Glenn Sterle (WA, Australian Labor Party) Share this | Hansard source

I rise to speak in support of the National Health Amendment (Pharmaceutical and Other Benefits—Cost Recovery) Bill 2008. This bill amends the National Health Act 1953. Its purpose is to provide authority for the cost recovery of services provided by the Commonwealth in relation to the exercise of powers for listing medicines, vaccines and other products or services on the Pharmaceutical Benefits Scheme, the PBS, and designation of vaccines for the National Immunisation Program.

The PBS, which was a Labor initiative 60 years ago, is a vital element of Australia’s national health system. The PBS has been an outstanding success story. It has played an enormous part in ensuring that all Australians have benefited from the therapeutic advances in prescribed medicines and other PBS listed drugs that have occurred over the past 60 years. It is a scheme that has ensured that taxpayers’ money has been well spent.

Apart from the therapeutic benefits provided by the PBS, the scheme has been an essential factor in ensuring that the cost of prescribed pharmaceuticals in Australia has remained significantly lower than in many other developed nations. Figures published by the Department of Health and Ageing show that Australia’s pharmaceutical expenditure, as a percentage of total health expenditure, is only approximately 13 per cent compared, for example, with that of Canada, where the cost of pharmaceuticals makes up approximately 18 per cent of that country’s health expenditure. On a per capita basis, expenditure on pharmaceuticals in Canada is approximately 30 per cent higher than in Australia, and in the USA it is over 80 per cent higher. Similar levels of expenditure in Australia would add several billion dollars annually to Australia’s health budget and would undoubtedly put pressure on the funding of other essential health service needs.

In Australia, a new medicinal drug must gain approval for supply in accordance with the requirements of the Therapeutic Goods Act 1989. Approval is also required to extend the indications of an established drug. Applications are dealt with by the TGA, the Therapeutic Goods Administration. For prescription drugs, advice is sought from an expert committee known as the Australian Drug Evaluation Committee, the ADEC.

Once a prescription drug is approved for marketing, the company concerned usually applies to the Pharmaceutical Benefits Advisory Committee to have the drug listed on the PBS. The PBAC is an independent statutory body established under section 100A of the National Health Act 1953. Its members are selected from consumers, health economists, practising community pharmacists, general practitioners, clinical pharmacologists and other specialists. This remains unchanged.

The role of the PBAC is to make recommendations and give advice to the minister about which drugs and medicinal preparations should be made available as pharmaceutical benefits. No new drug may be made available as a pharmaceutical benefit unless the committee has so recommended. The committee is required by the act to consider the effectiveness and cost of a proposed benefit compared to alternative therapies. In making its recommendations, the committee, on the basis of community usage, recommends maximum quantities and repeats, and may also recommend restrictions as to the indications where PBS subsidy is available.

When recommending listings, the committee provides advice to the Pharmaceutical Benefits Pricing Authority, the PBPA, regarding comparison with alternatives or their cost effectiveness. It is the task of the Pharmaceutical Benefits Pricing Authority to negotiate the PBS price of the drug with the sponsor company. The Pharmaceutical Benefits Pricing Authority consists of government, industry and consumer representatives.

After agreement is reached, the Australian government considers the advice of both committees and makes a decision on whether the drug will be listed on the PBS. The processes for listing a drug on the PBS are rigorous and detailed, as they should be. These processes have served the Australian public exceedingly well over many years and are processes that the pharmaceutical industry is now well attuned to. They are of course not without significant cost to government.

For the pharmaceutical industry, achieving a product listing on the PBS is very valuable and provides a high level of commercial certainty to a company in relation to that product’s sales. It is worth noting, for example, that in 2006-07 the top 20 pharmaceutical companies, by total cost of payments, each received, on average, $223 million from the Commonwealth via the PBS subsidy. The government has therefore decided that the time has arrived when these costs should be recovered and should no longer be an impost on the taxpayer.

Cost recovery is not a new policy. Cost recovery arrangements have been applied with success to many departments and agencies at state and federal level including, for example, the Therapeutic Goods Administration, the Civil Aviation Safety Authority and the Australian Prudential Regulation Authority. The Productivity Commission has commented that, by ensuring those who use regulated services bear the costs, cost recovery can promote economic efficiency and equity by instilling cost consciousness among agencies and users. In this case it is expected that cost recovery will provide benefits to both government and industry—for example, potentially increasing the compliance of submissions with the PBAC guidelines and reducing time and costs associated with resubmissions.

Revenue from PBS cost recovery will depend on the number and type of submissions brought to the PBAC for consideration. As a general rule, the more complex and time consuming the evaluation and price negotiation, the higher the fees. Once fully operational, annual revenue from fees is expected to be about $9 million in 2008-09, rising to around $14 million a year in following years. It is expected that fees will be indexed annually and a full review undertaken within five years, in accordance with cost recovery guidelines.

The amount of cost recovery fees with respect to the listing of drugs on the PBS needs to be measured against the cost to government in providing subsidised medicines and fully funded vaccines to the Australian community. In 2006-07 the Commonwealth paid $6.4 billion to approved pharmacists, hospitals and medical practitioners for the subsidised supply of medicines under the PBS. This expenditure amounted to approximately 84 per cent of the total cost of prescribed PBS listed medicines. In this regard it is worth noting that over 70 per cent of the cost of the PBS is for the provision of prescribed medicines for the least well off in our community, including aged and disability pensioners. Without the PBS many people would not be able to obtain the drugs they need. In addition, in 2006-07 the Commonwealth provided a further $280 million to the states and territories for the fully funded supply of vaccines under the National Immunisation Program within their respective jurisdictions.

