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Speeches in Parliament
Rachel Siewert 17 Nov 2010

Second Reading

Senator SIEWERT (Western Australia) (11.19 am)—As we are aware, the government has signed a memorandum of understanding with Medicines Australia this year, designed to:… ensure “a stable environment for business and continued access to new medicines for all Australians”.

These measures were announced in the 2010 budget and were predicted to give savings of $1.9 billion to the government over five years, largely achieved through the imposition of price cuts across F2, or off-patent, medicines and through the extension of price disclosure arrangements to all products listed on F2.

… the MOU with Medicines Australia also includes a guarantee that the Government will not seek to impose any further price savings on the pharmaceutical industry before 30 June 2014 or introduce any measure which favours the dispensing of generic medicines, thereby—

this is a concern—

possibly precluding further measures which could deliver additional savings to the Government. Australians pay some of the lowest prices for

new medicines in the OECD, and that is a good thing, yet generic prices are high by international standards, and that is not such a good thing. The big challenge for any government is to ensure that new medicines come on stream while at the same time ensuring that, as drugs move from patent to off-patent, the off-patent generic drugs fall in price to a sufficient degree that taxpayers’ dollars are being used most effectively.

A recent paper by Philip Clarke in the Medical Journal of Australia reported that Australia’s pharmaceutical expenditure could be significantly reduced by up to, the paper stated, $9.31 billion over 10 years if the proportion of generic prescriptions were increased to 100 per cent and the government cost for purchasing medicines from providers were reduced to a similar rate to that of the UK. Having said that, we know that the situation in Australia is different to that in the UK, but it gives an indication of the size of savings that are potentially there.

From January 2005 to October 2009, Australians have paid $900 million more for stat-ins than they would have if the prices were equivalent to those paid in England. The wholesale price of simvastatin, a drug commonly used to treat high cholesterol, is about $30 a month in Australia for a 40-milligram dose, whereas in Britain the same drug costs around $3 a month. That is the size of the cost differences that we are talking about. So we are talking here about significant costs to both the government and the community.

The Greens are concerned that the savings, estimated to be $580 million over four years, resulting from the original PBS reform measures have been revised down to around $103 million, that the estimated savings are yet to be delivered and that now we have a new lot of reforms coming through without our having yet realised the savings from the first round of reforms. The government is putting considerable faith in the prospect of savings of $1.9 billion over five years, and the Greens’ concern is that the budget assumptions that underpin these savings have not been made available to the public. There is also some concern in the community that while it is claimed that these savings will amount to $1.9 million—and the Greens think that those savings are important—the assumptions are not available for us to decide whether we can have faith in those calculations. That concern is intensified by the fact that we are yet to see the full savings from the PBS reforms, and we have been told that that is because some of the costs in the original reform are more upfront and that we will see more savings down the line. I am trying to show that this is a complex area and that the economics and the savings are fairly opaque and your understanding of them fairly hazy when you do not get access to the full budget assumptions underpinning some of the policy positions.

The most contentious aspects of the MOU are not contained in the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010. The proposed amendments are technical and, some would say, overly complicated. They seek to further expand the previous reforms that were brought in under the previous government in 2007. We know that health reform is never easy and that the PBS is no exception. Getting the policy settings right for the PBS is critical in ensuring that Australians can continue to gain timely and affordable access to medicines in the future, and the Greens support the PBS in principle. We recognise that health policy and reform are complicated matters, and we acknowledge the need to ensure the ongoing sustainability of the PBS so that Australians can continue to have access to affordable medicines when they need them. We know that as new or expensive medicines come on line the cost of the PBS increases. We are fortunate that we have a scheme such as the PBS, but we do need to ensure that it is sustainable.

This legislation is complex, and the Greens have some concerns about the effects of the legislation on the availability of medicines, the cost of the PBS to the government and—ultimately—the costs to consumers. The Greens believe we should have a comprehensive debate about the pricing and purchasing of all medicines in Australia, because these issues are part of the debate. I will come to some of the issues a bit later, but the Greens will later be moving a second reading amendment to require a review of the pricing and purchasing of all medicines in Australia. The Greens call on the government to conduct a study of the affordability of prescription medicine and of access to medicines, including generic medicines. The Greens think it would be sensible to focus in particular on the group this measure is likely to affect: those on low incomes who do not qualify for a healthcare card.

