Claire Moore (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

The ongoing relationship between this parliament and the Senate Community Affairs Legislation Committee on the very interesting and important aspects of the pharmaceutical benefits process continues with our scrutiny of the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010. This bill continues the matters of reform around our pharmaceutical system. It was referred appropriately to the Community Affairs Legislation Committee during the period of the last parliament and then, when this parliament re-formed, it went back to the committee.

When the Minister for Health and Ageing introduced this bill in the lower house, she stated the reasons why this bill was important to our community and to our government. She said:

This bill sets out the PBS pricing arrangements aimed at reducing growth in PBS expenditure, ensuring access to quality medicines at a lower cost to the taxpayer, and providing certainty to the pharmaceutical industry in relation to PBS pricing policy.

She went on to say:

The PBS plays a vital role in Australia’s health system, particularly for the prevention and management of chronic disease, and for the treatment of life-threatening conditions. The PBS provides reliable and timely access to a wide range of medicines at a cost individuals and the community can afford.

In terms of the process, the commitment to ensuring that the PBS continues to serve that function is agreed by all; and, in terms of the discussions we have had, there is great commitment to ensuring that we maintain the PBS. The minister in her speech went on to say:

In the coming years, medicines will continue to be a significant and growing component of health expenditure. Since the previous major pricing reforms in 2007, the growth rate for PBS expenditure has increased from 4.3 per cent in 2006-07 to an estimated 10.5 per cent for the 2009-10 financial year.

           …         …         …

In conclusion—

said the minister—

the reforms in this bill provide a firm basis for achieving a more efficient and sustainable PBS while, at the same time, providing a period of certainty to industry in relation to medicines pricing policy.

That sums up the background to this particular bill.

The committee considered the wide range of submissions—and we always draw a wide range of submissions when we have inquiries into this issue. They are mainly from people in the industry, because this system relies completely on strong, vibrant involvement from all parts of the industry. There were some attempts during the committee process to set up an even more combative arrangement than is necessary in this process between the innovator groups, which are mainly represented by Medicines Australia, and the industry group for generic medicines. These groups provide a great service and are integral to ensuring that we move forward with a strong PBS.

We tried to establish through the committee process the need for further reform. There was some debate about this, but the government continues to say strongly that there needs to be close scrutiny of expenditure in the PBS. There was some attempt in evidence—and it is all in the Hansardto say that somehow things were going well enough since the 2007 reforms that there did not need to be immediate consideration of further ways to effect savings in this area. The government strongly refutes this argument. There needs to be ongoing and careful scrutiny of all elements of expenditure in this process to ensure that the system remains strong and to ensure that we can continue to provide the service to the Australian community so they can have access to a wide range of new, innovative medications and, after a period of time after the patent expires, generic medicines.

The choice is important, but most importantly for so many consumers—and we have this on the record from consumer groups—is the assurance that, firstly, all the medications available are safe and, secondly, consumers are getting good value for money. Currently we have a co-payment for medications, and that is maintained at a low level. This is reviewed regularly in this place to ensure that it can be maintained. The basis of effective government expenditure continues to be the way that we can minimise the increased costs in the area. That is why these reforms are essential.

We know that the PBS costs continue to grow quickly. We know that in 2008-09 the cost of the PBS was 9.2 per cent higher than it was in 2007-08 and that in 2009-10 expenditure grew a further 9.3 per cent to an annual cost of $8.4 billion. That is significant money, but it is for a really important purpose for Australia. No-one quibbles about the need to have this expenditure, but what we need is to have scrutiny to ensure that that expenditure is the most effective.

The Intergenerational report 2010, entitled Australia to 2050: future challenges, forecasts increased spending on the PBS. That report of course contains estimates for the future, but I think it is important to understand that we need to look to the future in our systems. That report says that the PBS will increase in real terms from $443 per capita in 2012-13 to $534 per capita in 2022-23. Those are sobering but important figures for us to know.

In terms of our role as a government, it is essential that there is strong management of the high-cost growth of the PBS. The importance of that is to ensure that we allow continuing investment in new and innovative drugs, so people in the community have access to them, and ensure that we balance the expenditure that is going on. This is not a contest of any kind between whether you have innovative medications being produced and, after the patent has concluded, the generic industry being able to maintain their fair share of the market. It is not imposing any form of contest; it is actual market engagement.

The 2007 reforms were extremely important in the way that the whole PBS operated. I note from the comments that the opposition put to the legislation committee that they seem to have a particularly glowing memory of how easy the 2007 reforms were to pass. There was great debate both in the committee and in this place when those reforms were being brought into our parliament in 2007. Having sat on the legislation committee that reviewed the 2007 reforms before they came into this place and the reforms we are bringing forward in 2010, the similarity of the arguments is overwhelming in terms of the statements made by the innovative groups and by the generic medicines group about the impact the proposed changes will have on their industry, on their market share and on the future of the modern world as we know it.

If you do take the time to read some of the submissions in both cases, you will see that there was great debate about the need for the changes and about the impact on either group and who was going to hurt more from the changes in 2007—and that continues to this day. However, in 2007 we were able to progress the reforms, but with pain. What is happening in 2010 is that the same proposition is being brought to the parliament. There is an assessment of what has happened up until now, an assessment of what is happening now in the industry and, most clearly, an assessment of what will happen in the future.

This legislation we have brought to the parliament looks at two key points. One of the most debated but essential components of the reforms that happened in 2007, which we are seeking to extend, was the use of price disclosure as an effective mechanism to allow the government, which is paying for these medicines, to get better value for money by taking real advantage of discounting that is occurring in the market. Despite the claims of the industry, particularly the generic industry, in 2007 that price disclosure would not work and would cause them to have no profit in the future and be deeply affected, we have seen significant savings in PBS expenditure on generic medicines.

