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Evaluation of changes to PBS pricing arrangements

Country: 
Australien
Partner Institute: 
Centre for Health, Economics Research and Evaluation (CHERE), University of Technology, Sydney
Survey no: 
(16)2010
Author(s): 
Marion Haas
Health Policy Issues: 
Arzneimittelpolitik, Finanzierung, Vergütung
Current Process Stages
Idee Pilotprojekt Strategiepapier Gesetzgebung Umsetzung Evaluation Veränderung/Richtungswechsel
Implemented in this survey? nein nein nein nein ja ja nein

Abstract

In 2007 significant changes to PBS pricing arrangements were made, including creation of separate pricing formularies, price reductions, price disclosure and changes to the pharmacy mark-up structure. A review of these changes indicated that they have achieved a positive impact on patients and a modest reduction in PBS expenditure. Indications for significant savings from the reforms in the future are positive but, given the likely increase in demand, the cost of the PBS will continue to grow.

Purpose of health policy or idea

The purpose of the changes to the PBS pricing arrangements was to maintain the efficiency and sustainability of the Pharmaceutical Benefits Scheme (PBS) in Australia and to provide some certainty about pricing policy for the Australian pharmaceutical industry. As a result of the evaluation of the 2007 reforms, a Memorandum of Understanding (MOU) has been signed between the Australian government and Medicines Australia (the peak body representing the Australian pharmaceutical industry). The MOU is designed to continue the innovations and reforms to the PBS between 2010 and 2014.

Main points

Main objectives

The purpose of the changes to the PBS pricing arrangements was to:

  • maintain the efficiency and sustainability of the Pharmaceutical Benefits Scheme (PBS) in Australia and;
  • to provide some certainty about pricing policy for the Australian pharmaceutical industry.

Type of incentives

The incentive for the industry and pharmacies to comply with the new arrangements, especially those relating to price reductions, was a structural adjustment package to compensate wholesalers and community pharmacies for the potential impact of the price reductions. The package consisted of:

  • a change to the pharmacy mark-up structure which resulted in an increase in the mark-up for many medicines
  • an incentive for pharmacies to process claims online (using PBS Online)
  • a premium-free dispensing incentive to encourage dispensing of brands of substitutable PBS medicines that cost consumers no more than the co-payment
  • an incentive for wholesalers to increase their participation in the Community Service Obligation (CSO) pool. Under the CSO, payments are made to eligible wholesalers/distributors (referred to as CSO Distributors) that provide timely delivery of the full range of PBS medicines to all pharmacies nationally, or to all pharmacies within a particular State or Territory.

Groups affected

Pharmaceutical industry, Pharmaceutical wholesalers, Community pharmacies

 Suchhilfe

Characteristics of this policy

Innovationsgrad traditionell recht innovativ innovativ
Kontroversität unumstritten kaum umstritten kontrovers
Strukturelle Wirkung marginal recht marginal fundamental
Medienpräsenz sehr gering sehr gering sehr hoch
Übertragbarkeit sehr systemabhängig recht systemabhängig systemneutral

The PBS reforms and the additonal amendments included in the most recent MOU are innovative arrangements as regards drug pricing.

Although elements of the reforms may be controversial and some individuals may be opposed to some or all of the reform, the fact that the organisation representing the majority of the industry in Australia and the government could reach agreement indicates a high level of consensus.

Although the PBS is a major contributor to health expenditure in Australia, these reforms will not have a major impact on the overall system as the cost to government is not high and that to consumers is marginal at best. The reforms will at best slow down the rate of increase in the cost of the PBS. The number of new drugs coming onto the market (especially costly biologicals) and the demand for drugs will continue to increase at a rate that will far exceed any impact of the reforms.

There has been very little public debate about the reforms- some expert commentators have published articles both "for" and "against" details of the reforms but most Australians will not be affected by them. 

Given the nature of the PBS in Australia, the details of the reforms are system-dependent, although the principles are applicable to other systems. 

Political and economic background

In accordance with the implementing legislation for the 2007 PBS reforms, the Minister was required to report the impact of the reforms to Parliament. A consulting company was enagaged by the Department of Health and Ageing to provide an independent analysis of the impact of the PBS reforms. The evaluation covers the impact of the reforms on government expenditure, consumers, industry and the pharmaceutical supply chain.

