Funding the PBS machine

Will a new scheme forcing pharma companies to pay for PBS listings have a downside for patients, doctors and industry? Pamela Wilson takes a look.

WITH one hand the Government giveth, with the other it taketh away.

That’s how some health industry experts believe the new PBS cost-recovery plans will work.

There’s widespread concern that this legislation, recently passed by Federal Parliament, will increase the cost of medications and impact on the availability of targeted, or orphan, drugs for Australian patients.

It works like this: from January, pharmaceutical companies will have to pay almost $150,000 to lodge a ‘major’ submission with the Pharmaceutical Benefits Advisory Committee (PBAC) if they want their drug to be listed on the PBS.

But with a trend towards increased rejection rates – 50% of submissions are rejected first time around, according to Medicines Australia (MA) – this cost is likely to be much higher.

The Government believes taxpayers should be rejoicing, considering this legislation will generate revenue of up to $14 million annually.

It has also told Parliament that the industry can afford this impost, considering that in 2007-08, the top 20 pharmaceutical companies received an average $241 million through government subsidies.

“It is a sensible proposal to recover costs from pharmaceutical companies, which gain significant financial benefit within the PBS subsidy framework,” says a spokeswoman for Health Minister Nicola Roxon.

“Australians who use the PBS will not be required to pay any extra for PBS-listed medicines or vaccines as a result of this initiative.”

But there is speculation the negative impacts of cost recovery, a system already used by the TGA, could outweigh any benefits and that it might:

• Prompt some pharmaceutical companies – especially smaller ones – to forgo PBS listing and offer medications on private script only
• Discourage overseas pharma manufacturers from bringing their drugs to Australia
• Deter innovation and new indications being sought by local manufacturers.

“There is already a cost disincentive in the TGA approval... and then you have to put in an extra application to get on the PBS, and, especially if it’s not a high-volume drug, they will be reluctant to go for it,” warns AMA president Dr Andrew Pesce.

He says it may also impact on doctors’ prescribing habits, because they could be forced to write more prescriptions for medications that aren’t on the PBS.

The AMA opposed the idea from the outset, stating in its submission to an inquiry on the legislation that pharmaceutical companies would “legitimately” pass on fees, either through higher listing prices or at the point of sale, and that companies may decide “there is no business case to bring a new product to the Australian market”.

The policy could also stifle innovation, according to MA acting chief executive Dr Brendan Shaw (PhD), who argues that while innovation is the core business of MA members, there will be instances where companies will choose “not to seek PBS listing where there is only marginal commercial benefit”.

“The increased financial burden will have the greatest impact on small companies and the patients who rely on their products,” Dr Shaw says. “The smaller companies will be forced to think hard about their priorities.”

MORE PRIVATE SCRIPTS

One pharmacy industry source, who did not wish to be named, agreed: “If it’s for a small population... then conceivably it will impact on innovation and... orphan drugs.”

The source says an increase in private scripts, which now stands at about 5% of all scripts, would see more patients paying for medications not subsidised by the PBS.

“[The ratio of private scripts] is going to increase massively, but [part of] the reason is the genericisation of the industry in a year’s time. With so many drugs coming off patent [leading to an increase in generic copies]... you’re going to see a lot more private scripts, and a lot more registrations without necessarily going through the PBAC process.”

He adds that the price of PBS medications in general could rise because pharmaceutical companies will be able to demonstrate increased costs when negotiating price with the Government.

And he argues that industry doesn’t necessarily object to cost recovery per se.

“What we do have an objection to is... that Nicola Roxon has deliberately and specifically introduced legislation in a manner which doesn’t require [the] PBAC to be accountable for the costs they charge.”

PBAC funding will continue to come from the Federal Budget, and the committee won’t be involved in discussions on cost-recovery fees.

The Government believes this will guarantee the independence of the PBAC, but some feel it will hamper transparency.

“You have to demonstrate that your costs are real, you have to demonstrate performance against that cost recovery because you’re taking money from business, and you should show a level of transparency,” the source says.

“The TGA does precisely that, and it has become a lot more efficient [and] effective. The industry has very little concern with the way the TGA operates... because it works under commercial principles.”

Meanwhile, many stakeholders have expressed concern during the debate that the legislation doesn’t meet the Government’s cost-recovery guidelines, which state: “Cost recovery should not be applied where it is not cost effective, where it is inconsistent with Government policy objectives or where it would unduly stifle competition or industry innovation.”

However, the Government has said that a discretionary waiver of fees will be considered for niche products with a small market, and those developed by smaller companies.

BAD TIMING

Cost recovery has come at a time when the pharmaceutical industry has already been hit by various reform measures, including the creation of a new therapeutic group for statins.

This has reduced the price of these medications and has shaved an estimated $175 million over four years off the bottom line of statin manufacturers Pfizer and AstraZeneca.

The industry is also without a captain, after Ian Chalmers resigned as MA chief executive last month. And his handling of this issue has been nominated as a reason.

“Some say that was the first nail in Ian Chalmers’ coffin... that he should’ve been much more communicative with Government... and gave confused messages to Government as to what the [industry] position was [on cost recovery],” the industry source says.

Dr Shaw adds that pharma has already given enough concessions to the Government.

“The introduction of PBS reform measures has already come at a considerable cost to the industry,” he says.

“Medicines Australia endorsed those reforms in the interests of PBS sustainability and in return for commercial certainty and stability around the operation of the PBS... [so cost recovery] comes on top of savings already delivered by the industry.”

UNLIKELY SUPPORT

Interestingly, support for the legislation has come from an unlikely source: Bayer general manager Hans-Dieter Hausner.

Mr Hausner was recently quoted in Pharma In Focus saying that other countries may follow Australia’s lead as they look for alternative ways to pay for increasingly expensive drugs.

The policy also has cautious support from the Consumers Health Forum of Australia. Executive director Carol Bennett says the discretionary option to waive fees for certain products could address any concerns about innovation, while a mandatory independent review process at the two-year mark will enable any problems to be ironed out.

So long as patients are put first in this process and the Forum is involved in the review process – which the Government has already committed to – Ms Bennett is confident the scheme will meet the Government’s and patients’ needs.

“There are a couple of safety nets... so I think there are options if it’s not working,” she says.

“I am confident we can work through any issues.” 

The protracted cost recovery saga

Our federal politicians have changed their minds so many times on PBAC cost recovery that it’s been difficult to keep up. The contentious issue almost triggered an early election, has been blamed for the resignation of former Medicines Australia chief executive Ian Chalmers and has caused tensions between the Government and industry. Here, we bring you up to speed.

• 2005-06 – Cost recovery announced by then-Treasurer Peter Costello. Implementation delayed due to ongoing consultations.
• May 2007 – As shadow health minister, Nicola Roxon tells Parliament: “The PBAC needs to be independent of government and of industry, and we cannot see the justification for this move to the cost recovery model.”
• May 2008 – The Labor Government implements the National Health Amendment (Pharmaceutical and Other Benefits – Cost Recovery) Bill 2008 as a Budget measure.
• August 2008 – The Senate rejects the Bill on the grounds the Government hasn’t allowed sufficient consultation or scrutiny of it.
• May 2009 – The Opposition continues to oppose the Bill – despite cost recovery initially being their idea – unless a number of amendments, including an independent review after two years, are accepted.
• 15 June, 2009 – The Bill, with amendments, is agreed to. Had it been rejected a second time, the Government could have used it as a double dissolution trigger.