The first four completed rounds of price disclosure since 2007 have seen a number of drugs take a price reduction ranging from 13 per cent to 72 per cent. Those were extremes; there were not too many drugs where the saving was 72 per cent. The clear aspect of price disclosure is that the government is made aware and is only paying, in terms of the expenditure on generic medicines, the price that is paid to the supplier. That is where the discounting occurs: when generic businesses are, quite rightly, competing for their share of the market, they offer a range of discounts and then the suppliers are only paying a certain amount before they dispense the medication to the patient. What we are saying is that the government wants to get a general view that the amount the government is paying is what the supplier is paying to the generic industry. It is not a scary concept. It is based on averages. But it does mean that there has to be disclosure about price, and that is the core point of the reforms.

What the original reforms in 2007 introduced was that, once a drug was off patent and more people were able to produce that drug, then you could look at price disclosure. At this stage only 45 medications are subject to that process. The core aspect of the price disclosure changes which we are bringing in in this legislation is to extend that to all medications which have generic opportunities. There is a need to disclose the pricing process in all of that, which will mean a considerably larger number of medications will be subject to the process. That is the core reform. We have been open in saying that that is what we want to do. It is based on an existing process, which has been operating since 2007, and we want to extend it.

The generic industry does not want that to happen. It is their right to put up that argument, but that is the core disagreement—they do not want that to happen. In the debate in the Community Affairs Legislation Committee we were confounded by various arguments from the different groups about how much share of the market they had; we were confounded by graphs and statistics all around. Basically the end result is that, within the industry, both the Medicines Australia group—the group that is known as the innovative group—and the generic medicines group have significant market share. They are both important. We also saw that price disclosure will impact on both groups. There is an argument as to which group will be impacted most, but it will impact on both groups. So no-one is protected from having price disclosure as a mechanism.

In the legislative committee process a great deal was made about an MOU that was agreed between Medicines Australia and government about future interaction between those groups and looking for a degree of certainty in the relationship into the future. There was some attempt in the committee to paint this as some kind of conspiracy or unnatural behaviour. The government’s position is that the government is open to discussion with all people in the industry. What it was able to do after a great deal of discussion—we have dates and times of letters between various groups all on record now in Hansardwas to come to an arrangement with the Medicines Australia group which is public. People can see what is in that MOU, and some of things in the legislation reflect that. There was not an ability at the time to come to a similar arrangement with the generic medicines group. That is not to say that it cannot happen at any time in the future. It is to say that before 2010 there was no ability to achieve that agreement. That is our position. We are moving into the future, and the legislation reflects the reality of the moment. Ongoing negotiation and discussion are important and essential to ensuring that the PBS continues to work. There are a number of claims about added benefit to the Medicines Australia group as a result of the MOU. We refute that.

I want to speak about one particular issue in that discussion which came up at length in the legislation committee, and that is to do with the therapeutic groups. In 1997, amidst a great deal of discussion and debate and pain, the government introduced the therapeutic group listing, which allowed for a number of medications which were determined by the PBAC—the group that looks at the technical aspects—to have a highly contested term ‘interchangeability’. The principles of interchangeability are determined and can be discussed with the department and also with the TGA and the PBAC. Through that process, groupings of medicines that were available to the community for their conditions were seen to be interchangeable and pricing through the PBS would be the same—it put groups of drugs together. To this date, seven groups have been determined.

One of the things that have come out of the MOU is an agreement between Medicines Australia and the government that there would be no new therapeutic groups introduced through the period of the agreement, which is until 2014. I have had a look at how many therapeutic groups have been introduced and when. The first four, I believe, were introduced in 1997. The next lot were not introduced until 2007, so there is quite a significant gap between 1998 and 2007, when a further two were introduced. The year after that, another one was introduced, so that is a shorter time frame. In 2009-10, there was an attempt by our government to introduce three new groups. When you look at the records they show that therapeutic groups have been proven to save significant amounts in expenditure on the PBS. That is itemised very clearly in the evidence we received. So the years were 1997-98, then 2007 and then 2010. I will just put on the record that the last three therapeutic groups that our government attempted to introduce for cost-saving purposes to strengthen the PBS have been disallowed by the Senate on the basis that they were not appropriate. So, in terms of the cost-saving element, we have the list of therapeutic groups—I have given the dates—and we now have an agreement with Medicines Australia group through the MOU that there will not be an attempt by the government to introduce another set of these therapeutic groups until 2014.

I draw to the attention of the Senate the fact that, if you are saying that this is some deep advantage to Medicines Australia in some way, the history of therapeutic groups indicates that a four-year time frame before something else is introduced is not a major innovation in the process. We are saying that therapeutic groups, the same as price disclosure, is an agreed and effective mechanism to look at in maintaining the financial security of the PBS. I do not think any attempt to paint this particular process as giving an unfair advantage stacks up, particularly in view of the fact that the last attempt for a therapeutic group that the government put up to save money was knocked back by the people who at the moment seemingly, from the additional comments I have read, are claiming that somehow there is a deep advantage being offered to one group and not another.

There was great debate about the process of consultation. Effectively communicating with people continues to be an issue when you are looking at savings and changing practices. That needs to continue to be scrutinised, and no-one has any doubt about that. But there is significant evidence on record about attempts at discussions between the government and the various groups involved. That needs to be looked at into the future, because our system will only survive if that ongoing consultation happens.

I just want to make one other point about what was claimed in the committee and what we need to address—and this will be picked up by other senators. There was, again, an attempt to scare the community by saying that, if we introduce the program as we have discussed in this legislation, there will be threats to the supply of medication and people will not be able to receive the medication that they need on time. The department responded in depth to this and talked about the community service obligation which is in existence. The fact is that there is already an agreement that medication must be available for people who require it. We have the process using wholesaler groups and also the pharmacies to ensure that that happens. There has been a claim by some of the wholesaler groups that they need to have further supplementation of funding to ensure that this program can operate. The department has responded to that by talking about the time frames in which we are placing the situation.