Complies with

Legislation implementing the 2007 PBS reforms

Purpose and process analysis

Current Process Stages

Idee Pilotprojekt Strategiepapier Gesetzgebung Umsetzung Evaluation Veränderung/Richtungswechsel
Implemented in this survey? nein nein nein nein ja ja nein

Origins of health policy idea

The PBS, a regulatory framework managed by the Department of Health and Ageing and administered by Medicare Australia, is designed to ensure that:

  • Australians have timely access to medicines that they need at a cost individuals and the community can afford
  • medicines meet the appropriate standards of quality, safety and efficiency
  • medicines are prescribed and dispensed to a high standard
  • the medicines industry in Australia remains viable and responsible

The Australian goverment pays the majority of the cost of subsidised medicines (which are listed on the PBS Schedule) with consumers contributing through co-payments. Everyone pays a co-payment for each prescription; how much a person pays depends on whether they have a concession card which is a means-tested benefit designed to assist those on low incomes, the elderly and those will high health care costs (ie the chronically ill/disabled) to afford health care, including prescriptions. At January 2010 the general co-payment is $AUD33.30 and the concessional co-payment (ie that available to those who hold a Commonwealth concession card) is $AUD5.40.

The reforms were designed to cover the three main functions which concern the supply of medicines- manufacturing, wholesaling and dispensing.

The 2007 PBS reforms were designed to ensure the sustainability of the PBS. At the time the reforms were introduced the PBS appeared to be entering a phase of lower, more stable growth although new medicines continued to be listed and patents for more than 100 drugs were expected to expire within the decade. It was considered opportune to restructure PBS pricing to achieve better value and greater price transparency, particularly for multiple brand medicines subject to market competition.

Initiators of idea/main actors

  • Regierung: The government designed and implemented the changes
  • Leistungserbringer: Pharmacies and pharmaceutical wholesalers have been the subject of the reforms
  • Privatwirtschaft, privater Sektor: The Pharmaceutical industry is at the forefront of the PBS scheme in Australia. It is the most affected by the reform.

Approach of idea

The approach of the idea is described as:
new: Australia is at the forefront of price structuring for drugs

Stakeholder positions

Although there may be disagreement amongst individual companies and suppliers about the need for reform and disagreement amongst commentators about the type of reform required, the fact that an MOU has been signed committing to further changes is evidence that the industry is aware of the benefits that flow to it via the PBS (ie. entry to the market via the list (Schedule) through which the government subsidises the sale of their products) and are thus willing to commit to ensuring a sustainable and affordable PBS.

In response to some criticism of the nature of the ongoing reform process outlined in the MOU, Brendan Shaw, the chief executive of Medicines Australia wrote that the organisation had decided it wanted to be part of the solution to health reform rather than part of the problem of health reform.

Actors and positions

Description of actors and their positions
Regierung
Governmentsehr unterstützendsehr unterstützend stark dagegen
Leistungserbringer
Providerssehr unterstützenddagegen stark dagegen
Privatwirtschaft, privater Sektor
Pharmaceutical industrysehr unterstützenddagegen stark dagegen

Influences in policy making and legislation

The legislation passed in 2007 introduced the original package of refoms. The recently signed MOU has not changed the key elements of this legislation but has amended the exact amount of price reductions which would apply and strengthened the price disclosure mechanism.

Legislative outcome

success

Actors and influence

Description of actors and their influence

Regierung
Governmentsehr großsehr groß kein
Leistungserbringer
Providerssehr großgroß kein
Privatwirtschaft, privater Sektor
Pharmaceutical industrysehr großgroß kein
GovernmentProviders, Pharmaceutical industry

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

The 2007 reforms included the following elements:

  • the creation of 2 separate formularies- F1 consists of drugs listed where there is only one brand listed on the PBS and F2 consists of drugs where there are 2 or more brands listed on the PBS. F2 is further divided- F2A consists of drugs not subject to high levels of pharmacy discounting and F2B contains all drugs subject to high levels of pharmacy discounting. Drugs on F1 move to F2A when a new brand is listed on the PBS
  • A series of price reductions were applied to F2 drugs
  • The first time a new brand of PBS listed drug is listed on the PBS, the price of that drug is reduced by 12.5%
  • Progressive introduction of a system of price disclosure for all F2 medicines.
  • A change to the pharmacy mark-up structure resulting in an increase in mark-ups for many medicines
  • an incentive for pharmacies to process claims online (using PBS Online)
  • a premium-free dispensing incentive to encourage dispensing of brands of substitutable PBS medicines that cost consumers no more than the co-payment
  • an incentive for wholesalers to increase their participation in the Community Service Obligation (CSO) pool.
  • Funding was provided for a campaign to increase consumer awareness of the safety and effectiveness of generic medicines.

