PBS Discussion Paper

PBS DISCUSSION PAPER

with

AMA Federal Council Resolutions

Prepared by:Dr Jennifer Thomson

Acting Director, Health Services

Mr Roger Kilham

Consultant Economist

Federal Secretariat

Australian Medical Association

42 Macquarie Street

BARTON ACT 2600

Tel:02 6270 5400

Fax:02 6270 5499

March 2002

AMA - PBS Discussion paper prepared by Jennifer Thomson & Roger Kilham Feb 2002

AMA - PHARMACEUTICAL BENEFITS SCHEME (PBS)

DISCUSSION PAPER

Introduction

The Pharmaceutical Benefits Scheme (PBS) is an important plank of health care in Australia. It has been in existence for 50 years during which time it has evolved from a scheme for the provision of drugs for life threatening conditions to a scheme for the provision of timely, reliable and affordable access to necessary and cost effective medicines[1].

The scheme is now looming as a large target for the attention of central expenditure control Departments (Treasury and Finance) due to both its size and the rate of growth of spending. The PBS cost $1 billion in 1987 and reached $4 billion in 2000/01.[2] The trend rate of growth of spending under the PBS has been of the order of 10 to 11% per annum (nominal), which equates to about 6 to 7% in real per capita terms. However, in the year 2000-01, spending grew by about 19%, significantly boosted above the trend rate by Ministerial decisions to list two new drugs (Celebrex for arthritis, Zyban for anti-smoking). In the absence of listing of these new drugs, it is likely that PBS spending would still increase in real per capita terms.

PBS growth

Many factors have been contributing to the rapid growth of PBS spending. These include:

Community expectations, including expectations of access to new and sometimes very expensive drugs;
Expansion in effective drug treatments (which relates to community expectations, prescribing patterns and listing of new drugs);
The ageing of the population;
Increasing costs of drugs, due both the changes in the composition of drugs prescribed and to a movement towards world parity pricing;
The growth of the concessional schemes (which relates to increasing income inequality in Australia);
Growth arising from higher rates of disease detection (eg diabetes); and
The growth of defensive medicine.

We might hope that policy would be informed by a full understanding of these factors and an attempt to quantify their importance. In practice little information is shared. There is some attempt by the Department to engage the wider community in a constructive dialogue through the Australian Pharmaceutical Advisory Council (APAC). It appears however that the requisite analysis of the PBS system is not being undertaken. There is concern that Government has been telling GP groups that GP prescribing habits are to be targeted with cost-saving measures in the next budget. This is occurring without substantiating the presumption that GP prescribing is the essence of the problem.

The nature of the problem is also being over-inflated by the Government. Huge emphasis is placed on last year’s 19% growth. However, the upsurge in pharmaceutical spending is not limited to Australia by any means. Similar surges have been seen in North America and in Europe (although the policy responses are not the same). In the USA, spending on prescription drugs has increased from 6% of national health spending in 1994 to 9.4% in 2000 (representing a growth rate of over 14% p.a.). Private health funds in the US have rapidly increased their funding of pharmaceuticals in the same six years (growing by 21.5% p.a.). It is particularly interesting to note that public health funding of prescription drugs has grown even faster than private health funding.

Furthermore, overall spending on pharmaceuticals in Australia is, if anything, below average by international standards. On the latest comparable data available (late 1990s) Australia was spending 1.0% of GDP on pharmaceuticals, the UK 1.1%, Japan 1.3% and the USA 1.4%. Some would say that Australia’s low spend relative to GDP reflects the success of Australia’s funding systems in controlling spending.

The dilemma for Government is to find effective interventions that will maintain the integrity of the scheme (and its very significant health benefits) whilst managing the costs in an appropriate way.

National Medicines Policy

The PBS rests within the Department of Health and Ageing’s National Medicines Policy, which was endorsed by the Council of Australian Governments[3] in 1999. The policy has four central objectives:

“Timely access to the medicines that Australians need, at a cost individuals and the community can afford
Medicines meeting appropriate standards of quality, safety and efficacy
Quality use of medicines
Maintaining a responsible and viable medicines industry”[4]

The Government has set up a Committee structure to advise on the implementation of this policy including the Australian Pharmaceutical Advisory Council (APAC) to enable a partnership approach with multi lateral and consensus development of broad advice. The Pharmaceutical Health and Rational Use of Medicines Committee (PHARM) together with the National Prescribing Service (NPS) have taken on a more specific role in the quality use of medicines.

The PBS is the mechanism to deliver medicines to the community. The Pharmaceutical Benefits Advisory Committee (PBAC) advises on which drugs should be listed using cost effectiveness principles (from 1994 onwards) and with pricing being determined by the Pharmaceutical Benefits Pricing Authority (PBPA).