These new arrangements will not automatically happen in December, should this legislation be passed. What will happen in December is that data collection systems will need to be put in place. The real changes to the cost of medication to suppliers—not the public but suppliers—do not come in until 2011. So we need to look at that in the future of this discussion. (Time expired)

Concetta Fierravanti-Wells (NSW, Liberal Party, Shadow Minister for Ageing) Share this | Link to this | Hansard source

I rise to speak on the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010. I will start by saying that the coalition support the intent of the MOU and do so in the context of the PBS system. We want, at the outset, to acknowledge the many strengths of the existing PBS system. It has in its time offered a wide range of older and newer prescription medicines in a way that has led to the Australian public having a high degree of confidence in it. Maintaining the integrity of the system is very important, and for this reason we support the $1.9 billion savings measure sought to be achieved by this bill.

This bill builds on the extensive reforms of the PBS which were introduced by the coalition government in 2007. However, the issue that the coalition has at this juncture is the extent of consultation. As Senator Moore correctly pointed out, when those reforms were introduced they were not without pain. But they were as a consequence of an extensive and very wide ranging consultation process that, in the view of the coalition, has not been followed in this instance. The 2007 reforms were indeed radical, but they were undertaken after extensive consultation with all stakeholders. That wide-ranging consultation probably ensured that there was widespread acceptance of the reforms. As coalition senators specified in the additional comments that we put forward, that was no doubt a strong reason for the fact that the reforms will yield well in excess of the anticipated savings in the PBS.

The 2007 reforms were intended to be implemented in stages. We are now seeing the fruits of those reforms. From the various assessments it seems that the reforms are likely to yield double the amount that was anticipated. We are probably looking at $6 billion worth of reform. That, of course, is very much supported. Those reforms came with the commitment of the whole industry. In our view, had there been a much more broad-ranging and much more in-depth consultation with all relevant stakeholders in this instance concerning the bill we are discussing today, it is possible—and, again, we pointed this out in our comments—that the identified savings of $1.9 billion and further savings could have been made by the PBS. Broader consultation, in our view, would more likely have resulted in much broader consensus and commitment and could potentially have resulted in much more equitable—and I stress the word ‘equitable’—savings being identified.

In looking at the background to the MOU, how it came into existence, one cannot avoid comments about the chequered history of this Minister for Health and Ageing when it comes to savings measures. Senator Moore tried to attribute to the coalition some sort of conspiratorial attitude. The reality is that you have had in the past an example—and we saw this in 2007—of extensive consultation leading to wide-ranging reforms. In this instance, and it is very clear from the evidence that was given at the inquiry, we saw the Department of Health and Ageing go out to consult with industry about the 2007 reforms and then all of a sudden we saw an MOU come into existence with one body—namely, Medicines Australia. One wonders how this came about. Mr Learmonth, on behalf of the department, was at pains to tell us that the proposal came very much at the suggestion of Medicines Australia and appeared to have been a last-minute thing.

Let us look at another scenario, a scenario that may not be too far off the mark, where, all of a sudden, the minister demands a certain amount of savings over the forward estimates and then the negotiations are worked backwards to arrive at the 23 per cent price reduction that is going to be applicable to F2 medicines in the cycle. I have my suspicions that this would have enabled the minister to lock in savings over the forward estimates and to try and rebuild her image and her chequered history of implementing savings measures. Whilst it may not be conducive to public policy, it is very clear that, although it may be appropriate to pursue measures to better match the price that the government pays to the market price, it is important that this government consult in a much broader sense, and that is the issue.

In light of some of the comments that Senator Moore made, it is interesting that the MOU provides for no new therapeutic groups to be formed for the duration of the agreement. Obviously, it is a trade-off—and an important trade-off as far as Medicines Australia were concerned. I also want to make reference to another term of the MOU—that is, the attempt to make changes in administrative processes to streamline the listing of new medicines. Interestingly, the MOU has a commitment and the Commonwealth will use its best endeavours to implement a maximum time frame of six months for consideration and decision in relation to the listing of new drugs. At estimates we were told that the period of just over six months that it is taking for cabinet to approve the listing of new medicines has blown out to 10 months. The government is prepared to put this in the MOU, and clearly its best endeavours thus far are not achieving much because the six-month period is blowing out to 10 months. So I wish the stakeholders well in this but I think it is going to be very much a hollow commitment, like many of the government’s other commitments.

I will just summarise the coalition’s position. We will not stand in the way of the savings in this proposal but we believe that the savings could be achieved via a more equitable negotiation of the MOU. In our report the coalition senators clearly set out that it is our view that these so-called reforms to the PBS have been handled very ineptly by the government. Key sections of the pharmaceutical industry with manifestly material interests in the nature of the reforms have been excluded from the negotiations that led to the MOU, which is now the basis of the bill before the Senate. Secondly, and more importantly, the reforms in our view are ill considered, targeting only medicines from the F2 formulary and overlooking the opportunity for considerable cost savings to the PBS and patients through the reforms of F1 listings. Also some of the administrative elements of the changes introduced by these reforms have not been thought through properly and could have highly disruptive impacts on pharmacies, bearing in mind the impact that this will have on wholesalers to ensure the timely supply of pharmaceuticals to community pharmacies and in turn to patients. As for the views of the generic medicines industry, the consumer health groups and the wholesalers, in our view, under these new changes, it appears that there has been a failure to consult them, or at least there is a blatant disregard for the concerns that have been raised.

We are very conscious of the need to contain the rising costs of medicines under the Pharmaceutical Benefits Scheme. As I indicated, we support the general thrust of the reforms in the bill but, as a matter of good public policy, the burden of reform should fall more equitably across all affected parties in the pharmaceutical sector and more evenly between the members of not just Medicines Australia but other groups such as GMIA and other stakeholders involved. As I indicated, our compelling concern is about the government’s failure to adequately consult with all parties with a material interest, and they are, I would like to specifically reiterate: the Generic Medicines Industry Association, the National Pharmaceutical Services Association and the Consumer Health Forum.