In the course of the public debate and the debate in committee on this legislation we spent a lot of time looking at the issues around market share. The Greens are concerned about who really owns the market and about the promises that are made to government on price control. The issue here is which association best represents the off-patent medicine market and which association should therefore be engaged in consultation about the changes proposed in the bill. Representatives from the Generic Medicines Industry Association and Medicines Australia made submissions on this issue during the course of the Senate Community Affairs References Committee Inquiry into Consumer Access to Pharmaceutical Benefits, and I must admit that to me it is still as clear as mud which organisation has which market share. Medicines Australia claim that they represent a 60 per cent of the cost to government of the F2 sector while the Generic Medicines Industry Association say that they represent 75 per cent of the volume of this sector, so you can see the confusion.

The Generic Medicines Industry Association acknowledges the difficulties caused by the paucity of data in determining market share, and they stated during the Senate inquiry that this is an imperfect world for market share. Similarly, Medicines Australia acknowledged that the GMIA ‘may have other data that we are not privy to’, suggesting that this may account for the differing figures on share of the off-patent market. So it is still unclear, despite questions at estimates and during the Senate inquiry, which stakeholder can lay the greater claim to market share. This is important because, if you listen to either Medicines Australia or GMIA—your choice depending on which of them you believe to have the greater market share—the argument goes that the changes may adversely affect them, that they will come out of the market and that the cost of medicines may go up as a result. In other words, the benefits of this MOU may not be delivered. That it is the sort of complexity that we are dealing with in this debate. As this example demonstrates, without access to all the information, it is very hard to make a call. If one company does have a 75 per cent share of the off-patent medicines that Australians have access to, a lot of people could be affected. That is still unresolved, and that is why the Greens think further study is needed on the availability of prescription medicines in Australia.

The bill addresses three matters contained in the MOU: statutory price reductions—by international standards, price reductions are low in this country; price disclosure; and under co-payment data. While savings are welcomed, the Greens have concerns about the sustainability of these reforms. The UK introduced a series of price cuts in 2005, and an evaluation in 2007 suggested that the effects of the price cut could be reduced over time. It is still not clear whether the savings here are temporary or long term. The Greens will be moving a second reading amendment that calls for an annual report to be tabled in parliament on all of the available data on cost and volume of under co-payment products, including average price and details of minimum and maximum price range.

Of particular concern, because it is an area dealt with in the bill, are the concerns, of which we have a couple, about medicines priced below the co-payment. First, pricing is at the discretion of the pharmacist and, apart from altruism or competition between pharmacists, there is no incentive for the pharmacist to offer the savings to the consumer. The second is that costs for under copayment scripts are borne entirely by the consumer. In other words, they do not kick into the $33 mark, as it currently sits. Only the dollar amount is reflected against the safety net, so they do not count towards the safety net. You may have chronic illness and need to be on medicines that do not reach the point where the government payment kicks in, so you pay the full cost of that medicine but it does not go towards your safety net as it otherwise would. We are concerned that this may disadvantage people who do not qualify for a healthcare card.

We welcome the fact that this legislation will enable the collection of under copayment data from 1 April 2012. However, the legislation is specific about how the under co-payment data will be used. There should be an annual report to parliament on both the volume and price of under copayment products, including average price and maximum and minimum price. How-ever, we are aware that some of this data is not being collected and that under the MOU it will not be collected. The PBS reforms are supposed to deliver savings to consumers, but this is currently unable to be measured. More importantly, as under co-payment drugs do not qualify for the safety net, it could, as I said, adversely affect consumers in some instances. The Greens are also concerned that there is no dispute resolution or audit process as part of the price disclosure arrangements.

We are concerned about the significant delay between notification of price reduction and the date that it will take effect. For example, the price reductions that will be calculated from the price disclosure cycle— which would have commenced on 1 October 2010; it has now been put back—will not take effect until 1 April 2012. The Greens believe that this should be shorter and we will seek to move an amendment to address that issue. Given the inherent dynamic nature of markets, it is unlikely that price disclosure this year will be an accurate reflection of the market price in 2012, which is a significant period of time away. We are also concerned that under this process arbitrary price cuts may unfairly penalise drugs which are already cost-effective or have already been subject to discounting.

