Online version of the 2012-13 Department of Health and Ageing Annual Report

Appendix 2: Pharmaceutical Benefits Pricing Authority - Annual Report for 2012-13

Page last updated: 29 October 2013

This is the twenty-sixth annual report of the Pharmaceutical Benefits Pricing Authority (PBPA) covering the operations of the PBPA for the year ended 30 June 2013.

Pharmaceutical Benefits Pricing Authority

The PBPA is an independent non-statutory body established in 1988 which is required to:

  • review the prices of products supplied under the Pharmaceutical Benefits Scheme (PBS) and, since 2006, the vaccines on the National Immunisation Program (NIP); and
  • advise on the pricing of new items that are recommended for listing on the PBS and the NIP.

The PBPA, along with the Pharmaceutical Benefits Advisory Committee (PBAC) and its sub-committees, evaluates all submissions from sponsors for the listing and pricing of drugs on the PBS. While the PBAC is a statutory committee that assesses the clinical benefit and cost-effectiveness of drugs, the PBPA is a non-statutory committee that recommends prices of drugs for PBS listing purposes.

The PBPA’s objective in reviewing prices of items listed under the PBS is to secure a reliable supply of pharmaceutical products at the most reasonable cost to Australian taxpayers and consumers, consistent with maintaining a sustainable pharmaceutical industry in Australia.

Under its terms of reference, the PBPA is required to recommend to the Minister for Health prices of items listed as pharmaceutical benefits or recommended by the PBAC for listing.

Final decisions on the listing of medicines and vaccines are made by the Government. Currently, all positive recommendations made by the PBAC and the PBPA which have a financial impact for the Commonwealth Budget are being considered by Cabinet.

Factors considered by the PBPA

In reviewing the price of listed items and in considering the price of items recommended for listing, the PBPA takes account of the following factors:

  1. PBAC comments on clinical and cost effectiveness aspects of items;
  2. the prices of alternative brands of a drug;
  3. comparative prices of items containing drugs in the same Anatomical Therapeutic Classification (ATC) Group;
  4. costs information, when provided by the responsible person or estimated by the PBPA;
  5. prescription volumes, economies of scale and other factors such as expiry dates, storage requirements, product stability and special manufacturing requirements;
  6. prices of items containing the drug in reasonably comparable overseas countries;
  7. other relevant factors which the applicant company may wish the PBPA to consider; and
  8. any directions of the Minister.


The PBPA’s membership for the 2012-13 financial year was:

Chair Mr Michael Roche
Industry nominees Dr Brendan Shaw – Medicines Australia Ms Kate Lynch – Generic Medicines Industry Association
Consumer nominee Ms Jo Watson – Consumers’ Health Forum, Australian Consumer’s Association and Australian Federation of AIDS Organisations (previous) Ms Karen Carey – Consumers’ Health Forum (current)
Department of Health and Ageing Representative Ms Adriana Platona
Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education Representative Mr Peter Lunn (previous) Mr Peter Chesworth (previous) Ms Julia Evans (current)

Secretariat Support

The PBPA is serviced by a Secretariat staffed within the Pharmaceutical Evaluation Branch of the Department. The Secretariat is responsible for making logistical arrangements for PBPA meetings, preparing agenda papers, taking minutes of meetings and notifying affected parties of the outcomes of PBPA deliberations. The Secretariat also conducts negotiations with responsible persons, where necessary, on proposed prices.


PBPA meetings are held three times a year and are coordinated with meetings of the PBAC so that the PBAC outcomes can be dealt with as soon as possible, consistent with the need to collect pricing information.

Establishing prices for new listings

For new or extended listings recommended by the PBAC, the PBPA may advise the price to be negotiated by the Department. The PBAC recommendation, based on economic evaluations considered by the Economics Sub-Committee, is a major consideration in determining initial prices.

Increasingly, the PBPA considers deeds of agreement containing risk sharing arrangements to contain overall costs of drugs on the PBS and to manage the financial risks to the Government resulting from uncertainty about drugs utilisation.

At 30 June 2013 there were 76 deeds of agreement in place or in development.

A comprehensive overview of the different pricing methods used by the PBPA, including cost-plus method, reference pricing and different types of risk sharing arrangements, is provided in the PBPA’s Policies, Procedures and Methods manual. This manual is available on the Department’s Pharmaceutical Benefits Schedule (PBS) website.111

Reviewing prices for existing items

The main mechanisms used by the PBPA for reviewing prices of pharmaceutical benefits supplied through the PBS are:

  • reference pricing, i.e. comparing the prices of products that are considered by the PBAC to produce similar health benefits;
  • further cost-effectiveness justification by the responsible persons to the PBAC; and/or
  • a margin on the cost of manufacture, or landed cost.