Monitoring and evaluation

In accordance with the implementing legislation for the 2007 PBS reforms, the Minister was required to report the impact of the reforms to Parliament. A consulting company was enagaged by the Department of Health and Ageing to provide an independent analysis of the the impact of the PBS reforms. The evaluation covers the impact of the reforms on government expenditure, consumers, industry and the pharmaceutical supply chain.

The evaluation concluded that all elements of the reform package have commenced.

Results of evaluation

The main results of the evaluation indicated that:

  • More than 450 PBS items were reduced in price by 25%, and more than 480 were reduced in price by 2%
  • 38 drugs have become subject to price disclosure. The implementation of the price disclosure mechanism has been subject to a number of administrative issues and legal challenge.
  • In December 2009 more than 97% of community pharmacies were using PBS Online
  • The premium-free dispensing incentive was paid on over 75 million eligible prescriptions - more than 40% of prescriptions dispensed over the period.
  • Additional funding of $69m was added to the CSO funding pool on 1 July 2008.

The reform was forecast to save $AUD103m between 2007-2011. In total the estimated reductions in PBS outlays was $274m. However the structural adjustment package (ie. change to mark-up structure, incentive to process claims online, premium-free dispensing incentive, increase to the CSO pool) cost $359m. Thus the net cost to government of the reforms was $85m. Nevertheless, the reform can be regarded as successful insofar as it did what was intended.

The evaluation found no evidence of any adverse impact on consumers- some products increased in price while others decreased. The average increase was $1.92 and the average decrease $0.64c.

Expected outcome

The PBS reform was originally estimated to produce savings to government of more than $3billion over 10 years. The modelling completed by the consultant indicates that this saving will be between $3.6b-$5.8b depending on the savings to be realised through price disclosure. This figure needs to be considered in light of a projected overall increase in health spending (which has been calculated as rising from 4% of GDP in 2009-10 to 7.1% in 2049-50) and the factors that drive this growth.

PBS expenditures for 2008-09 totalled $ 7.7b, a growth rate of 9.2% over the previous year. In the last 10 years, the average annual growth in the PBS was higher than that of the GDP.

Overall, therefore, even with the projected savings, actual expenditure on the PBS will grow. The authors of the evaluation note the high prices paid for some high volume drugs on the PBS compared to that paid by the NHS which point to the need to search for opportunities to realise additional savings if the PBS is to remain sustainable.

In response to the report, the Australian government and Medicines Australia negotiated a new MOU, effective May 2010-2014. The reform commits the government not to implement new policy to generate price -related savings from the PBS. Additional price reductions for a new listing of a PBS drug as a competitor drug will rise from 12.5% to 16%; an additonal cross-the-board price reduction of 2% will be applied to all F2A drugs and a 5% price reduction in all F2T drugs on 30th September 2010.

From 1 October strengthened price disclosure arrangements will apply.

There are a number of additonal clauses contained in the MOU which do not directly relate to PBS pricing arrangements.

Impact of this policy

Qualität kaum Einfluss neutral starker Einfluss
Gerechtigkeit System weniger gerecht neutral System gerechter
Kosteneffizienz sehr gering neutral sehr hoch

There is no evidence that the PBS reforms will affect the quality or equity of the health system. There is some possibility that there may be either a slight positive or negative effect on efficiency in the future but the forecasts do not allow for the probability of this occurrance to be judged with any certainty.

References

Sources of Information

Australian Government and Medicines Australia. Memorandum of Understanding. May 2010

Pricewaterhose Coopers. The impact of PBS reform. A report provided to the Australian Department of Health and Ageing. 2010

Brendan Shaw. Drug deal good medicine for PBS. Opinion piece. Weekend Australian May 22, 2010

www.health.gov.au/internet/main/publishing.nsf/Content/F7FBDB333D030BFFCA2570C
000003A44/$File/The%20Operational%20Arrangements%20of%20the%20CSO%20Funding%20Pool%20-%20Final.pdf

Author/s and/or contributors to this survey

Marion Haas

Empfohlene Zitierweise für diesen Online-Artikel:

Marion Haas. "Evaluation of changes to PBS pricing arrangements". Health Policy Monitor, October 2010. Available at http://www.hpm.org/survey/au/a16/1