Of course, generic medicines drive competition and cost savings for consumers and the government. Our concern is that the government’s proposal may compromise access to affordable, high-quality medicines in the long term. Significant price cuts without volume drivers under this measure may detrimentally affect the viability of the sector which drives PBS savings for the government. These issues could have been avoided through better consultation and actual negotiation with all stakeholders—and our focus is on ‘all’ stakeholders. Evidence suggests that additional savings could be achieved in consultation with all key stakeholders and should be fully explored by the government.

Of course, the coalition successfully implemented a 10-year reform plan for the PBS in 2007, which as I have indicated will deliver far more savings than anticipated. Indeed, the government’s own Impact of PBS reform report shows that the coalition’s reforms will deliver savings of up to $5.8 billion over the 10-year implementation period, compared to the estimated $3 billion under the government’s proposal.

On this basis, the coalition is not in a position to support the bill given the outstanding issues. We do support the intent of the MOU and believe the stated savings and more can be achieved through better consultation, and we stand ready to expeditiously support measures which will achieve this end. To that end, in light of the various concerns that we raised, the deficiencies of process and our misgivings over the content of some of the reforms, the coalition senators outlined in their report that the bill should not be supported in its present form but should be re-presented at a later date following a proper and comprehensive negotiation process or, alternatively, that this bill be withdrawn and a new bill be introduced.

On that basis, we set out four recommendations. I foreshadow that I will be moving a second reading amendment which gives effect to these recommendations, which are: firstly, that ‘the MOU negotiated between the Commonwealth and Medicines Australia be set aside’; secondly, that ‘the Commonwealth undertake a fresh set of negotiations to develop a new MOU which will secure the identified $1.9 billion cost savings in a more equitable manner’; thirdly, that ‘all parties possessing a material interest in the outcome of the proposed reforms or whose material interests are affected by the reforms be involved in the negotiations, including the members of the GMiA, the Pharmacy Guild of Australia and the National Pharmaceutical Services Association’; and, fourthly, that ‘the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 be amended in light of the contents of the new MOU and be re-presented to the parliament in amended form for reconsideration and approval or, alternatively, that the government withdraw the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 and a new bill be introduced’. I move the second reading amendment standing in my name:

At the end of the motion, add: but that further consideration of the bill be an order of the day for the first sitting day after:

(a)

the Government sets aside the memorandum of understanding signed between the Government and Medicines Australia on 6 May 2010;

(b)

the Government has entered into a fresh set of negotiations to develop a new MOU which will secure the identified $1.9 billion cost savings or other potential savings to the PBS;

(c)

all parties possessing a material interest in the outcome of the proposed reforms or whose material interests are affected by the reforms, including the members of the GMIA, the Pharmacy Guild of Australia and the National Pharmaceutical Services Association, have been consulted in the negotiations for a new MOU; and

(d)

the Government has circulated in the Senate amendments to the bill to reflect the contents of the new MOU.

Rachel Siewert (WA, Australian Greens) Share this | Link to this | Hansard source

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 statins 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 co-payment 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 co-payment 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 co-payment products, including average price and maximum and minimum price. However, 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.

Carol Brown (Tasmania, Australian Labor Party) Share this | Link to this | Hansard source

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-co-payment 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.

Sue Boyce (Queensland, Liberal Party) Share this | Link to this | Hansard source

The coalition opposes many aspects of this MOU. Once again, there was yet another Senate inquiry which was told over and over that consultation between the government and the relevant stakeholders in this area was insufficient from the perspective of the stakeholders. In report after report we make the point to the Department of Health and Ageing that we continue to be told by stakeholders that they were told what the department was going to do, not asked to assist the department to do it. It is interesting to look at some of the history of this MOU as described by the government and take up the point of whether GMiA was actually deliberately excluded or not from negotiations.

Mr Learmonth from the department has set out a time frame. He has talked about who did what and who said what and he has made the comments in regard to how the discussions came about that, certainly, GMiA were consulted. He said:

In the case of GMiA, again we had a range of discussions. Some of them came off the back of submissions that GMiA had put in before about various ideas, and we talked about sustainability. There were a number of meetings that we detailed in our submission. I would add that no meeting was ever refused—it all was opened to GMiA—but I could not really characterise the way discussions evolved with GMiA as a negotiation in the same way as I could with others. We put our view that we were looking for sustainability, and GMiA made their views extremely clear on what they thought about the notion of price disclosure and any further saving. In other words, they did not really want to be a party to that. They did have some other ideas that were fundamentally about increasing competition.

From that you would get the impression that the department of health had bent over backwards to be helpful except, of course, then we get to Mr Learmonth’s evidence about the memorandum of understanding that the department of health ultimately signed with just one sector of the industry—the innovative pharmaceuticals area. Mr Learmonth, the deputy secretary of the department, said that the government had not actually set out to have a memorandum of understanding and that as far as they were aware the suggestion to have an MOU came late in the piece. He said:

As I said, it was not the intention upfront. Indeed, it was a suggestion from Medicines Australia and not us. My guess would be that it was April this year but I do not think we could even nail down a day. It was not an a priori objective.

Medicines Australia went on to suggest that they did not know who had thought up the idea of a memorandum of understanding. I guess when you look at the favours that this memorandum of understanding, the MOU, does for Medicines Australia you would rather hope that the Department of Health and Ageing would say that it was their suggestion not the company’s. So we have a confusion first over what constitutes negotiation and what constitutes consultation.

Late in the piece, Medicines Australia, who hold about 60 per cent of the market that we are talking about says to the department: ‘Let’s have a memorandum of understanding which gives us a four-year moratorium on the price of many of our products. But we’ll save you money elsewhere.’ The department says: ‘Oh, what a good idea. Let’s do that.’ The department does not say: ‘Gee, we should go back and talk to some of the other stakeholders about what they think about that. Irrespective of the fact that we know that they are not keen on the idea now that a memorandum of understanding, which will give a commercial advantage to about two thirds of the market, is about to be signed, perhaps we should go and talk to the other third of the market. Perhaps also as the Consumer Health Forum pointed out we should talk to the Consumer Health Forum and consumers as well about what they think about the changes that are proposed.’

