Wednesday, 5 March 2014
National Health Amendment (Simplified Price Disclosure) Bill 2013; Second Reading
This is a bill that implements a change that Labor announced in August last year. It goes to the question of price disclosure for the way that the government purchases pharmaceuticals and the interaction between the manufacturers and pharmacies in our country. Price disclosure started in 2007 under the Howard government. The purpose then was to ensure that the government received price reductions when generic medicines were listed on the PBS schedule. It was further refined and extended in 2010 with an expanded and accelerated price disclosure program, which expanded the types of medicine that were included in schedule and it also reduced the cycle of data collection to 18 months. This bill today reduces the price disclosure cycle from 18 months to 12 months. It reduces the amount of time between when a company advises the price reduction of a drug and when the government starts paying that reduced cost. It is expected that this bill will save $835 million over three years and for that reason, of course, Labor will be supporting it.
In government we used the $1.9 billion that was saved through the measures that we introduced to make investments in health that delivered benefits to all Australians. Labor built more than 25 regional integrated cancer centres through an investment of $656 million—centres that are providing support to Australians in regional areas. Those patients were previously required to travel long distances over a long time to receive their treatment, but now can be provided with great services in regional centres. We invested a record $3.5 billion in medical research from 2008. This provided the record levels of National Health and Medical Research Council grants of $771 million in 2013, supporting over 8,500 researchers at more than 80 hospitals, medical research institutes and universities. The Health and Hospitals Fund also delivered $700 million to build and upgrade medical facilities right across the country, a fund that the coalition did not support in opposition and a fund we are unlikely to see again under this government. Labor's record in health, when in government, was one of reform and investment and one of which we are particularly proud.
With health costs increasing over time it does make sense to implement this change. What is important is to make sure that this money is reinvested into the health system. The shadow minister, Catherine King, in the other place urged the government to make sure that this money—this $835 million—is reinvested into health. The money, we believe, should be reinvested into the Pharmaceutical Benefits Scheme, not used to prop up government coffers. We as Australians can be particularly proud of our Pharmaceutical Benefits Scheme. It is a scheme that has been operating, as we know, for many years now and it is one that is the envy of the Western world. It is a scheme that provides equitable access to pharmaceuticals in this country and at the best price possible for a nation of our size and of our population.
We wait with great interest to see what the government will actually do when it comes to the health portfolio. Minister Dutton has, in our view, very little vision for health other than finding savings for the Prime Minister. Despite consistently saying and promising not to cut money from the health budget, the government has already ripped $100 million from the Victorian Eye and Ear Hospital. We have seen the abolition of the Alcohol and Other Drugs Council, a body that has existed for over 50 years and has provided good research and advice to government about how to better manage the scourge of drugs and that misuse of alcohol in our community. The government has already backflipped on the promise not to close any of our Medicare Locals. Unfortunately, it has also abolished the expert advisory panel on the marketing of infant formula. Frankly, this government is not interested in getting accurate information about these significant aspects of health policy. Then we have seen the debacle of the pulling down of the health star-rating website, a website designed to provide good information to consumers and also to food manufacturers about the products that they make and use.
I acknowledge the view of the Pharmacy Guild, but we need to balance that view with the need to ensure that we are paying the right price—the right price, and not too much, not too little—for the pharmaceuticals that are purchased with taxpayers' money. The current government when in opposition was somewhat disingenuous, in our view, by whispering to pharmacists that it would not proceed with simplified price disclosure. On coming to government, it conceded that this policy was good policy, but I daresay it already knew this in opposition. The policy ensures that taxpayers pay the right price for pharmaceuticals. I urge the government to ensure that the savings are reinvested into the PBS for the benefit of all Australians. I can indicate to the chamber that Labor will be supporting this amendment to the national health legislation.
