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Strengthening Your PBS – Preparing for the future

The Pharmaceutical Benefits Scheme (PBS) gives Australians access to a wide range of medicines, allows for choice between different medicines for patients and doctors, and is affordable for individuals and the community.

PDF printable version of Strengthening Your PBS – Preparing For The Future (PDF 62 KB)

16 November

What is the Pharmaceutical Benefits Scheme (PBS)?

The PBS gives Australians access to a wide range of medicines, allows for choice between different medicines for patients and doctors, and is affordable for individuals and the community.

In 2005-06 the Government paid just over $6 billion in PBS subsidies, making up the difference between the standard co-payments that patients pay and the actual price of purchasing and supplying the medicine. In 2005-06 around 170 million subsidised prescriptions were dispensed, or eight scripts for every person in Australia.

The PBS subsidises access to more than 600 medicines, available in 1,800 forms and marketed as 2,600 differently branded items.

Has the PBS stopped growing?

No. In 2005-06, more than $6 billion was spent on the PBS. In 2006-07 this is expected to increase to around $6.5 billion. It is true that the PBS grew less than expected in 2005-06, but it still grew at a rate of 2.7 per cent which is a very significant amount in such a large program.

Already since August this year, new drugs worth more than $1 billion (over the next four years) have been listed on the PBS. These include drugs like Herceptin® for early breast cancers at a cost of $470 million over the next four years, Lantus® and Levemir® for the management of diabetes ($145 million over four years), and widened eligibility criteria for lipid lowering drugs like simvastatin ($158 million).

What changes are being made to the PBS?

Beginning from July 2007, the Government will introduce a number of changes to protect patients from higher out of pocket costs, get better value from market competition among brands of generic (off-patent) medicines and recognise the importance of world-class life-enhancing drugs to patients.

The fundamentals of the PBS will not change. Patients will continue to meet only the standard co-payments and in some cases will also pay less. The main changes will be in the way that the Government prices medicines that are operating in a competitive market. These medicines will take a series of price drops, and eventually will move to a system where the price they are actually being sold in the market will reflect the price that the Government pays.

The Government has carefully considered a large range of ideas and options for obtaining the best price for PBS drugs. These changes benefit patients, pharmacists, doctors and the taxpayer. They will make a good system even better.
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Why are changes to the PBS needed?

The PBS is an excellent system for funding access to medicines and has served us well for many years. In recent times, however, the Government has been paying too much for many medicines where there is a competitive market operating.

We know that patents for over 100 medicines are due to expire over the next ten years, providing a unique opportunity to make some changes to the PBS. Changes will be made to the pricing arrangements for medicines to make sure that the Government pays reasonable prices without increasing the costs for patients and taxpayers.

What will change?

From 1 August 2007 medicines on the PBS will be separated into two groups, each subject to different pricing arrangements:

• Medicines where there is only a single brand listed (referred to as F1). It contains both on patent and off patent medicines that are not substitutable with other brands or medicines. There will be no mandatory price reductions for these medicines and existing price linkages will be retained within this group.
• Medicines where there are many brands listed and groups of medicines that are interchangeable between patients (referred to as F2). There is already the requirement for a 12.5 per cent price reduction when the first new brand of a medicine is listed on the PBS. From 1 August 2008 a further reduction in the prices of these medicines will be required:

- A price drop of 2 per cent a year for three years for medicines where price competition between brands is low; and

- A one-off price drop of 25 per cent for medicines where price competition between brands is high.

Separating the list of F2 medicines between those with low competition and those with high competition has already occurred. This has been done on the basis of information provided to the Department by stakeholder groups involved in the selling and purchasing of pharmaceuticals. For example, medicines such as simvastatin, omeprazole, ranitidine, amoxycillin and felodipine have all been identified as multiple brand medicines where there is high competition. Around 100 molecules currently costing the PBS $2 billion a year will fall into the high competition group.

Over time the Government will move to a system of price disclosure, where the price that the Government pays will reflect the actual price at which the medicine is being sold.

Will reference pricing continue?

Reference pricing links the price of a medicine to the price of other medicines that provide a similar health outcome. It will continue for F1 medicines in reference price groups and for F2 medicines that belong to groups of medicines that are interchangeable between patients. If a price change occurs for one of these medicines, this will flow to the others.
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How will price disclosure work?

Price disclosure will be phased in for medicines that operate in a competitive market:

• For medicines where price competition is low, suppliers of any new brand listing from 1 August 2007 will agree to disclose its price as a condition of listing. Price changes based on disclosure will commence for these medicines from 1 August 2009.