The PBS pathway/ system1

AMA - PBS Discussion paper prepared by Jennifer Thomson & Roger Kilham Feb 2002

The pathway of drug regulation, listing and prescription is a complex system [5]. The steps include:

a)Application for product registration considered by the Australian Drug Evaluation Committee (ADEC) of the Therapeutic Goods Administration (TGA). The basis for evaluation is quality, safety and efficacy.

b)Product information and consumer information are developed and approved at this point.

c)Application for listing on the PBS is considered by Pharmaceutical Benefits Advisory Committee (PBAC) of the Department of Health & Ageing (DH&A). The basis for evaluation is comparative safety, efficacy and cost-effectiveness. PBAC determines any restrictions on prescribing including restricted benefits listing and authority-required benefit listing which requires the prescriber to gain approval prior from the Health Insurance Commission (HIC).

d)Products are then recommended to the Health Minister for approval.

e)The Pharmaceutical Benefits Pricing Authority (PBPA) then negotiates PBS listed prices with the drug sponsor based upon information from PBAC.

f)The prescriber who will have been issued a prescriber number by the HIC is able to prescribe drugs listed on the PBS. From this point government has little direct control. Prescribers are largely medical practitioners operating within a unique doctor-patient relationship where both parties are able to make independent choices.

g)The patient will choose whether to have the script dispensed.

h)The pharmacist will dispense the script with or without consumer medicine information.

i)The patient will then choose to use the medicine as prescribed or not.

j)Adverse drug reactions can be reported via the Adverse Drug Reaction Advisory Committee (ADRAC).

Quality Use of Medicines

The Quality Use of Medicines has been one of the principal platforms of the National Medicines Policy. In 1991 the Australian Pharmaceutical Advisory Council (APAC) and the Pharmaceutical Health and Rational Use of Medicines Committee (PHARM) were established in recognition of increasing rates of drug related morbidity and mortality. Over the last 10 years these bodies have driven the Quality Use of Medicines (QUM) policy development with the formation of implementation agencies such as the National Prescribing Service (NPS). The NPS has been responsible for education strategies to promote improved prescribing of medicines. Strategies have included using innovative and successful education with general practitioners particularly through Divisions of General Practice. Specialist doctors have received limited attention although it is known that specialist impact on prescribing behaviour of general practitioner is considerable in some cases. In a recent Australian study it was shown for some drugs specialist initiation was high e.g. proton pump inhibitors at 80%, for others low e.g. diuretics at 8 %.[6]

Some of the outcomes of the QUM strategies of the last decade have recently been collated. For example, antibiotic use in Australia has been declining with evidence of more appropriate use of antibiotics as well as non steroidal anti inflammatory drug use for osteoarthritis [7]

The NPS has a budget of $5 million per annum, a tiny amount compared to the marketing budgets of drug companies.

Recent release of high cost new medicines onto the market without prior provision of evidence-based information to the public or prescribers has made it impossible for evidence-based decision making. Although direct marketing to the public of prescription drugs is not permitted, marketing to the public through other means has been highly successful in the release of some recent high cost medicines such as Zyban and Celebrex.

The marketing methods to prescribers are numerous and effective. They include pharmaceutical representative detailing and Drug Company sponsored education and other activities.

PBS cost framework

The cost of the PBS is managed in various ways. While the PBS is currently demand driven and uncapped, controls are in place at various points in the system:

PBAC evaluation of drugs for listing since 1994 has been based on a cost effectiveness model, which was a world first at the time.
In some cases based on PBAC advice, price /volume arrangements may be applied (i.e. the price reduces as volume of usage increases allowing for the fact that research and development costs will have been met once large volumes have been sold).
The same pricing principles are applied to all PBS prescriptions. Under brand premium arrangements, the Commonwealth reimburses pharmacists based on the lowest priced brand. Under the therapeutic group premium arrangements, which apply for some therapeutic groups of drugs, reimbursement to the pharmacist is based on the lowest priced benefit within the identified therapeutic groups. Reimbursements to the pharmacist are managed by the HIC, which gathers data on these reimbursements [8].
The cost to the patient is determined by the patient’s health concession card status. Currently some 79% of PBS costs are to concession cardholders whose maximum co-payment is currently $3.50 per script. The general maximum co-payment rate is $21.90. A safety net provision applies to high users of medicines with the current threshold as $669.70 for general users and $182.00 for concession cardholders. Because the Government has increased access to concessional health cards (including self-funded retirees subject to a generous income limit), public spending on the PBS has tended to outstrip patient spending (on the co-payments).
Once patents expire, generic drug prices are renegotiated for PBS listing.