I rise to support this bill. Price disclosure is a very important and effective mechanism in ensuring that the cost of pharmaceuticals on the Pharmaceutical Benefits Scheme is kept affordable, both for individuals who access those drugs and for the health budget. It is a sensible measure and it is an important measure. Reducing the threshold from 18 months to 12 months makes perfect sense—in fact, some people would argue that there is no good reason that threshold could not be lowered even further. This is a very important step in ensuring that continued sustainability of the Pharmaceutical Benefits Scheme. It is going to save $835 million and what that money does is to give people access to new drugs, to drugs that would not otherwise be listed and to new services that otherwise would be unavailable. The Greens certainly support this reform.
The bill does arrive at a time when we are having a fierce debate about the future of Australia's health system. We heard talk in the lead-up to the election of a budget emergency, and we saw the establishment of the Commission of Audit who were charged with looking for inefficient spending and for savings that could be made to the bottom line of the budget. The Greens have had concerns about the Commission of Audit inquiry, and that is why we moved to have a Senate probe into the work of the commission. What we have learnt through that process is that 'everything is on the table', in the words of the commissioner. We have been told that health is one area where savings must be made. We have had the proposal of a co-payment to access GP services mooted. We heard the Minister for Health invite an open and public debate on that issue. We heard from the AMA that $400 million has been withdrawn from the nation's public hospital system. We have seen defunding of the Alcohol and Other Drugs Council on the premise that its role is being duplicated by other agencies. We now know that, in fact, many of the functions of that council were stand-alone and have now been lost.
We saw the dismantling of the star rating website on foods. This has been part of a worrying trend of secrecy in this government. One of the concerns is not just that the process for the dismantling of that website was secretive—and there still remain some serious questions about that—but the very act of denying individuals, consumers, ordinary citizens access to information about the food they eat is, at its heart, a very secretive policy position. Surely there is nothing wrong with open, transparent and honest government, in the words of the Prime Minister. That should also apply to ensuring that people have open and honest information about the foods they eat.
We have seen all of those things in the context of a debate in which it has been said that we cannot continue to have the health system that we currently enjoy, that health spending is unsustainable and out of control and that we need to make deep cuts to health. I think that proposition needs to be examined. Firstly, we spend as a proportion of our GDP about nine per cent on health care. That compares very favourably with other nations that have similar levels of economic development. In fact, when we look at the United States' health system, we see a country spending twice what we spend and yet which has much poorer health outcomes and a much less fair health system.
Health spending is projected to increase by a per cent or so over the next decade—from nine per cent to 10 per cent of GDP. But if economic growth is not to serve the health of its citizens then why on earth do we strive for it? The whole point of an economy that is strong and delivers economic growth, surely, should be to ensure that we are able to carry out what is really one of the primary responsibilities of government—that is, delivering good health care to all of its citizens.
Our health system does very well on that front. It is efficient. Most of the increase in spending is because we have new, exciting, life-saving health technologies. That is hardly a crisis. In fact, it is the precise opposite. Most countries around the world strive to have the challenges that we have in health—that is, to fund new technology that will deliver people longer lives, better quality lives and healthier lives. That is not a crisis; that is a wonderful opportunity, and we should be doing everything we can to meet that challenge.
Of course we can look for savings in health, but first let's look elsewhere. We hear about the government's statement that we are now at the end of the era of entitlement—
the age of entitlement—thank you, Senator Xenophon; how could I forget?—and that corporate welfare is now over. Let us ensure that we match that rhetoric with action. Let us end the huge subsidies that are given to the fossil fuel industry, for example, in an era of catastrophic climate change. Why do we continue to subsidise the mining industry with things like the diesel fuel rebate to the tune of billions of dollars?
Let us look at other areas where large corporations are the beneficiaries of government largesse. We heard the Prime Minister talk about his support of the forestry industry only last night when in my state of Victoria the forestry industry is a basket case. It is propped up by government support, and if it were a private company, it would have been wrapped up many years ago. It is the epitome of corporate welfare and it is an industry that does rely on government handouts.
So let us look at those areas before we start looking at health because most Australians consistently regard health as the most important area of government expenditure. In essence, if a government cannot provide decent health care for its people, cannot give kids a decent education and cannot look after the environment, then I am not sure what we are doing here.