There was a debate that consumed an awful lot of the inquiry’s time about what percentage of the market these relevant industry bodies represented or what percentage of the market was held by the innovative industry, which includes patented products and products that have come off patent and are now in the generic area. It also includes a number of generic medicines made by the innovative industry. The Generic Medicines industry Australia by contrast makes only generic medicines; they make only off-patent medicines. We had the GMiA saying that they had 75 per cent of the off-patent PBS market in Australia by volume or 68 per cent by value. We had Medicines Australia disputing that claim and saying that members of Medicines Australia accounted for about 60 per cent of the off-patent market by value. Dr Brendan Shaw, Chief Executive of Medicines Australia, said:

Whichever way you cut it, our members account for the majority of the off-patent market.

Well, yes, I agree that 60 per cent would look like the majority if Medicines Australia are right on this point. However, that leaves 40 per cent of the off-patent PBS market supplied by others, and most of that is supplied by the members of GMiA and one or two other generic medicine manufacturers. Forty per cent of the market, which is the lowest figure anyone has ever suggested that generic medicines hold, is, I would argue, a not insignificant percentage of the market.

This is a point I put to Dr Shaw from Medicines Australia, who over and over during the inquiry into this piece of legislation refused to accept that 40 per cent of a market was a significant share of the market. He would not use that dreaded word, ‘significant’! So, finally, we asked the department to provide their figures on who held what in the PBS medicines market. They came back with the figures for the formulary 2 market, which is the off-patents market. Medicines Australia held 57.4 per cent of PBS medicines by expenditure and GMiA held 34.2 per cent, with other generics holding seven per cent. That is 41 per cent by expenditure to the generic medicines area. The Department of Health and Ageing also told us that, by PBS volume, Medicines Australia members held 47.3 per cent of the market and GMiA held 43.8 per cent, with other generics representing 6.1 per cent. That gives generics a total of 50 per cent of the market.

What are we arguing about here? It is completely ridiculous and pointless for the department to claim—irrespective of whether or not we have the correct data for generic medicines—that the most minimal figure for their share of the market has been given as 40 per cent; yet, instead of going back to them when a memorandum of understanding was signed, the department simply went ahead with basically a commercial-in-confidence deal with half to 60 per cent of the market through Medicines Australia and ignored the other half of the market.

The other fact that then came up, which certainly had been mentioned in submissions but not perhaps brought out as strongly as it was during this debate, was that no data is currently collected on medications under co-payment where they cost less than $33 or less than $5. According to the GMiA, a large percentage of products in that area are made by the generic medicines industry, yet the data is currently not collected in this area. GMiA say: ‘We keep our figures on that. We sell the stuff. We know how much of it we make. We know how much of it we sell. We’re not like the department, who has to rely on the PBS figures, where these are not recorded. On that argument, we make a significantly larger amount of the medication and the ones that do not cost the government anything because they are under the co-payment.’

To continue to put the view that this group could be easily excluded from negotiations and simply forced to come along on the coat-tails of the government’s deal with the half of the industry that will benefit substantially from the four-year moratorium on the pricing of some of the formularies is a complete nonsense. We will be opposing and seeking to amend this legislation on that basis.

I go on to point out that the coalition are absolutely in favour of making savings on the PBS. We invented the idea—when our current leader, Mr Abbott, was the health minister—of pushing for savings on the PBS and pushing for price disclosure so that it was transparent to the government what they were paying for and how they were paying for it.

Yes, it is true; PBS costs are growing quickly. In 2008-09 the cost of the PBS was 9.2 per cent higher than it was in 2007-08. In 2009-10 the PBS grew a further 9.3 per cent to an annual cost of $8.4 billion. The continued growth has been recognised by all manner of organisations and especially in the 2010 Intergenerational reporta series of reports which former Treasurer Peter Costello began so that we had a sense of how to have a sustainable Australia and an ageing Australia at the same time. The Intergenerational report for 2010 forecasts that spending on the PBS will increase in real terms from $443 per capita in 2012-13 to $534 per capita in 2022-23.

Not mentioned, of course, in this section of the government’s report are the savings that have already been realised. Since the policies of 2004 to push for cost savings in the PBS and to control prices by price disclosure, the savings that have been made in that area have been significant. The rate of growth of PBS expenditure has slowed significantly. Between 2004 and 2010, twice as much has been saved than was anticipated or forecast when the savings were put in place.

We are talking here about a deal that was done in 2007 for 10 years. The point was to do it for 10 years. It is delivering double the savings that were already anticipated. Yet we have the government incapable of not fiddling with this memorandum of understanding, and not just not fiddling but completely and ineptly overturning some of the benefits that have come out of this arrangement. In my view, the truth about the harm that can be done to the Australian pharmaceuticals market by this legislation lies somewhere between the two views that were given to our committee. It will not be as bad as the Generic Medicines Industry Association of Australia said, nor could it possibly be as good as the government and their current partners, Medicines Australia, claim.

The generic medicines industry makes the point that most of the drugs their members sell are made in Australia. They make the point that, if they cannot manufacture them here and make a profit, they will simply send that manufacturing offshore. We are talking about, at a minimum, 40 per cent of the generic PBS medicines market. I know from importing products in an earlier life that, if there is a storm somewhere in the China Sea or something like that, it can be quite possible for drugs not to arrive up to four months after the time they were supposed to arrive. Let us just hope that the forecasts made by the generic medicines industry in this area do not come to pass. If they do come to pass, we could have very serious shortages in areas of medicines that people simply must take.

This government does not seem to know when it should be subsidising industry to keep jobs onshore and when it should not. The generic medicines industry does not want any subsidies. The generic medicines industry wants a level playing field. They want the opportunity to compete, and one would have thought that even this government could realise that competition is what will continue to drive price reductions in this area, not favouring one section of the industry over another section of the industry.

