Nigel Scullion (NT, Country Liberal Party, Minister for Community Services) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

The Pharmaceutical Benefits Scheme (PBS) is an excellent system for funding access to medicines and has served the Australian people well for many years. 

The PBS provides Australians with timely, reliable and affordable access to necessary and cost effective medicines.  Patients normally pay only standard co-payments to access medicines which often would otherwise be unaffordable. Doctors and patients can often choose between a variety of medicines and brands to treat a particular condition.  Medicines that are listed on the PBS are assessed by experts to be clinically effective and cost effective.

In 2005/06, the government provided $6.2 billion to subsidise access to medicines listed on the PBS. More than 168 million prescriptions across a wide range of PBS listed medicines were dispensed, ranging from relatively low cost, high volume medicines for the treatment of long term chronic conditions to highly targeted, expensive medicines for acute and life threatening illness.

Every year important new medicines are listed on the PBS. Since August 2006, more than $1.3 billion has been committed to fund access to new medicines: medicines such as Herceptin^® for early breast cancer, Lantus^® and Levemir^® for the management of diabetes and Raptiva^® for the treatment of psoriatic arthritis.  This is good news for patients, more of whom now have access to the latest medicines.

Other PBS-listed drugs have recently had their criteria extended so they are now available to more patients.  These include the statin group of drugs, including extensions to the listing of Ezetrol^® and Vytorin^®, and broadened eligibility for alendronate for the treatment of osteoporosis. 

It is our responsibility, however, to continue to scrutinise schemes like the PBS to ensure that we are getting good value for taxpayers.  The structures we have in place must be able to continue to provide access to new and expensive medicines for future generations.  

The integrated package of reforms to the PBS announced on 16 November 2006 delivers this dual aim. It puts in place structural changes to the pricing of medicines to achieve good value for listed medicines, while delivering long term savings to support the continued listing of cost-effective medicines into the future.

The reform package includes:

• a new structure to the PBS Schedule with new pricing arrangements for listed medicines, including statutory price reductions and greater transparency through price disclosure requirements;
• a pharmacy support package to help community pharmacists to adjust to the new arrangements;
• streamlined authority approvals for a large number of medicines, which will give doctors more time to spend with their patients;
• establishing a working group to consider issues of continued access to innovative medicines through the PBS; and
• a public awareness campaign to increase knowledge and usage of generic medicines.

Key industry stakeholders, particularly Medicines Australia, the Pharmacy Guild and the Australian Medical Association have indicated their general support for these reforms.

The Bill contains amendments to the National Health Act 1953 that will change the pricing arrangements for medicines to make sure that the Government pays better prices for multiple brand medicines, without increasing the costs for patients and taxpayers. 

These changes are forecast to save more than $580 million over the next four years, growing to $3 billion over the next 10 years.

The fundamentals of the PBS will not change. Patients will continue to meet only the standard co-payments, currently $4.90 for concessional patients and $30.70 for general patients. In some cases, where the price of a medicine falls below the general co-payment, patients will pay less. The Pharmacy Guild has estimated that about 400 brands will fall into this category.

The Government will continue to list only those medicines that the Pharmaceutical Benefits Advisory Committee (PBAC) has assessed as safe, effective and cost-effective. The legislation does not amend those sections of the Act that set out the basis on which the PBAC provides advice on the listing of medicines.

The main changes will be in the way that the Government prices medicines that are operating in a competitive market.  In recent times, the Government has been paying too much for many multiple brand medicines where there is a competitive market operating. These medicines will take price reductions in the short term, and eventually will move to a more transparent system where the price the Government pays is much closer to their market price. 

The Formularies

The first major reform enacted by this Bill is to divide medicines on the PBS into separate formularies, F1 for single brand medicines and F2 for multiple brand medicines.  A medicine can be listed on only one formulary.  Importantly, there will be no price links between these formularies.

This classification of medicines into formularies is an important step in tackling a problem that has arisen in the current system of PBS pricing, where the price of single brand and multiple brand medicines that provide similar health outcomes, has been linked.

In this environment, it has been difficult to impose price reductions on those multiple-brand medicines which the Government knows are being discounted to pharmacies.  This is because, in many cases, the reductions flow directly on, through price linking, to single brand medicines that are not being discounted.  This has caused some difficulties for industry and places patients at risk of losing subsidised access to many worthwhile medicines.

Classifying medicines into formularies with no price links between them allows the Government to reduce the price paid for medicines operating in a competitive market while protecting single-brand medicines from unsustainable price reductions.

The Government and pharmaceutical stakeholders have worked co-operatively to develop the criteria to determine on which formulary each drug should be placed.  I would like to thank the industry for their constructive work with the Government through periods of consultation and negotiation.

Statutory Price Reductions Applying to Formularies

The F1 formulary will comprise single brand medicines, which are not subject to price competition in the market.  No statutory price reductions will apply to these medicines.  When a new brand of an F1 medicine is listed on the PBS, the medicine will move to the F2 formulary and be subject to the F2 pricing arrangements.

This means that single brand medicines may retain their original listed price until such time as they become subject to competition.  This will provide companies with greater certainty about the price of these medicines and help ensure that patients continue to access them, without keeping the price of other medicines artificially high.

The F2 formulary will comprise those medicines which have multiple-brands, and those which are interchangeable at the patient level with multiple brands that operate in a competitive market.  

From 1 August 2008 reductions in the prices of F2 medicines will be required:

• There will be a price reduction of 2 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 National Health (Pharmaceutical Benefits) Regulations will set down the formularies at the commencement of the legislation on 1 August 2007.

Medicines will move from F1 to F2 when a new brand is listed, reflecting the introduction of competition for that medicine.  The criteria for moving between formularies are provided in the Bill.