The impact of further cuts to already low-priced drugs was noted in submissions to the Senate Community Affairs Legislation Committee inquiry into consumer access to pharmaceutical benefits. From the introduction of PBS reform until December 2009, there was a total of 38 drugs that were subject to price disclosure. Of these, only six have been subject to price reduction. For the products that were subject to the reduction, the range of price reduction was considerable, from 14.57 per cent to 71.8 per cent. The GMiA estimates that this has generated savings of $30 million per annum. In the context of an almost $8.5 billion program per annum, we are concerned about what will be the true delivery of savings from this measure—for the government, taxpayers and industry. This goes back to the issue of us not being able to determine accurately whether the $1.9 billion savings, which of course we believe should be achieved, are actually achievable.

International experience suggests that price disclosure arrangements are notoriously challenging to implement and often circumvented. Questions remain about the effectiveness of price disclosure in a market that is not fully competitive. We also have some concerns about the complexity of the policy and the lack of transparency due to the commercial-in-confidence nature of the data that is provided. Furthermore, price disclosure is considered to fail the test of efficient regulation, with high compliance costs. The Greens have put on notice a number of questions around the breakdown of the cost to implement the price disclosure approach.

Two key elements of the bill are to contribute to the sustainability of the PBS and maintain access to quality medicines at a lower cost to the taxpayer. The Greens acknowledge that the ways in which the bill seeks to achieve these goals are not new but rather build on the reforms made to the PBS in 2007 by extending the pricing policies introduced at that time, whilst maintaining the separation of medicines in the Fl and F2 categories and retaining the concepts of statutory price reductions and price disclosure. The Greens further note that the changes proposed in the bill are expected to deliver savings of $1.9 billion over five years. We support those principles.

Price reductions of this magnitude may have an adverse effect on Australia’s pharmaceutical industry and the industry will have to adjust to a more competitive market, a situation that is occurring in many parts of the world, so part of this argument is that these changes will hurt Australia’s industry. We note that we need to improve the situation for costs of generic medicines in this country. Otherwise, we will have an escalating situation under our PBS and will no longer be able to afford it. So it is very important that we do consider reforms, but that we are also mindful of the fact that we need to make sure that the industry itself is sustainable. The MOU in Australia provides a stable framework that allows the majority of the pharmaceutical industry—and, again, I say ‘majority’ very carefully, as we are still not sure because we do not know about market share—the opportunity to adjust to the new, leaner environment and still bring new medicines to the PBS in the future.

Importantly, consumers need to see the benefits of PBS reform: lower prices, quicker listing times and the PBS being able to afford to subsidise new therapies. Consumers, as taxpayers and patients, need cheaper medicines while having subsidised access to the range of new therapies. We believe it is important that we pursue a reform agenda in Australia for the PBS so that we continue to support the benefits. We have been concerned about the issues raised by the GMiA and the level of consultation—or lack thereof—that was had with the government, and part of that turns around what is defined as consultation. We have explored that through the committee inquiry, and I will seek to explore that further when we go into committee. However, it is for the reasons I have just listed and the fact that we believe there will be significant savings that we will be supporting the bill if our amendments are supported. We believe that goes to the issues of collection of data, transparency and accountability. We also believe that we need to be looking at the overall impact, availability and accessibility of prescription medicines in

this country. If the amendments are supported, we will be supporting this bill. Senator CAROL BROWN (Tasmania)

(11.38 am)—The aim of the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 is to deliver a more efficient and sustainable PBS, better value for money for Australian taxpayers and policy stability for the pharmaceutical sector. The bill seeks to implement initiatives agreed between the Minister for Health and Ageing, Ms Roxon, and Medicines Australia by amending the National Health Act 1953 in relation to price reductions for certain drugs listed on the PBS, price disclosure arrangements, the collection of under-co-payment data and section 100 medicines, and other consequential amendments. The Pharmaceutical Benefits Scheme was created in 1948, and we have a world-class PBS that provides timely access to medicines for all Australians. In the coming years medicines will continue to be a significant and growing component of health expenditure. The reforms in this bill will guarantee that the PBS continues to provide this essential service to Australians while at the same time ensuring that every precious health dollar is spent effectively.