There was also evidence given by the wholesale distributors, both by their association and by a number of their members, regarding what exactly is going to happen in the weeks leading up to the drop in the value of pharmaceuticals in this area. Whilst the view might be put that this could be very easily handled, we took evidence along the lines of: what pharmacy in its right mind is going to be well stocked with medicines when the price is going to drop something like 12½ or 27 per cent tomorrow morning? Why would you do it? What is the sense of it? You would try to be out of stock at that stage or to have as little stock as possible and then, come D-day in January, you would stock up as fast as you could. The department thinks that all sounds fine; but, if somebody could explain how distributors are going to handle what is basically four or five times the level of business they would normally expect at that time, I would be interested to hear it. Pharmacies certainly have some very serious concerns about it. It is not as if we are running out of one particular brand of cornflakes or something. It is about the fact that these pharmacies will have no stock of particular medicines. I hope that over Christmas the government and the department think about how that will affect Australian consumers and, one hopes, reflect on the anger that they may experience if consumers cannot buy their drugs on prescription when they need them in the new year.

The pharmacists also point out that this change is being imposed on them during one of their busiest periods, the Christmas period. It is not just for medications but for all the other products that pharmacies sell to make a profit—the gift sections and the like. December is their busiest time. Every product in the place has to be re-ordered and repriced in that time. (Time expired)

Russell Trood (Queensland, Liberal Party) Share this | Link to this | Hansard source

The Pharmaceutical Benefits Scheme is an elemental part of the way in which we deliver good health outcomes in Australia. It has been an institution at the core of the way in which Australians have received their medicines for many decades. We have been fortunate because the scheme works, for the most part, very effectively. It delivers high-quality medicines, it delivers safe medicines and in many ways it delivers medicines which, compared to some countries, are reasonably priced.

But the challenge is to maintain the integrity of the scheme to ensure that the scheme tries to be relatively efficient and continues to achieve those kinds of objectives. The particular challenge with which we are all concerned here in this debate, and a matter with which we are all very familiar, is the rising cost of medicines. To create new medicines is a very expensive business. Not surprisingly, those companies that are creative and inventive enough to produce new medicines for the benefit of the community are able to secure patents and some cost-benefit as a consequence of all of the research that they actually undertake.

We on this side of the chamber are very conscious of the challenge to contain the costs involved in the Pharmaceutical Benefits Scheme. So, in the spirit of that concern, we do support the desire to secure these $1.9 billion of savings from the PBS. We support the general direction of these reforms, as my colleagues have said, but we do think—and I am certainly of this view—that these reforms raise some very serious questions which have not been answered by the submissions to the committee. The department was inadequate, to say the least, in providing reassurance during the committee stage of the progress of the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 through the Senate.

These are the matters that we think need to be ventilated in this debate. We urge the government to take them seriously. We think the bill needs attention. We think the matters which we raise are serious. I note that the Greens share some of these concerns. In that context I think there is widespread concern about the nature of these reforms amongst members of not only the coalition but other parties in the Senate.

The reforms build on the reforms which were introduced in 2007. They were, I suppose one could say, amongst the most radical that have been introduced to the PBS over its many decades of existence. There were quite wholesale changes to the way in which medicines were delivered. They introduced categories of formularies for medicine. They introduced new pharmacy and wholesale support arrangements. The promotion of generic medicines was an important part of those reforms. There was the streamlining of the approval process for some medicines. Whilst it has not been alluded to in the debate I have heard this morning, there are in fact further changes in relation to the approval process which we on this side of the chamber actually support. The final thing that occurred in 2007 was the introduction of price disclosure as a way of securing significant savings for the future.

These were all very significant reforms. Because they were significant and because people realised what a widespread impact they were going to have on the PBS, they were to be introduced over a 10-year period. In fact, it was significant that only a small number of medicines were actually included in the early proposals for price disclosure—162. My own view is that with these reforms we have created an extraordinarily complex system within the PBS. There are simpler ways of providing medicines to the Australian public which would secure the kinds of cost savings that we all think are important. It would be instructive if we were to take some time to look at other examples around the world and consider whether we should undertake those kinds of reforms in Australia. But that is not the debate we are having today. Mandatory substitution and tendering in relation to medicines, for example, are some approaches that other countries have adopted, but those are issues that are perhaps for another day.

The 2007 reforms, as my colleagues have noted, were anticipated to yield significant benefits to the government—in the vicinity of $3 billion over a 10-year period. The submission to the committee by the Pharmacy Guild of Australia points out that there have been three independent studies of the progress of these reforms so far and each of those studies has demonstrated that the reforms have produced savings to the PBS far in excess of those projected—not just trivial amounts of money or small additional benefits but benefits that range between $5 billion and $7 billion. There is even a suggestion that the returns to the PBS might be considerably greater. It could be in the vicinity of $9 billion over this 10-year period. The calculations which were made in relation to the 2007 reforms are already way out of date, and those changes are already bringing considerable savings to the PBS.

I think it is reasonable to ask: why, in the context of a 10-year reform program that is bringing considerably larger savings to the PBS, are we now, just two or three years into that program, introducing another set of reforms on top of those which the industry has barely accommodated? They were radical reforms, as I said, and they are only now being bedded down. Of course, the answer to that question is that the government is desperate for money. It is desperate because its budget bottom line is in a mess and it needs every means possible to secure more revenue for the Treasury coffers.

These seem to be useful reforms, but the impact of imposing them on a process of reform which is already taking place seems not to have been well thought through or very well considered. There is every potential, as my colleague Senator Boyce said so eloquently, that these reforms will produce a considerable disruption to the supply of medicines to the Australian market. That would have serious consequences. I know the Department of Health and Ageing are disbelieving; they treat such concerns with great contempt. They are not persuaded this is a problem. They are not persuaded by any of the evidence presented to the committee that this is a challenge which has to be met into the future. If you look at the reality of the existing reforms, you can see that there have already been difficulties in relation to 162 listings, including a legal challenge or two. So when we are talking about producing whatever the number of medicines might be—and there seems to be some dispute about whether it is potentially 1,600, but it is a large number of additional medicines, certainly well beyond 162—it is almost inconceivable that there would not be some quite significant issues and problems in relation to administration, data collecting and things of that nature. So the department ought to think seriously about the consequences of these reforms and the impact they are going to have just on the market, let alone on the suppliers et cetera.

