Andrew Laming (Bowman, Liberal Party, Shadow Parliamentary Secretary for Regional Health Services and Indigenous Health) Share this | Hansard source

The federal government and Medicines Australia signed a memorandum of understanding in May 2010 and details were released in the budget this year. The memorandum intends to deliver savings to the government of around $1.9 billion over the next five years. The merits of the PBS are well-known to both sides of this chamber. It has been providing access to clinically proven, cost-effective medicines for over half a century. The PBS process for listing drugs is well known and it enjoys bipartisan support. We know that prior to listing pharmaceuticals need to go through the most rigorous of evaluations both for safety and efficacy but also for cost effectiveness to ensure that the taxpayer’s dollar is well spent in ensuring that Australia has one of the finest health systems in the world.

The changes that are being debated today in this bill and part of the MoU look at statutory price reductions, price disclosure and co-payment data, the last of which has not been always easily available. Many of these are largely technical amendments and relate to matters such as PBS pricing and how we actually calculate price reductions as a result of statutory price reductions, policies that we first saw implemented by the Howard government in their last term in 2006. We also know that there are amendments that will streamline the way that drugs are listed for supply under section 100 amendments.

A key challenge for successive governments is to ensure that there is enough investment in new pharmaceuticals while at the same time making sure that as drugs flow through their patented period and into off-patent periods generic drugs fall in price satisfactorily so that we are in turn able to use taxpayers’ dollars effectively. One great challenge for Australia has been that, by having a PBS that offers very equitable access to pharmaceuticals nationwide within 24 hours and at affordable price, particularly for those who are concessionaires, in many cases we have had an upwardly sticky system where generic prices fail to fall after the patent period is completed.

There are no better examples than comparisons with neighbouring countries New Zealand and the UK. I note the work of Philip Clark but also others writing over the last five years looking particularly at the statin class of drugs, one of the most commonly taken pharmaceuticals in the country. We know that, while Australia continues to pay upwards of $30 a month for a 40 milligram dose of a very common statin drug, Simvastatin, in New Zealand and the UK these have fallen to around $3 or even $1.50. Even in the US we saw the Walmart intervention where some of the most common categories of generic drugs were available for in the vicinity of $1 to $2 per month—yet we continue to pay upwards of 10 to 20 times that amount here in Australia for exactly the same pharmaceutical, exactly the same preparation and product. That is a cause for concern, because the PBS is expanding, despite the impressive policy reforms introduced under the Howard government which have reduced that growth. We have seen that after reductions too often those reductions again escape. We lose control of that increase in price growth and it is becoming less and less clear exactly how that money is being invested.

New Zealand’s approach from straight across the Tasman Sea has been to take much stronger action to see generic prices fall. Their approach was in fact to put out to tender the supply of generic drugs and let the generic providers engage in a market based competition to provide national supply. Their prices fell up to 93 per cent, which is an extraordinary result. I move now to the Netherlands, where generic drugs such as statins cost around one-twentieth of those in Australia. These drugs are so common that more often than not senior Australians are taking them on a regular basis, and the costs to our health system are enormous.

On top of this the government, as part of this legislation we are debating today, have actually conceded the ground in the reform of pharmaceuticals and the PBS. They have said that for the next four years there will be no more cost negotiations or further reforms. This is a cause for significant concern because this part of the health system is one that I think needs more scrutiny than to walk away for four years and say that there will be no more efforts to tune this system and make it work even better for Australians.

The pharmaceutical agreements that were introduced in 2007 by the former government introduced the issue of regulatory price cuts where, effectively, when the first new generic product arrives on the market there is a mandated cut right across the sector. That 12.5 per cent policy yielded significant financial dividends and I understand that under this legislation that will increase to 16. We know from research that even with these mandated drops in prices doctors can continue to make choices about whether they wish to prescribe a generic drug when it hits the market. Many countries have set guidelines. One is the UK, where when a cheaper, usually generic, product comes onto the market there have to be significant and clear clinical reasons why clinicians do not go right ahead and prescribe the cheaper product.

In Australia this is so often not the case. For pharmaceutical companies that can produce a slightly more improved statin, for instance, the whole front end becomes an effort to convince GPs that they need to go for the extra one or two per cent clinical efficacy even if it costs the national health system and the PBS significantly more than that. The lesson there is that in the UK they have gained considerable ability to shift people onto generic pharmaceuticals, while in Australia we so often tend to evergreen the process, keeping Australian equivalent patients on the patented product, which is significantly more expensive.

The recent PBS agreement gives business certainty to Australian pharmaceutical companies, and that would be agreed on both sides of the House. We want business certainty for the innovators so that they are more confident to invest in the expensive multiclinical trials that are so important to bringing new drugs through the pipeline. But they also need the certainty to know that when they do business in Australia there is a PBS that can afford the best pharmaceuticals that money and Western science can provide. The great concern is that, while upwards of one-third of the PBS bill is spent on generic pharmaceuticals—in the rest of the world that can be as little as 10 per cent—we are foregoing the opportunity to bring these drugs on quickly. And I believe that a great detraction from the current PBS system is the time it takes to bring these pharmaceuticals on.

So it is great to see that in the MOU there is an undertaking from government that, within six months of the recommendation from the PBAC, cabinet will consider and make a decision on whether to list the drug. And it would be hoped that it would be a lot faster than six months. That is a lifetime for someone waiting for a brand new medication. So, in some ways we would like to see an even faster streamlining of the system. So often when you legislate for a minimum the minimum becomes the maximum and everything drags out to five months and 29 days. We want to see these drugs coming on straight away. What we cannot afford is a government that does not have the courage to look at the best possible system for pricing of generic pharmaceuticals, freeing up the resources and moving that around to the front end to help the innovators.