It is currently estimated that the PBS will cost $13 billion in 2018, compared to where we are now: around $9 billion in 2010-11. The PBS expenditure will need to be managed if it is to be sustainable in providing affordable access to essential medicines for all Australians. This bill gives effect to further PBS pricing reforms that were announced in the 2010-11 budget and that are a subject of a memorandum of understanding with Medicines Australia, the peak body for the pharmaceutical sector. The reforms will result in savings for the PBS of around $1.9 billion over five years. The amendments in the bill focus on medicines where there is competition in the market. Over time the changes will mean that PBS prices more closely match the price at which the medicines are actually sold. Australians will benefit in terms of lower prices and timely access to innovative treatments. Price disclosure will be accelerated and expanded. Price disclosure requires pharmaceutical companies to advise government of the price at which PBS medicines are sold to pharmacies. This information is used to adjust the PBS price across all brands of a medicine to the weighted average price which is actually being charged in the market, which means the industry, not government, is setting the level of price reduction based on prices already operating in the market. As outlined in the Community Affairs Legislation Committee report into the legislation, the main provisions of the bill are price reductions, merging the F2A and F2T subformularies, price disclosure and collection of under-copayment data. The government report sets out these provisions and their purposes.

I will now address some of the issues raised during the inquiry. With regard to price disclosure, we heard in the inquiry that there is significant discounting of off-patent medicines in Australia. Pharmaceutical companies give big discounts to pharmacists to get them to stock their products over their competitors’ items. Price disclosure was originally introduced as part of the 2007 PBS reforms. We know that 45 medicines currently participate in price disclosure. If this bill is passed the program will be expanded to encompass all medicines that are subject to brand competition. Those are what are known as F2 medicines. This means that we will go from 45 to around 220 medicines participating in the program. The proposed changes to pricing policies recognise that competitive pricing already exists in the market for many PBS subsidised medicines but that Australian taxpayers should be benefiting further from market competition and the lower prices that result from it.

Let’s be clear on price disclosure: these reforms will result in no extra costs for patients. In fact, patients will benefit from price reductions where the price of a medicine falls below the general co-payment amount. The direct saving to consumers from these new measures is independently estimated to save general patients on average close to $3 per prescription. Without price disclosure consumers and taxpayers will continue to pay for medicines well above what they are being sold for. The aim of these measures contained in the bill is to achieve PBS prices that more closely match the prices at which companies sell their medicines to pharmacies.

Another issue raised was industry representation and consultation. Both Medicines Australia, or MA, which represents about 50 companies, and the Generic Medicines industry Association, or GMiA, which represents five companies, were involved in discussions with the government and were asked, as I understand it, to provide proposals to enhance the sustainability of the PBS. Evidence given from the Department of Health and Ageing submits that MA, representing their members—around 50 organisations—represents 86 percent of the total cost of PBS expenditure and nearly 60 percent of the sales of off-patent medicines annually, though this figure is disputed by GMiA. Discussions with Medicines Australia proved positive and resulted in a memorandum of understanding between Medicines Australia and the government.

Consultations with GMiA on options to ensure the sustainability of the PBS were also held. Unfortunately it seems that these discussions with GMiA were not equally positive. GMiA argued that they did not have a good hearing, but in my view this does not seem to be the case. Coalition senators have expressed the view that GMiA were excluded from the negotiations so let us look at the facts. In their submission, the department listed a number of opportunities GMiA had to discuss options for reform to the PBS, including with the senior officials from the Department of Health and Ageing, since November 2009 and prior to the budget. The department’s submission listed these as:

    * 18 November 2009 - Meeting between First Assistant Secretary of the Pharmaceutical Benefits Division and GMiA;
    * 21 January 2010 - Meeting between First Assistant Secretary of the Pharmaceutical Benefits Division and GMiA;
    * 4 February 2010 - Senior Departmental meeting (including the Deputy Secretary) with GMiA;
    * 16 March 2010 - Meeting between the Minister for Health and Ageing and GMiA;
    * 30 March 2010 - Senior Departmental meeting (including the Deputy Secretary) with GMiA; and
    * 22 April 2010 -Meeting between the Minister’s Office and Alphapharm.