Of course there are some savings to be made in health care. We have talked about this bill, which goes some way to addressing some cost savings through the PBS. There are other potential savings through the PBS. We have heard about the potential for the increased use of generic drugs, for example, and incentives to ensure that people are opting for cheaper generic drugs which are doing exactly the same thing as their branded equivalent. So let us look at providing more incentives in the system to ensure that generic drugs are prescribed at a higher frequency. Let us look at the way we negotiate prices for medicines and examine the potential for reducing the total budget of the PBS by looking at some models overseas and learning from those.
Let us ensure that we do the opposite of what is being proposed through the GP co-payment, which is driving people away from hospitals into primary care. Let us do that rather than doing what is proposed, which is putting a disincentive for people to access their GP. It goes precisely in the opposite direction of all public policy in health care that we have seen over the past few decades. We should be making sure that people are accessing primary care ahead of much more expensive hospital services, and to do anything that compromises that important objective is to raise costs in health.
Let us try and get better coordination of the system. Let us ensure that we have our primary care system, our hospitals and our allied health network working better together, and Medicare Locals provide an opportunity to do that. And let us ensure that we protect Medicare. Some of the changes that have been proposed, such as the GP co-payment and the current initiative to allow private health insurers to insure services delivered through general practice, are some very significant nails in the coffin of Medicare.
We have to do everything we can to protect Medicare, build it up and continue creating more access to it—because we know it is a very effective way of keeping healthcare costs down through a single public insurer and a very fair way of delivering health services—rather than what we are doing at the moment which looks like an attempt to tear up some of the most fundamental pillars of our public health system and Medicare.
We are at a crossroads in health care. We have an opportunity here to protect and build upon one of the world's great health systems. But we are equally in a position where we may start to see some of the most effective tools for delivering health care dismantled as a result of some of the proposals that have been suggested through the Commission of Audit. I am very worried about it. We need only look to the US to see a health system that is based on a user-pays model where there are a number of competing private health insurers delivering the bulk of health services rather than a single public insurer. We only need to look to the US to know what that leads to. It leads to spiralling health costs, people who are no longer able to afford health care and a two-tiered health system. That is not what the Australian health system was designed to be. It was designed to provide decent health care to everybody, regardless of their ability to pay for it.
I want to express my very serious concerns in relation to this bill. Price disclosure is important. It is important for consumers. It is important for transparency. I am very supportive of price disclosure. I believe it is a very important part of managing the PBS, which costs taxpayers some $9 billion each year but is an essential part of our health system. I agree in part with Senator Di Natale that we do not want to go down the US path where they are having a huge debate about Obamacare. It is referred to as 'socialised medicine' when in fact it is not even Medicare-lite, in many respects.
I am deeply concerned about how this policy of price disclosure has been implemented. I believe that the 5,500 community pharmacies in this country have been absolutely dudded by the previous government and unfortunately by this government as well. Last year we saw concerns raised by some pharmacists about price disclosure relating to chemotherapy drugs, because that price reduction was implemented with little or no consultation with or warning to them. The consequences of that were dire, causing great uncertainty and distress to many chemotherapy patients and creating genuine hardship for pharmacies. We heard evidence from some pharmacies in regional Australia that they were basically having to close down their provision of those vital chemotherapy drugs and patients had to go 100 kilometres, 200 kilometres or more away to get them. That was just cruel.
I was very grateful for the work that I did with a number of my colleagues on the Senate committee that I was part of instigating in relation to that. In particular, Senator Dean Smith and Senator Concetta Fierravanti-Wells took a real interest in that. Also, Senator Siewert and Senator Moore were part of that. What was clear from that Senate inquiry was that there needed to be greater consultation. There needed to be a fair system of implementing price disclosure, because you can have all sorts of unintended and cruel consequences if you do not get the policy right.
