million had already been factored into the budget and forward estimates for the PBS and for the Repatriation Pharmaceutical Benefits Scheme. The current budget situation means we need to proceed with this change. Not implementing simplified price disclosure would require the government to find almost a billion dollars in savings from other programs.
The amendments in this bill will streamline the operation of PBS price disclosure policy. The current arrangements will be simplified, and price disclosure cycles and data collection periods will be shorter. Disclosed prices will be calculated more frequently, and price reductions will apply sooner. This more incremental approach to price changes will deliver savings and better value for money for PBS medicines, whether that is via the amount paid as government subsidies or as prices paid by individuals. It will also mean that the price the government and consumers pay will more closely reflect the market price for PBS medicines.
Price disclosure was introduced by the Howard government in 2007. It was a fundamental reform and is now an established part of supplying and dispensing medicines under the PBS. It is accepted as a fair and equitable pricing mechanism, which fits well with the aims of the PBS, and we remain committed to it. Under price disclosure, the price of a PBS medicine is adjusted to reflect discounting in the market. This approach allows market forces and competition to steer the PBS price rather than the price being set by the government.
The PBS price is reduced to a weighted average rather than the lowest price in the market, and the price is only reduced if the weighted average is at least 10 per cent lower than the PBS price to which it is compared. This approach allows suppliers of PBS medicines, including generic companies, to continue to compete in the market. It leaves room for further discounting and avoids threatening continuity of supply. It protects low-volume, high-need medicines when there is little competition in the market. It also reduces the risk of essential drugs being withdrawn from the Australian market.
All these features are retained under simplified price disclosure. The aim is not to reduce prices below the amount they would have reached under the current arrangements; the aim is to simplify the process and allow PBS prices to be adjusted more quickly. Under simplified price disclosure, the cycles will be 12 months long rather than 18 months. The rolling 12-month cycles will consist of six months of data collection followed by the current six months of price calculations, advance notice of new prices and any dispute resolution which are a feature of the current system. The changes in this bill are also a small step in reducing regulatory burden, because they will reduce complexity in administration for business.
I acknowledge that some sectors have been strongly opposed to the simplified price disclosure changes. I am aware from representations from pharmacists that they are worried these changes will impact on the viability of their businesses. Some are also worried that they will not be able to provide some add-on services that were being cross-subsidised by the discounting on PBS medicines. The government has said before that it wants to champion the viability of companies along the PBS supply chain and to partner with them to pursue the efficient delivery of health outcomes. The government is also committed to bringing the budget back under control. We recognise that policies which drive value for money for the PBS need to capture the benefits of competition and efficiency in ways that build business confidence along the pharmaceutical supply chain. It is also important the policies do not unduly impact upon one part of the sector significantly more than others. Price disclosure is designed to strike a balance for all stakeholders, including government.
Price disclosure was introduced to improve PBS pricing policy and the value achieved for PBS subsidies. The changes in this bill refine the application of that policy and support that aim. Simplified price disclosure is not designed to increase the magnitude of reductions to PBS prices. Rather, it is about translating discounting in the market into PBS prices sooner. The amendments in the bill will help to ensure that the government and consumers do not pay higher prices than they should for longer than they should. Implementing simplified price disclosure will deliver savings for consumers via decreased prescription costs. It will reduce PBS expenditure for taxpayers and also assist with the listing of new and innovative medicines. It will also provide greater confidence that multiple-brand medicines are delivering value for money for the PBS. Again I thank senators for their contribution to the debate on this bill.
Question agreed to.
Bill read a second time.