These mechanisms are outlined in the PBPA Policies, Procedures and Methods manual.112

The PBPA may also request additional data from responsible persons, including drug utilisation data, so that relevant treatment costs can be independently calculated.

Therapeutic Relativities

The PBPA issues relativity sheets113 that identify the basis of pricing comparisons between therapeutically similar products. These are mainly based on advice from the PBAC. If necessary, clarification can be obtained from the Secretariat, and the relativities may be changed by the presentation of further data to the PBAC.

Annual Scheduled Review of Anatomical Therapeutic Chemical (ATC) groups

The PBPA reviews annually the price of each drug listed in the Schedule of Pharmaceutical Benefits by ATC groupings. responsible persons are asked to submit cost and other data that they wish the PBPA to consider in reviewing product prices.

The ATC groups reviewed in 2012-13 are as follows:

August 2012 December 2012 April 2013
D Dermatologicals A Alimentary tract & metabolism B Blood & blood forming organs
M Musculoskeletal system S Sensory organs C Cardiovascular system
N Nervous system V Various L Antineoplastics & immunomodulating agents
P Antiparasitic products H Systemic hormonal preparations, excluding sex hormones R Respiratory system
Section 100 items J General antiinfectives for systemic use G Genito urinary system & sex hormones
Results of ATC group reviews 2010-11 2011-12 2012-13
Number of brands reviewed 4,396 4,691 4,980
Number of brands for which price applications were received 301
Number of brands for which price increases were recommended 30
Number of vaccines for which price applications were received 2 0 0
Number of vaccines for which price increases were recommended 0 0 0
PBAC recommendations considered by PBPA
Recommendations and listings 2010-11 2011-12 2012-13
Number of drugs recommended for listing by the PBAC(a) 130 90 63
Number of drugs listed(b) 142 100 73
Number of vaccines recommended for listing by the PBAC on the NIP 4 2 1
Estimate of additional cost of drugs for new or extensions to listings(c) $439.9 million
over 5 years
$545.6 million
over 5 years
$673.1 million
over 5 years
  1. Includes all new or extensions to listings of drugs with nil or some cost to Government – does not include new brand listings for existing items.
  2. Differences between ‘number of drugs recommended for listing’ and ‘number of drugs listed’ may be partially or wholly due to listing taking place in the financial year following a recommendation.
  3. Cost estimate is for the drugs listed in each financial year. Drugs that are approved for listing by Government in one year may be listed in the following year.

Estimated cost of price increases of existing items

The general price increases granted to responsible persons in 2012-13 are collectively estimated to add $31.32 million to the cost of the PBS and Repatriation Pharmaceutical Benefits Scheme over five years based on the latest available twelve months prescription volume for each item at the time of review.

Cost of the Pharmaceutical Benefits Scheme for 2012-13
Category Processed script numbers Cost to Government
General 23.69 million $1,475.9 million
Concessional 173.26 million $5,707.9 million
PB Other (a) $1,812.6 million
Total 196.95 million(b) $8,996.4 million
Revenue (c) -$350.9 million
Total (incl. revenue) (c) $8,645.5 million
  1. PB Other contains diverse programs. The majority of data are collected by state and territory governments and script volume is unavailable.
  2. Does not include Prescriber’s Bag (0.35 million).
  3. Script numbers do not apply to PBS revenue.

Note: For the general public, where a pharmaceutical benefit has a dispensed price below the general patient contribution (that is, below $36.10), the consumer pays the full amount. The above figures do not include these amounts.

Special Patient Contributions (SPC)

Special patient contributions may apply when a manufacturer and the Government cannot agree about the price of a product listed on the PBS. In these cases, the product continues to be listed on the PBS, but patients pay an amount in addition to the standard patient co-payment. These additional amounts are paid to the responsible persons, not to the Government. There are three types of special patient contributions, which are discussed below.

The Brand Premium Policy operates where there are a number of clinically equivalent brands available. The Government subsidises each of the available brands to the level of the lowest priced brand. responsible persons of other brands are able to set a price higher than the price of the lowest priced brand. Patients then pay the difference between the price of the lowest priced brand and the price of the brand which is dispensed to them.