Cost effectiveness

In 1994, the PBS internationally pioneered the use of a model cost effectiveness for the evaluation of all drugs being submitted for inclusion on the PBS. Despite such an approach, no Australian studies are available measuring the influence of the PBS on health outcomes. It is understood that what government is buying through it National Medicines Policy and therefore the PBS should be improved health outcomes at an acceptable price. Some studies in the US have measured pharmaceutical formularies and their impact on health outcomes in Health Maintenance Organisations. Similar studies must occur in Australia to inform rational policy decisions regarding the PBS.

The cost effectiveness data and research made available to the PBAC in assisting it with its recommendations on listing is not made available generally. Transparency in these processes is needed to evaluate their effectiveness. There are some concerns that many of the trials and research justifying PBAC decisions may not be undertaken in a “real world” context. Post drug release research is also important in ongoing review of drugs on the PBS.

In many instances, it is clear that pharmaceutical interventions are more cost effective than some surgical interventions eg treatments in peptic ulceration. Death rates for peptic ulcers have decreased markedly.[9] Drug therapies have been critical in control of progression of major disease states such as diabetes, cardiovascular disease and mental health. Focus on such diseases within the National Health Priorities and implementation of current strategies in these areas will inevitably lead to further costs in the PBS. It is anticipated that 50% of diabetics are undiagnosed and with the current strong policy to identify diabetes, then short to medium term pressures on diabetic drugs will occur. However the enormous potential savings in long term disease progression and complications are enormous and must be recognised. It is not clear that integrated planning or policy development is occurring across government. The likely cost implications on the PBS of the current National Health Priorities are not being articulated.

Drivers for PBS growth

There are many possible drivers for PBS cost growth. Some might include:

Increasing access to concession status eg 2001 budget Commonwealth Seniors’ Health Card entitlements.
New listings such as Celebrex and Zyban with a trend to more expensive listings.
Drug choice of new and more expensive drugs.

Leakage (Doctors prescribing of PBS drugs for other than approved conditions) is probably increasing although there is little hard data available on this. It was estimated that proton pump inhibitors should be used by less than 35,000; in fact 177,000 people are receiving such medication costing an extra $220 mill per annum.[10] As previously mentioned, these drugs are largely initiated by specialists who are not receiving the benefit of NPS education.
Changing demographics of the population eg ageing population with the over 65 age group likely to double in the next fifty years. This group is the high user group.

Disease patterns are constantly changing with demand for appropriate treatment interventions likely to be affected. The numbers estimated to be depressed or asthmatic in the population has increased. Disease prevalence and detection of diabetes has trebled in the last 20 years. A number of government strategies are in place around the National Health Priorities to increase identification and effective treatment of such patients. This will inevitably impact on the PBS. Drug trials on which decisions to list on the PBS are based, may not take into account these other trends and strategies.
Marketing strategies of the industry are becoming more sophisticated and are well resourced.
Other drivers have been mentioned previously and include the expansion of effective drug therapies for many of the chronic diseases, increasing community expectations around drug accessibility and the rise in the practice of defensive medicine.

Prices paid for drugs

The prices paid for drugs in Australia have been low compared to other OECD countries. Some of the increasing cost of the PBS can be attributed to a 1990s policy of moving drug prices closer to world parity prices. Part of the logic for this has been to sustain a viable Australian pharmaceutical industry. However, it is unlikely that any Australian Government would ever meet drug company hopes for prices. Pharmaceutical companies are far more profitable, on average, than companies in the remainder of the economy. The rapid rate of technological change may be one of the factors underpinning this profitability. In comparison with most other industries, the drug companies have a much higher proportion of their output protected by patent at any point in time. Most of the companies are large multi-nationals with considerable market power. In the USA, the companies enjoy very significant political influence, which they wield to protect their position and their profits. It is difficult for any one country to unilaterally influence the behaviour of drug companies.

AMA endorsed principles relating to the PBS

The AMA has been concerned at the rising costs and the potential risks to doctors and patients alike if the PBS is substantially changed by future government interventions. As such the Federal Council at its meeting in July 2001 passed several resolutions:

That Federal Council supports the principles of the Pharmaceutical Benefits Scheme (PBS) to provide universal access to medicines for the public in an effective, efficient and equitable manner.

That Federal Council urge that solutions to the funding crisis in the Pharmaceutical Benefits Scheme (PBS) be urgently found with input from the Government, the pharmaceutical manufacturers, the AMA and patients.

That Federal Council supports that the direction for such solutions include ensuring:

a)The independence of the Pharmaceutical Benefits Advisory Committee and extending its role to incorporate a special pricing review subcommittee;

b)The transparency of the listing process;