Certain medicines which are a combination of two or more medicines (at least one of which is PBS-listed) are to be placed on a list outside the formularies.  Their prices are to be based on the weighted price of their component medicines.  Therefore, if one of these component medicines has a price reduction, the price reduction will be apportioned to the combination medicine.  This is consistent with the current approach to pricing combination medicines.

In discussions with industry on these changes, concerns have been raised that some medicines have unique formulations that serve the particular needs of a sub-population, such as oral solutions for paediatric or geriatric patients. Industry has advised that they supply these medicines at low volume and with little profit and cannot afford to reduce the price of these formulations.

In response, the Bill allows for single brand formulations of some medicines to be exempt from the price reductions applying to the medicine as a whole.  The exemption will apply as long as there is only one PBS listed brand of that formulation.  It will apply to statutory price reductions and those that may arise from future price disclosure arrangements. Exempting these formulations from price reductions will ensure that they will continue to be supplied to the patients who need them.

Exemptions from price reductions will be established through Ministerial determination, in accordance to criteria set out in this Bill.

When an F1 medicine moves to F2, it will be subject to a statutory 12.5% price reduction.  Similarly, if a medicine on F2 has not already received a 12.5% price reduction, then it will receive that price reduction when a new brand is listed.

Price Disclosure

These price reductions will in the short term give better value to taxpayers for listed PBS medicines. In the longer term, this aim of improved value will be sustained by moving to a system of transparency in the pricing arrangements for multiple brand medicines on the F2 formulary.

From 1 August 2007, a company listing a new brand of a medicine on the F2A formulary must disclose market price data to the Department of Health and Ageing.  Sponsors of all other brands of that medicine which are administered in the same way will also be invited to voluntarily disclose market price data. 

This price disclosure requirement will also apply to medicines listed on the F2T formulary from 1 January 2011.

The price data required by the Department will include indirect financial benefits provided to wholesalers and pharmacies, as well as price discounts.

This price disclosure data, collected over a 12 month period, together with utilisation data, will determine the weighted average price of those medicines subject to price disclosure requirements. 

Price reductions will occur only if the difference between the current approved ex-manufacturer price and the weighted average disclosed price is 10 per cent or more.  This will allow room for some residual competitive market activity.

A company participating in price disclosure, either as a requirement of listing or on a voluntary basis, which fails to comply with price disclosure requirements will commit an offence, with a penalty of $33,000 for a corporation.

Further penalties include delisting that brand or other brands from the PBS, or refusing to list new brands of that company.  The application of the penalties would depend on a range of factors, such as the number of times the company did not comply with price disclosure requirements and the reasons for non-compliance.

Price disclosure will introduce transparency to the pricing arrangements for PBS medicines.  It will retain the benefits that flow from market competition, whilst enabling taxpayers to capture some of those benefits.

Guarantee of Supply

The Bill also includes provisions for new bioequivalent brands of medicines listing on the PBS, and existing brands of F2 medicines offering price reductions, to guarantee supply for a minimum period of 24 months, or until a new brand is listed, whichever is the sooner.

If during the guarantee of supply period, a Responsible Person forms the belief that there could be a failure to supply, or if there is a failure to supply, that person must notify the Minister, in writing.

Should a responsible person fail to comply with the guarantee of supply requirements the penalties would again include delisting that brand or other brands from the PBS, or refusing to list new brands of that company.

Regulations and Legislative Instruments

A number of elements of the reforms are managed through Regulations and legislative instruments.

The original allocation to formularies will be through Regulations.

The method for collecting and analysing data for price disclosure purposes will also be provided for in the Regulations.

Additionally, medicines that are subject to the new streamlined authority provisions will be listed in a legislative instrument.  The list of these medicines has been considered by the Pharmaceutical Benefits Advisory Committee.

Other Elements

Finally, there are several additional elements to the reform package which will be managed through administrative arrangements.

A community education campaign will be undertaken to ensure that consumers and health professionals are aware of the safety, health and economic benefits of generic medicines. The campaign will focus in particular on high users of the PBS and will increase awareness that:

• All medicines in Australia, including generics, meet the same high standards of safety and effectiveness;
• Generic medicines may save consumers money; and
• Generic medicines help maintain the affordability of the PBS into the future.

An Access to Medicines Working Group has been formed. It comprises representatives from the Department of Health and Ageing and from Medicines Australia, and has been set up to consider issues relating to timely and appropriate access to effective new medicines. The first meeting of the Access to Medicines Working Group has already taken place.

This group will be the key forum for high level engagement between my Department and Medicines Australia on access to medicines issues.

Conclusion

In conclusion, these reforms achieve necessary change to the PBS to make it sustainable into the future, without changing the fundamentals of how it works.

The PBS will continue to provide access to a wide range of medicines, and will support the listing of new cost effective medicines.

The PBAC will continue its crucial role in advising on clinical and cost-effectiveness to inform listing decisions.

Patients will continue to have a clinically effective medicine at the co-payment price. For many medicines that are priced below the general co-payment, patients will pay less.

There will be no change to the PBS safety net, which will continue to ensure affordability for patients with chronic conditions or high use of medicines.

Access to medicines will continue to be through community pharmacies but with much greater transparency about the level of pharmacy remuneration, resulting in better prices being paid by government.

These reforms have been designed following a long period of consultation with industry groups. Again I would like to thank all those who have participated for the open and collaborative way in which they have contributed to discussions of reform.

There is no doubt that the new arrangements will require a period of adjustment. It’s good that all industry groups have been willing to set aside their short term interests to contribute to designing a sustainable PBS that can continue to provide Australian patients with access to a wide range of medicines at an affordable price.

Patient access is at the centre of these reforms and should be guaranteed by the structural changes that I presented today.

Debate (on motion by Senator Scullion) adjourned.