• For those medicines where price competition is high, suppliers of any new brand listing from 1 January 2011 will agree to disclose its price as a condition of listing. Price changes based on disclosure will commence for these medicines from 1 August 2012.

When the first new brand of a single brand medicine is listed on the PBS that medicine will become subject to regular price reductions and price disclosure.

What are the benefits for patients?

These changes do not impact on the fundamentals of the PBS. Patients will continue to have access to a choice of medicines. There will be no reduction in the range or number of medicines.

Patients will continue to pay the standard co-payment contribution (currently $4.70 for concessional patients and $29.50 for general patients). For some medicines that are cheaper than $29.50, patients will pay less.

There are also future benefits for patients. It is less likely that additional patient charges will be added or that medicines will be withdrawn from the PBS.

What are the benefits for pharmacies?

Pharmacies will be helped to adjust to new arrangements. The adjustments are a transitional arrangement to reflect the commitments made by the Government to pharmacists in the Fourth Community Pharmacy Agreement.

From 1 July 2007, 40 cents will be paid to pharmacists for each prescription processed using PBS Online. This will encourage more pharmacists to join up to PBS Online, creating efficiencies in the administration of the PBS.

From 1 August 2008, the fees for supplying a PBS medicine will increase. As well, there will be an incentive payment of $1.50 each time a medicine is dispensed that costs the patient no more than the standard co-payment.

These initiatives will ensure that patients are aware of their right to pay no more than the co-payment for their medicines and should lead to a greater use of generic medicines and more efficient eligibility checking and processing of prescriptions by pharmacists.
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Will timely access to medicines across Australia be continued?

The Government remains committed to ensuring that all Australians have timely access to the PBS medicines they require through their community pharmacies, regardless of where they live. From 1 August 2008 additional funding will be provided to the Community Services Obligation Funding Pool, which was established under the Fourth Community Pharmacy Agreement. $23 million a year will be added. This will support CSO distributors to continue to supply the full range of medicines anywhere in Australia, generally within 24 hours.

What are the benefits for doctors?

From 1 July 2007 doctors will be able to authorise the prescriptions they write for around 200 of the 450 medicines that currently require a pre-approval phone call to Medicare Australia. This will impact on about 70 per cent of the scripts that currently require an authority approval and means that doctors will make about 30 per cent fewer phone calls to Medicare Australia to obtain pre-approval. These changes will reduce unnecessary administrative burden on doctors so that they can focus their time on patient care.

This will apply to medicines for the treatment of long term chronic conditions (such as diabetes and osteoporosis) where the patient and doctor are both very familiar with the condition and medication. Medicare Australia will undertake education and monitoring to ensure doctors are aware of the changes.

How will generic medicines be affected?

The Government is considering the development of a public awareness campaign to promote the use of generic medicines. A campaign would build on previous initiatives to ensure that patients and health professionals are aware of the safety, health and economic benefits of generic medicines.

Will these changes ensure Australians continue to have access to world-class, life-enhancing medicines?

The Government wants the Australian community to continue to have access to new, life-enhancing therapies. By getting better value for existing medicines, the capacity to list new medicines is strengthened. New pricing arrangements support this, by enabling cheaper prices to be paid where a competitive market is operating.

As well, the Department of Health and Ageing and Medicines Australia will continue their recent, joint focus on access to new, life-enhancing medicines and will monitor the impact of the reforms on all medicines.

What level of savings can the Government achieve through these changes?

Over the next 10 years savings of more than $3 billion are expected, with savings of more than $580 million in the next four years.

Will legislation be needed?

The Government will introduce legislation for the new pricing and price disclosure arrangements. Price disclosure systems operate successfully in other comparable countries, such as the USA and the UK, where it is legislated. Information on cash and in-kind arrangements negotiated with pharmacies is collected as part of disclosure. We will learn from the experiences of other countries in developing a price disclosure system for Australia.
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When do these changes take effect?

Element	Start Date
Creation of separate lists of PBS medicines	1 August 2007
Price reductions for F2 medicines	1 August 2008
Requirement to agree to price disclosure when listing new brands	1 August 2007 – low price competition 1 January 2011 – high price competition
Prices adjustment based on disclosure	1 August 2009 – low price competition 1 August 2012 - high price competition
Streamlined prescribing of authority prescriptions	1 July 2007
Pharmacy incentive of 40 cents for prescriptions processed using PBS Online	1 July 2007
Pharmacy incentive of $1.50 per premium-free prescription dispensed	1 August 2008
Changes to pharmacy mark ups and dispensing fee	1 August 2008
Increase to Community Service Obligation Funding Pool for pharmaceutical wholesalers	1 August 2008