There has been considerable debate about the rising cost of the PBS, as I have said. It will grow significantly in the years ahead; there is no doubt about that. As new medicines come on, the costs increase, particularly when they are subject to patents. And the proposition which does not seem to be challenged by anybody is that the costs of medicines in the F1 category will grow more quickly than the costs of medicines in the F2 category. In fact, the Generic Medicines Industry Association said in a submission to the committee that, between 2005-06 and 2009-10, the cost to the government of F2 medicines had declined by 21.4 per cent while the cost of those in the F1 formulary had risen by 35.4 per cent over the same period. So we face a situation where the costs of F1 are rising, the costs of F2 are declining, and the point about these reforms is that they target very specifically the F2 medicines and impose essentially the whole burden of the cost savings on the F2 formulary—save for the fact, which I acknowledge, that some companies that are part of the Medicines Australia group and have generic medicine activities will bear some of the cost pain. But the essential point is that the costs of this reform are being borne by the F2 section of the industry. In fact, not only are they bearing the costs but it would seem that the companies in the F1 market are insulated from further reforms which might actually save further money to the PBS. The MOU which has been signed, and which has been referred to already in this debate, seems to insulate the F1 companies and that section of the market from undertaking any serious reforms.

We take the view, and I certainly take the view, that the Commonwealth should be doing everything it reasonably can to share the burden of the cost savings across the whole of the PBS. All sectors should be contributing to the savings, including the companies in the F1 formulary. They ought to be making a proportionate share of the savings. They certainly should not be in a position where they are being insulated for a long period of time—four or five years—from being required to take steps to save money, save in those circumstances where their drugs might come off patent. That is what the MOU between Medicines Australia and the Commonwealth actually does, because it specifically rules out various measures which might actually save money to the PBS over a period of time. I note that Senator Moore sought to address this issue, but the therapeutic groups seem to be a proven way of saving money to the PBS. This is not just my assessment; it is the assessment and part of the evidence given to the committee by DHA last week. It is recognised that therapeutic groups offer significant cost savings to the PBS, and the creation of new therapeutic groups is actually precluded under the MOU which has been signed between Medicines Australia and the Commonwealth. I am not persuaded that this is in the interests of the Australian consumer. I am certainly not persuaded that it is in the interests of the reforms that are in this legislation. Why the burden of costs should not be shared amongst all parties is a mystery to me. This legislation and the MOU in particular deny that possibility.

We have heard quite a lot about the MOU and the way it was negotiated. I want to add my voice to the concerns that have been expressed by Senator Fierravanti-Wells and Senator Boyce about how it was negotiated. It was very specifically a case where there were only two parties to the negotiation: the group of companies which constitute Medicines Australia and the Commonwealth. We can go through all the rigmarole if we like about the way in which it came about and the various consultations that occurred between various groups, but the reality is that the Generic Medicines Industry Association, one of the groups which had a very significant interest in the nature of this MOU, one of the groups which would be most adversely affected by the consequences of the MOU, was excluded from the negotiations. An argument presented to the committee was that the reason for this was that the GMiA had a relatively small proportion—it was even suggested, an almost insignificant proportion—of the drug market in Australia and therefore it had no standing to be included. The evidence on the proportions of the market which Medicines Australia and GMiA have is highly contentious. The data seems to me to be highly unreliable. One of the consequences of these reforms is that we will be in a position to have more reliable data into the future, and that is highly desirable. But it is a profound shortcoming of this particular process that GMiA members were excluded, particularly when their interests were so badly affected. It reflects no glory on the department that the negotiation proceeded in this way. The evidence before the committee in submissions was that the GMiA had only learnt of the MOU a couple of days before the federal budget was brought down earlier this year.

There are serious shortcomings in this legislation. My colleague Senator Boyce has alluded to many of them. The difficulty is that price disclosure dates and the dates at which the price of medicines will be reduced seem to me to be manifestly too limited. The timetable is not a timetable which is actually going to facilitate the supply lines. It is not going to facilitate the assurance that we all want—that we will have safe drugs coming onto the market and that they will be available in a timely way. It has the potential, not only for drug manufacturers but also for wholesalers, retailers and everybody involved in the industry, to be highly disruptive to their activities.

There is one particular anomaly that I want to allude to in relation to these matters, and that is with regard to the medicines which are in schedule 5 of the act. There are, I think, three medicines—the names of which I do not have with me—that are on patent. So the cost of these medicines cannot be reduced in any way but they are included in the process of price disclosure. That is a manifestly inappropriate way to try to determine the costs of medicines—to include them in the price disclosure activity. If the government does nothing else in amending the bill that is before the parliament, it certainly should remove those three medicines from that schedule because they cannot be subject to price cut because of the fact that they are on patent and they are highly distorting to the actual price disclosure costs. I think it is probably an error that they were there in the first place, but they are and that ought to be rectified because it is not helping the progress of the reforms.

These overall reforms are important. They will yield savings. We want those savings to be yielded to the Commonwealth. Given the estimate we had on the last occasion, I suspect the proposed $1.9 billion of savings will be very much higher—and that of course is to the advantage of the PBS. But there need to be some changes here. We need to see that the failure of these negotiations and the consequences that it actually had are rectified so that we spread the pain more widely throughout the pharmaceutical industry. That would be not only a fair and equitable result but also better for those of us who actually need these medicines in a safe and timely way. (Time expired)

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

Reforming the PBS to ensure that government is getting the best value for money is a very important issue. We have an ageing population in Australia, and this means that there is going to be even more spent on the PBS and it is going to increase going forward every year. I am mindful of the reforms that were negotiated back in 2007 under the Howard government, and I do believe that there are compelling arguments to suggest that we can do even more in reforming the PBS. The MOU negotiated between the government and Medicines Australia does go some way towards doing this.