To further illustrate the opportunities GMiA were given to engage in discussions on the PBS, I will outline the Minister for Health and Ageing’s view on this matter:

On multiple occasions, GMiA was able to discuss options for reforms to the PBS with the government, including with me, as the minister, in my office and with senior officials of the Department of Health and Ageing. GMiA had a good hearing and the government valued the exchange of views. However, I do need to note here that GMiA’s key proposal to the government in these discussions was that patients should be made to pay some $5 more for off-patent medicines made by originator companies compared to the same drugs made by generic companies. This proposal would have resulted in concessional patients paying nearly twice as much as they currently do for some off-patent medicines. The government could not support this proposal. Notwithstanding these differences of view, the government continues to work closely with the industry on how these reforms will be implemented, through a working group which includes GMiA, pharmaceutical wholesalers and Medicines Australia.

The fact is, GMiA just do not agree with price disclosure so I am not sure what more we could have done. They do not agree on price disclosure and they were not, as I see it, ready to enter into discussions about it.

Another issue raised was the administrative burden on industry. We have an existing price disclosure program and the processes underpinning this program were developed with representatives of both the innovator and generics industry. So industry is already familiar with the operation and requirements of the program. This bill expands the program and the government has retained the key aspects of the program, with feedback from industry to further simplify and streamline the processes for compliance. The government has, through the price disclosure working group—a working group which, as I said, includes the department, GMiA, wholesalers and MA—already met and had ongoing discussions on implementation.

I believe that the impact on suppliers will be low because the major contributor to the savings, price disclosure, does not impose price reductions arbitrarily, nor demand the lowest price for a medicine—the prices will follow the market. As has been stated the disclosure arrangements aim to lower the government price only to the average price actually charged by pharma companies in the market. Also we have a situation where the generics market in Australia is significant and growing. In the last four years we have seen it grow from 27 per cent to 34 per cent. Also eligible wholesalers are sharing in some $950 million to distribute medicines under the Community Service Obligations arrangements, 58 per cent more than the previous agreement. The payments from the CSO supplement the wholesale margin for most drugs.

The issue of the supply of drugs was also raised. This bill is supported by the Consumers Health Forum on the basis that consumers will benefit from continued access to medicines and the savings generated by the measures will result in savings to taxpayers. The Consumer Health Forum’s view is this bill does not represent a threat to the viability of the generic industry, and nor do the measures remove the obligation on pharmacists and wholesalers to maintain supply of PBS drugs. Ms Bennett is executive director of the Consumers Health Forum of Australia, the CHF, which is the peak body providing leadership in representing the interests of Australian healthcare consumers. Ms Bennett gave evidence supporting the bill. In part, she said:

Consumers have told us that they want timely access to affordable medicines and that it is essential to them that the PBS remains viable into the future to achieve that. We therefore support the reforms that contribute to the continuing sustainability of the PBS while ensuring that consumers can get the medicines they need at a price that they and the government can afford. The bill gives legislative effect to the MOU between the government and Medicines Australia. We consider—

that is, the CHF— that the MOU will contribute to that long-term sustainability and the viability of the PBS through

statutory price cuts and strengthened price disclosure mechanisms for the formulary 2 medicines. Further Ms Bennett submitted:

Consumers as both buyers of these medicines and taxpayers will pay less for medicines than under the current arrangements, due to the price cuts and the resulting potentially greater competition and further reduction in prices for generic medicines, particularly in the under co-payment market.

We also welcome the provisions in this bill that will enable faster access to safe, high-quality medications through the mechanisms in the bill that allow for parallel registration and reimbursement processes by the TGA and the Pharmaceutical Benefits Advisory Committee, the managed entry of new products onto the market and the ‘best endeavours’ commitment to a maximum time frame of six months for cabinet approvals of medicines.

I would like to quote from the government report from the Senate Standing Committee on Community Affairs inquiry into this bill. It said:

Two key goals of the bill are to contribute to the sustainability of the PBS and maintain access to quality medicines at a lower cost to the taxpayer. The committee acknowledges that the ways in which the bill seeks to achieve these goals are not new but rather build on the reforms made to the PBS in 2007 by extending the pricing policies introduced at that time, whilst maintaining the separation of medicines in the F1 and F2 formularies, and retaining the concepts of statutory price reductions and price disclosure. The committee further notes that the changes proposed in the bill are expected to deliver substantial savings to government.

I believe that the MOU and the bill now before the Senate will benefit consumers and taxpayers and should be supported.


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