There has been some comment about the ability of drug companies to pay the fees to be set under PBS listing cost recovery arrangements without detriment to the availability and supply of prescribed pharmaceuticals. The pharmaceutical industry is by most standards a very profitable industry. In this regard it is relevant to compare the levels of drug company expenditure on what the drug companies refer to as ‘education events’ with total expected PBS cost recovery fees. Publicly available information suggests that in any one year drug companies spend well in excess of $60 million on educational and promotional activities. These activities are viewed by many people as being more akin to direct and active marketing to the medical profession of particular drugs than to simply educate. This expenditure has drawn the attention of the ACCC, which moved in 2006 to require much greater transparency from the pharmaceutical industry with regard to this expenditure.

A study undertaken in 2006 by University of New South Wales researchers, and reported as being the most comprehensive research ever conducted into the link between Australian medical professionals and drug companies, found that ethical guidelines were often breached. The survey of 823 medical specialists from across the country found that 96 per cent received offers of food, 94 percent were offered items for the office, 51 per cent reported offers of gifts for personal use and 52 per cent were offered travel support to attend conferences. As well, one in 20 reported offers of personal gifts or activities that were in clear breach of the guidelines, such as offers of wine, flowers, tickets to entertainment or sporting events and funds in exchange for accepting promotional visits. Other findings included that 52 percent of respondents were offered travel expenses to both international and national destinations, with a mean value of $7,559 for international travel and $1,395 for domestic travel. In some cases business class and first class airfares were provided. It was found that 15 per cent of specialists requested financial support from pharmaceutical companies for activities and items including conferences, travel, educational activities, salaries and donations to specific funds; and 18 percent were offered equipment, including video editing technology, cameras and blood pressure monitors. The lead author of the study commented:

Even though the majority of gifts and requests for support do comply with the guidelines, this research shows that the relationship between pharmaceutical companies and medical specialists is a very cosy one indeed.

He went on to say that previous research showed that doctors are influenced in their prescribing by gifts, even when they think they are not.

In 2006 the ACCC, in authorising Medicines Australia’s code of conduct, imposed a new requirement making it compulsory for Medicines Australia to provide six-monthly reports on behalf of its members detailing an itemisation of health professional educational events and expenditure. The latest report for the six months to 31 December 2007 shows that in total drug companies spent over $31 million on these events, including over $16 million on hospitality. While I am not suggesting that there is anything improper regarding this expenditure, it does indicate that there should be more than enough scope within the drug companies’ bottom lines to meet the costs associated with obtaining PBS listings. It is also worth noting as a matter of interest that in 2006-07 the Medicines Australia code of conduct committee imposed fines of approximately $1 million for breaches of the code of conduct. This money was used to defray the cost of monitoring the code of conduct—in other words, Medicines Australia, within its own operations, is committed to cost recovery and the user pays principle.

For its part, the Rudd Labor government is very attuned to the importance of a strong and growing pharmaceutical industry in this country. The Australian pharmaceuticals industry is Australia’s second largest manufactured goods exporter, with exports of almost $4 billion a year. The industry employs 34,000 people, spends $752 million a year on R&D and has a turnover of over $18 billion.

Senator Kim Carr, the Minister for Innovation, Industry, Science and Research, recently announced the establishment of a Pharmaceuticals Industry Strategy Group. The strategy group will be headed up by Dr Brian McNamee, the Chief Executive Officer of Australia’s largest pharmaceuticals company, CSL. The strategy group will examine the drivers and barriers to attracting new internationally competitive and sustainable manufacturing and R&D investment in the pharmaceuticals sector. It has been asked to present a draft report to the minister by September and a final report by the end of the year. Members of the strategy group will be drawn from all segments of the bio-pharmaceuticals value chain. Leaders from the pharmaceuticals, biotechnology and generic medicines industry have asked to participate, along with union representatives. The chief executives of Medicines Australia, AusBiotech and the Generics Medicines Industry of Australia will be members of the group.

As well, Senator Carr together with the Minister for Health and Ageing have committed to reconvening and revitalizing the Pharmaceuticals Industry Working Group. The working group is being co-chaired by the two ministers. The Rudd government wants the Pharmaceuticals Industry Working Group to become the premier forum of pharmaceuticals industry policy advice, which regularly discusses strategic issues and develops solutions to the challenges of tomorrow. In summary therefore, this bill needs to be seen in the context of the Rudd government’s commitment to the rigorous economic management of government funded health services and particularly the PBS, alongside its very strong commitment to encouraging and supporting the future development of Australia’s pharmaceutical manufacturing industry.

Finally, in the model reflected in the bill the independence of the PBAC is guaranteed. The government will continue to directly fund all the activities of the PBAC and its subcommittees. The PBAC will have no role in setting fees and it will not receive any revenue from industry. All revenue collected from cost recovery will be paid directly into consolidated revenue. As the minister in the another place has said, this bill is all about ensuring that the PBS continues to be able to provide reliable, timely and affordable access to a wide range of medicines for all Australians. I commend the bill to the Senate.