PBPA Policies, Procedures and Methods
2. Pricing Methods used by the Pricing Authority
Drugs that are used to treat the same condition or have similar action are grouped in therapeutic sub groups in the Schedule according to their anatomical therapeutic chemical (ATC) classification.
The Pricing Authority uses a number of methods to determine and/or review the price of products listed on the PBS. These are:
2.1 Cost Plus Method
The cost plus method is normally used in the case of stand-alone products, those recommended on the basis of acceptable cost effectiveness and where no specific relativity exists, or when recommending a benchmark price for a therapeutic group.
In these cases a gross margin may be granted based on the cost of manufacture. This margin can vary and is determined on a case by case basis. A margin on costs of around 30% is usually considered reasonable, but higher margins may be recommended for low volume products (particularly those with a cost to the PBS of $50,000 per annum or less) and lower ones may be recommended for high volume products.
The cost plus method relies on sponsors' cost data (usually presented on PB11b forms, http://www.health.gov.au/internet/main/publishing.nsf/Content/health-pbs-general-pricing-pb11b.htm) which provides for a detailed breakdown of the manufacturing costs including landed cost, packaging, drug content, quality assurance, plant and equipment, manufacturing overheads and Therapeutic Goods Administration (TGA) fees. In one case, the cost of setting up a patient registry was accepted as a legitimate cost. Perhexiline maleate tablet, tranexamic acid tablets, and terbutaline injection are examples of products for which the cost plus method is used.
2.2 Reference Pricing
Where drugs are considered to be of similar safety and efficacy (and as such are recommended for listing on a ‘cost minimisation’ basis), the lowest priced brand or drug sets the benchmark price for either the other brands of that drug or the other drugs within the same therapeutic group. Pricing within these therapeutic groups is based on the therapeutic relativities between drugs as noted on the therapeutic relativity sheets (see section 4.2 for an explanation of therapeutic relativity sheets). The antineoplastic agents, human insulins and the oral contraceptive category are examples of such therapeutic groups.
If a sponsor demonstrates to the PBAC a clinical advantage for a particular drug over alternative products (recommended on the basis of acceptable cost effectiveness) then that drug may be granted a higher subsidised price over the alternative.
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2.3 Weighted Average Monthly Treatment Cost (WAMTC)
The WAMTC methodology is a particular type of reference pricing. The aim is to adjust the prices of drugs that have been accepted by the PBAC as providing similar health outcomes (listed on a cost minimisation basis) so that their cost per month's treatment is not statistically significantly different.
The methodology has recently been reviewed and the new methodology was introduced for consideration by the PBAC at its first meeting in 2004. The WAMTC Users’ manual is now available on the PBS website (http://www.health.gov.au/internet/main/publishing.nsf/Content/health-pbs-general-pricing-wamtc). A brief description of the process follows below. The therapeutic groups currently subject to the WAMTC methodology are:
- Angiotensin converting enzyme (ACE) inhibitors.
- Angiotensin II receptor antagonists (ATRAs).
- Calcium channel blockers (CCBs).
- H2-receptor antagonists (H2RAs).
- HMG Coenzyme A reductase inhibitors (statins).
- Proton pump inhibitors (PPIs).
- SSRIs plus. A subgroup of antidepressants, including selective serotonin reuptake inhibitors (SSRIs) and other antidepressants that have been listed on a cost minimisation basis with the SSRIs.
The stages of a WAMTC review process are:
- The PBPA Secretariat utilises Medicare Australia processing data to assess the volume of PBS prescriptions for drugs in the review group, and DUSC (Drug Utilisation Sub-Committee) data for items that are under the general co-payment.
- The PBPA Secretariat requests sponsors to provide sample dosage data (eg. IMS, HCN, BEACH) to determine the daily, and thus monthly, treatment dosages.
- The data source for each WAMTC group will generally be fixed for a minimum of three years unless a sponsor can show grounds to justify a change.
- The dosage data, the PBS prescription volumes and current PBS subsidised (dispensed) prices are entered into the WAMTC calculator. Brand premiums (BPs), the therapeutic group premiums (TGPs) and other Special Patient Contributions (SPCs) are excluded from this calculation.
- The WAMTC calculator determines the benchmark drug, and estimates the confidence intervals and, where drug prices are statistically significantly different to the benchmark drug and price reductions are needed, the percentage reduction required to be the same as the benchmark.
- The results are provided to sponsors with an invitation to provide price proposals. (If no advice is received within a specified time, the present dispensed prices, less any amount for a prior premium, are taken to be the prices proposed).
- Normal pricing principles, as set out in section 4.3, remain relevant when considering price increases. A price increase may still be denied or modified even when the proposed price would not be statistically different to that of the benchmark.
- The WAMTC calculator is re-run incorporating the new prices proposed.
- The results, along with any requests for price rises from sponsors of benchmark drugs, are submitted to the PBPA for consideration.
- The outcomes of the meeting, including advice about benchmark drugs and degree of any reductions needed are advised to sponsors.
- Sponsors advise Secretariat on pricing requirements (eg reductions, establishing or varying BPs or TGPs. See Section 6 for details on premiums).