The Therapeutic Group Premium Policy applies within specifically defined groups of drugs which have similar safety and health outcomes. Within these groups, the drugs can be interchanged at the patient level. The Government subsidises all drugs within a group to the level of the lowest priced drug. The difference in price between the lowest priced drug and higher priced drugs within the group is called a therapeutic group premium (TGP). The TGP is paid by the patient and goes to the responsible person, not to the Government.

In 2012-13 there were four drugs with special patient contributions other than brand or therapeutic group premiums listed on the PBS. Three of these (amoxycillin paediatric drops, naratriptan and zolmitriptan) were introduced because the responsible persons and the Minister could not agree on a new price when a price reduction was required by the 12.5% price reduction policy. The fourth, bleomycin, has had a special patient contribution for a number of years. In order to ensure that patients will not be financially disadvantaged, the treating doctor can seek an authority from Department of Human Services to waive this type of special patient contribution where there is no clinically suitable alternative listed on the PBS at the benchmark price. Bleomycin is the only drug for which the SPC cannot be waived.

2010-11 2011-12 2012-13
Number of brands listed on the PBS(a) >3,950 >4,200 >4,500
Number of brands with a premium(a) 295 283 287
Average brand premium $3.08 $2.84 $2.86
Weighted average brand premium(b) $2.44 $2.48 $2.41
Brand premium range $0.08 to $72.32 $0.44 to $13.59 $0.44 to $13.59
Prescriptions dispensed with a brand premium(c) 16.1 million 14.7 million 13.2 million
Prescriptions dispensed at the benchmark level(c) 52.5 million
53.4 million
53.9 million
  1. A brand is defined as a unique combination of ‘brand name’ and ‘form and strength’.
  2. Weighted average brand premium is calculated by:
    scripts x premium = total premium value
    total premium value / total scripts = weighted average brand premium
  3. Figures only include those scripts which are subsidised by government. General scripts that fall under the co-payment are not included.

Weighted Average Monthly Treatment Cost (WAMTC)

The WAMTC methodology is a form of reference pricing which applies to groups of drugs that are considered to be therapeutically similar by the PBAC. Under the evidence-based approach used for the listing and pricing of drugs, it is the practice to price these at the same level. Each WAMTC group is reviewed annually in line with PBPA meetings and may be subject to ad hoc reviews if a price reduction is offered by a responsible person of a drug in a WAMTC group. Details of the WAMTC methodology are outlined in the WAMTC Manual which can be found on the Department’s PBS website.114

The WAMTC groups reviewed in 2012-13 are as follows:

August 2012
(price reductions effective 1 December 2012)
December 2012
(price reductions effective 1 April 2013)
April 2013
(price reductions effective 1 August 2013)
HMG Coenzyme A reductase inhibitors higher potency group (Statins HP) Angiotensin II Receptor Antagonists (ATRAs) Venlafaxine and Venlafaxine Derivative Therapeutic Group
Proton Pump Inhibitors (PPIs)

On 1 April 2013, two drugs, cimetidine and ranitidine, received price disclosure reductions and were consequently removed from the ‘H2-receptor antagonists’ (H2RA) therapeutic group, leaving only the drug nizatidine in that group. On 1 August 2013 one drug, fosinopril, received a price disclosure reduction and was consequently removed from the ‘ACE inhibitors, plain’ therapeutic group. This removed all drugs from that therapeutic group, resulting in the group being revoked.

The ‘Venlafaxine and Venlafaxine Derivative Therapeutic Group’ was formed in April 2013, and comprises the two drugs venlafaxine and desvenlafaxine.

Further information

A detailed analysis of PBS expenditure and prescriptions for the twelve months to 30 June 2013 can be found by following the link to ‘PBS statistics’ on the Department’s website115, or by following the link under ‘useful statistics’ on the PBS website116 when this data becomes available. The data will include the following tables which were replicated in PBPA Annual Reports prior to 2011:

  • ATC main group comparison (summary version of information provided in Table 1 of PBPA reports prior to 2011);
  • PBS prescription volume, government cost and average government cost per script (Table 2 in PBPA reports prior to 2011);
  • highest cost PBS drugs and highest volume PBS drugs (Table 3 in PBPA reports prior to 2011);
  • top 20 responsible persons by total cost and by market share (Tables 4 and 5 in PBPA reports prior to 2011);
  • significant drug groups by highest government cost and highest volume (Tables 6a and 6b in PBPA reports prior to 2011); and
  • significant drugs by highest change to government cost and highest volume change (Tables 7a and 7b in PBPA reports prior to 2011).