Under the measures set out in the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 there is a projected significant cost saving of $1.9 billion for the taxpayers. That is a good thing. It does not make sense for taxpayers to be paying for medicines at a price which is well above what the pharmacies are paying for them in the first place. There are a number of drugs where the government is paying to the pharmacies a premium of between 40 per cent and 60 per cent above the actual purchase price. This is a waste of taxpayers’ money. It is being forked out, going directly into the pockets of those in the supply chain with no direct benefit to the consumer. It makes sense for the government to try to address this discrepancy, and I support the thrust of what the government is trying to achieve with this bill.

The problem is that the MOU signed between the government and Medicines Australia is by no means perfect. The government are trying to save money and are tackling one part of the supply chain. They have largely focused on the F2 medicines category without, I think, really looking hard enough at the F1 category. Doing this may—and the word to note here is ‘may’—have a serious economic effect on the generic medicines industry. Generic medicines play an important role in making medicines affordable for Australians. They also play a very important role in manufacturing and jobs in Australia. We need to continue to ensure that that industry can continue to thrive and grow. I notice that the government has done this with the car industry.

I am little a concerned that maybe the generic manufacturing industry in Australia is at risk. I am all for the government paying less for drugs on the PBS, but at the same time I believe in supporting manufacturing jobs in Australia and having a vibrant industry on our shores. There is concern that the reforms in this bill have not fully taken into account the concerns surrounding jobs in Australia and the viability of manufacturing. That is where my concerns lie. I have raised the issue of jobs with the Minister for Health and Ageing. I will not put words into the minister’s mouth, but my conclusion is that I do not think those concerns are being taken seriously enough.

I see some merit in what the coalition’s second reading amendment is trying to do. From what I understand from talking to another senator in this place, there could be the idea of putting the vote on the second reading of this bill off until another time to try and work out how we can look at the concerns about jobs in manufacturing of generics in Australia. I will leave it there. I hope that common sense will prevail and that there will be further discussions with the generic medicines industry and a further focus on jobs and the concerns I have in that regard.

Judith Adams (WA, Liberal Party) Share this | Link to this | Hansard source

In the few moments that I have I would like to say that the coalition supports the intent of the memorandum of understanding. The coalition does not stand in the way of the savings in the proposal but believes savings can be achieved via far more equitable negotiation of the MOU. During the Senate inquiry there were many concerns about the government’s failure to adequately consult all parties with material interest in the sector, particularly the Generic Medicines Industry Association, the National Pharmaceutical Services Association and the Consumer Health Forum.

I will state how the National Pharmaceutical Services Association felt about the consultation process. Unfortunately, as Senate inquiries go on, consultation seems to be a very difficult issue for this government. We find that a number of policies are adopted and the cry is that nobody consulted the industry beforehand. The National Pharmaceutical Services Association made the following comments with respect to consultation: at no stage was the organisation privy to or consulted on the proposed PBS reforms agreed to in the MOU with Medicines Australia; NPSA was not able to negotiate transition arrangements to ensure that supply is maintained under the new arrangements; NPSA would have sought to discuss the need for transition funding if it had been given the opportunity; if consulted, NPSA would also have sought to make recommendations with respect to how to ensure that supply is maintained when the price changes are effected; it is unclear whether the savings in wholesale margin funding are included in either the guild or the Medicines Australia savings; and, if the savings from the wholesale margin have not been taken into account when calculating the $1.9 billion of savings under the Medicines Australia MOU, then any adjustment mechanism in favour of the wholesalers would not impact on the total savings.

The minority report by coalition senators listed some recommendations. The first recommendation was:

The MOU negotiated between the Commonwealth and Medicines Australia be set aside—

until we can come up with some other way of having the other organisations included in the consultation. The second recommendation was:

The Commonwealth undertake a fresh set of negotiations to develop a new MOU which will secure the identified $1.9 billion cost savings in a more equitable manner.

The third recommendation was:

All parties possessing a material interest in the outcome of the proposed reforms or whose material interests are affected by the reforms be involved in the negotiations, including the members of the GMIA, the Pharmacy Guild of Australia and the National Pharmaceutical Services Association.

The fourth recommendation was:

The National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 be amended in light of the contents of the new MOU and be represented to the Parliament in amended form for reconsideration and approval or alternatively, that the Government withdraw the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 and a new Bill be introduced.

Those were the recommendations after hearing the evidence and reading the submissions.

Generic medicines drive competition and cost savings for consumers and the government. It is claimed that the government’s proposal may compromise access to affordable, high-quality medicines in the long term. Significant price cuts without volume drivers under this measure may detrimentally affect the viability of the sector which drives PBS savings for government. These issues could have been avoided through better consultation and actual negotiation with all stakeholders. Evidence suggests that additional savings can be achieved in consultation with all key stakeholders and should be fully explored by the government.

The coalition successfully implemented a 10-year reform plan for the PBS in 2007 which will deliver far greater savings than anticipated. The government’s own report, The impact of PBS reform, shows that the coalition’s reforms will deliver savings of up to $5.8 billion over the 10-year implementation period compared to the estimated $3 billion. Whilst the coalition are not in a position to support the bill given the outstanding issues, we do support the intent of the MOU and believe that more savings can be achieved through better consultation. The coalition stands ready to support the measures which achieve this end. The coalition calls on the government to delay consideration of the bill and renegotiate savings proposed under the MOU with all stakeholders.

Nick Sherry (Tasmania, Australian Labor Party, Minister Assisting on Deregulation) Share this | Link to this | Hansard source

The National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010 will amend the National Health Act 1953 to deliver a more efficient and sustainable Pharmaceutical Benefits Scheme, better value for money for Australian taxpayers and policy stability for the pharmaceutical sector. The world-class PBS system provides timely access to medicines for all Australians. 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. The proposed changes to pricing policy recognise that discounting already exists in the market for many PBS subsidised medicines.