We are now seeing the same thing happen again, as the price disclosure cycle is shortened from some 18 months to 12 months or even shorter than that. Price disclosure commenced in late 2007 and has been part of the community pharmacy agreement since. However, accelerated price disclosure is not part of the agreement. This legislation is to change this. The Pharmacy Guild, which I have been speaking to in respect of this, would like to go back to the original agreement. And why shouldn't they? A deal was done. That deal should have been stuck to. The previous government changed it. This government is implementing those changes. That is wrong.
Every pharmacist I have spoken to, including representatives from the Pharmacy Guild, have expressed their support for the price disclosure policy. But they have all said that the lack of warning and consultation has not given them time to prepare or plan for an even more significant reduction in their income. Let's put this into perspective. One pharmacist who wrote to me estimated that the shortened time period would have an impact of at least $32,000 per annum on their bottom line. That is in addition to the existing $56,000 per annum reduction from price disclosure. Pharmacy Guild representatives I spoke to just this morning indicate that the income for the average pharmacy could be reduced by around another $50,000 a year; that is on top of the $50,000 per annum they are already losing. There are about 60,000 people employed in community pharmacies. If you are a pharmacist, you are essentially a small business in difficult economic circumstances and that $50,000 could mean laying off one or two part-time employees—employees you have spent a lot of money training, employees with great skills in dealing with customers who have myriad medical problems. I dread to think of the impact on employment in this sector as a result of this lack of consultation and this sudden and draconian drop in income for community pharmacies.
The pharmacist who wrote to me expecting a $32,000 drop in his income is actually supportive of the policy, but he just wants more warning so that he can prepare his business for change. Community pharmacies play a vital role in our health system. There is no question about that. Senator Di Natale was talking about preventative health, and he is absolutely right: let's stop people getting sick in the first place and stop them ending up in hospital at enormous cost to the community and the additional trauma to themselves. Pharmacists are trying to provide support and advice to members of their community. Relatively recent changes in legislation have given them the ability to write prescriptions for some medication; they also help to reduce the strain on GPs and emergency rooms by providing basic medical advice. I have two cousins who are community pharmacists, and they tell me what it is like to run their business and about their travails. They take great pride in what they do and in training their staff to incredibly high standards in order to provide that service to the community.
While shorter price reduction cycles may save the PBS money in the short term, pushing community pharmacists out of business will only cause this delicate ecosystem of health care to break down. The Pharmacy Guild representative I spoke to a few minutes ago is someone I have great regard for. His information has always been accurate and, unfortunately, I believe his latest information is also accurate. According to him, there are in the order of 5,500 community pharmacies and 10 per cent of them are quite marginal—they are either in receivership or facing serious difficulties in trading. His fear is that, if this government implements this ill-considered policy from the former government, it could push up to 20 per cent of pharmacies over the edge. That is over 1,000 pharmacies. It would mean double the loss of this accelerated process and it would mean that many pharmacies would see $50,000 wiped off their bottom line. They are not saying that they do not want to do it; they just want time to adjust. We are talking about industries around the country that are under enormous pressure, and they just need time to adjust. Even the Productivity Commission has acknowledged that in relation to the manufacturing sector; it is about the transition. That is why this piece of legislation is so wrong—not in respect of the price disclosure but about the transition.
It is worth noting that, while medium annual household income rose 118 per cent between 1991 and 2012, the cost of pharmaceutical products rose by 58 per cent. By comparison, medical and hospital services rose 191 per cent. So, in relative terms, community pharmacies have been given a raw deal. They are the poor cousins of the health system, and their ever-diminishing income is, quite frankly, unsustainable. What will the impact be of up to 1,000 pharmacies closing down through accelerated price disclosure? That is a very real concern to me. What will the impact be on regional communities if their local pharmacy closes down and residents have to travel another 10, 20, 30 or 50 kilometres down the road to get access to basic medicines?
The purpose of the community pharmacy agreement is to provide community pharmacists with financial certainty over the longer term. Although pharmacists are offering a service, they still have to run a business. They have to stock their pharmacy. They have to pay the rent. They have to train and pay highly skilled staff. A community pharmacy is a type of small business which does not rely just on its skills and advice and business acumen; it is also at the mercy of regulatory changes. Some changes, such as those in this bill, are poorly thought out, and these changes will be poorly implemented because you are not giving community pharmacies enough time to adjust.