All the members of Medicines Australia are confident in that MOU, but there is one thing I know: as soon as we can get generics priced somewhere near where they are priced in the rest of the developed world, it will be an even better place for Australian patients who are waiting desperately for those new medications. That is the challenge that we face at the moment. On any normative international comparison Australia does perform poorly on the pricing of generic pharmaceuticals. The great paradox is that it is our wonderful PBS that does it. The fact that we pay generously for concessional and non-concessional co-payments for pharmaceuticals actually removes the incentive to be any cheaper. Why would you price a pharmaceutical any cheaper than the $20-odd or $29 you will receive from the government, if you were guaranteed that amount? The PBS and its very generosity actually makes it difficult to move and to garner those really great savings that are possible in the generic sector.

Let us make no mistake, the front-ending and the bringing of great new drugs through the pipeline is a very risky and expensive process. We need a government system that makes it as certain as possible for these companies that if they can bring through a life-saving drug or a significant advancement on what is currently available it will be supported and encouraged. By the same token what we cannot afford to do is what this government has done, which is effectively to walk away from any future reforms for at least four years. It is a very confident decision as to whether you will even be around as a government in four year’s time. What we have done in this MOU is forfeit the right to have that conversation. That is an awfully large price to pay, particularly since, as can happen, very expensive pharmaceuticals can come down the pipeline in a relatively short period of time such as 18 months to two years. I think it was a little short sighted of the government to do that.

Let us remember what happened in 2007. The coalition was faced with similar challenges around the PBS. Their suite of measures have already demonstrated outcomes. This was the separation of single-brand and multiple-brand medicines into the F1 and F2 formularies; the statutory price reductions for model-brand medicines, which I have referred to before; the 12.5 per cent price reduction when that first bioequivalent drug for a single-brand medicine is introduced or when a medicine moves from F1 to F2; and the price disclosure arrangements which this legislation will be extending to 1,600 different lines, which I acknowledge will create for the government a significant challenge through all of the legal difficulties in being able to actually identify what is going on with those pricings and with that disclosure. It is a significant challenge, but it is an important one to progress if we are to understand whether pharmaceuticals are being priced at the market or at the most competitive price possible. We have the incentive payment in 2007 for community pharmacies to process claims using PBS Online and of course the community service obligation for pharmaceutical wholesalers who meet specific service obligations.

Let us look at those PBS reform impacts. They have been reported on. That report showed that over the forecasted 10-year period from 2008 to 2009 patients would potentially pay less—between $592 million and $803 million less. That is a significant saving for patients, through their co-payments, because a large number of pharmaceuticals actually become cheaper than the co-payment. That is extremely relevant, particularly for the 30 to 35 per cent of Australians who are not concessionaires and pay what we deem to be the higher co-payment. That could really mount up, prior to the pharmaceutical safety net, for families who have to pay that full amount. They are the prime beneficiaries of these kinds of reform. The total savings to government from the reforms are even higher, because they are saving on having to pay a full co-payment for every one of the prescriptions—between $3.6 and $5.8 million.

I draw the House’s attention to research done by Philip Clarke from the University of Sydney, who did reports on what savings could have been achieved. This was published with his colleague Ed FitzGerald in the Medical Journal of Australia and estimated that Australia could have saved $1 billion in the past four years if the UK prices had been achieved in Australia and that, more importantly, were we to implement the English pricing systems in Australia, savings could be in excess of $3 billion over the next 10 years. I can see the shadow finance minister licking his lips as he thinks about what could be done in the health system with $3 billion invested in the new drugs coming through the pipeline and being brought on early. That is a genuine incentive for our pharmaceutical manufacturers and for our innovators to be coming up with the new breakthroughs: the Gardasils; the treatments that save thousands of lives and reduce morbidity. They are the areas that we should be investing in rather than paying unnecessarily high prices for generic pharmaceuticals which are being produced around the world in large factories for sometimes less than a fraction of a cent per dose.

The PBS reforms that were initiated by the coalition were significantly successful. We note that this MOU has the support of Medicines Australia and a number of others who made submissions. They are encouraging both sides of the chamber to consider this legislation, and I make the following observations about the ground that has been forfeited in basically declining to look at this area again for any form of reform for the next four years. It is terribly important, therefore, that the parliament carefully scrutinises all of the measures in this bill—the measures for under-co-payment data and statutory price reductions; which are being increased to 16 per cent, and, most importantly and probably most challenging of all, price disclosure.

The great challenge for government is that there simply is not enough information about the price at which wholesalers provide pharmaceuticals to pharmacists. We know that there are significant discounts. If those discounts lead to better service or better provision of pharmaceuticals or a better range of products to patients, one would not complain about that. But, fundamentally, that discounting represents government and taxpayer resources that need to be used well. That is why I believe that this side of the chamber would want to see a full and frank evaluation of the impacts of this legislation and where it is going. We are also mindful that it is currently under inquiry at the moment. I think it would be very, very short-sighted to move forward and vote on this bill prior to seeing the results of that Senate inquiry into this very bill.

This bill will be expanding those elements that I referred to before. It will be extending some of the things that were achieved in 2007. But I would certainly not want to see this bill completely debated and passed through this chamber without seeing the full results of the Senate inquiry being conducted at the moment. We have a date on which we expect that inquiry to come down. I would hope that we would put off this debate until that inquiry has been heard and read. (Time expired)

See this speech in context