The recent changes to price disclosure implementation have undermined certainty. The questions I have for the minister, which must be answered during the committee stages of this bill, are as follows. What consultation has there been with the community pharmacy sector? What are the proposed savings from the extra price disclosure? My understanding is that it is in the order of $149 million a year. If that is the case, what will be the drop in income for average, typical pharmacies—taking into account that some pharmacies are very small, niche businesses which are attached to a medical clinic or a doctor's rooms? Will it be in the order of $50,000 per annum, an accelerated drop in income which could have disastrous consequences for the viability of community pharmacies?
Mr Temporary Chairman Sterle, I know that as a senator for Western Australia you are very familiar with Broome. I do not know how many pharmacies there are in Broome, and I know that you cannot respond because you are in the chair. But I wonder what impact the changes in this bill will have in, for instance, the wonderful town of Broome. I think there might be about three pharmacies in Broome. I wonder whether any of them will be under pressure as a result of the changes in this bill.
So that there is no mistaking that my criticism of the proposals in this bill is bipartisan, I point out that the proposals were announced by the previous government the night before the commencement of caretaker mode prior to the last election. I do not think that that is good enough. In my view it showed a contemptuous—or, at least, a cavalier—disregard for the community pharmacy sector. There is no sense in robbing Peter to pay Paul in trying to minimise the cost of the PBS by putting community pharmacies under further strain. I have stated the figures: annual household income rose 118 per cent from 1991 to 2012, and medical and hospital services costs have risen 191 per cent in the same period; but the cost of pharmaceutical products rose only 58 per cent. Technological advances and generic medicines have of course been important in driving prices down, but this bill will cause a shock to community pharmacies and a sudden drop in their income.
I will later be moving an amendment to this bill to require the government to table a financial impact statement detailing the costs and benefits to the Commonwealth, to approved pharmacists and to consumers if any other day than 1 April or 1 October is prescribed for the bill's coming into effect. I believe that the date changes in the amendment will encourage further consultation before any further changes are made to the disclosure cycle. While the date changes proposed in the amendment do not address all the concerns of community pharmacists, I believe they would give them greater warning of changes if any were made to the cycle.
Ultimately the amendment is not about stopping price disclosure—and nor should it be—or about increasing the regulatory burden on government or, in a sense, on pharmacists. It is only about ensuring that proper consultation and research take place before the price disclosure cycle in the bill is changed. I do not believe that the amendment will add an unfair burden; instead it is an insurance policy against further strain on a very important part of our health sector.
The changes in this bill are bad news for community pharmacies. Ultimately they will be bad news for consumers if we see more average, typical pharmacies hit the wall or need to shed staff, as I believe they will, in order to cope with a $50,000 drop in income. It will be disastrous. It will mean fewer staff and less expertise when people want assistance with their medication. There is a pharmacy model under which pharmacies run a bit like supermarkets: with very little service. That sort of model concerns me. I think there is a compelling reason for the traditional pharmacy model, under which you get the advice you need from your pharmacist and from highly trained and skilled pharmacy staff so that you take the appropriate medication rather than a mix of medication which could cause adverse effects.
My questions to the government therefore are: what will the actual drop in income be in terms of this accelerated price disclosure? What modelling has the government undertaken of what the potential impact will be on community pharmacies? Has it considered the employment effects on community pharmacies by just bringing forward these changes so suddenly? Does the government concede that in terms of previous community pharmacy agreements this goes outside if not the letter of those community pharmacy agreements, then clearly against the spirit of those community pharmacy agreements? Has the government considered how many pharmacies are under strain in our current system and has it considered the representations that there could be up to a thousand pharmacies that could be pushed over the edge as a result of these changes? These are fundamental questions; I am hoping that they can be answered in the committee stages of this bill.
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.