Healthy Skepticism Library item: 10109

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Publication type: news

Faunce T, Searles A.
Review of PBS drugs changes should be priority
The Canberra Times 2007 May 15
http://canberra.yourguide.com.au/detail.asp?class=your%20say&subclass=general&story_id=584781&category=Opinion

Full text:

WHEN, during the 2004 Free Trade negotiations with the United States, US negotiators sought to eliminate Australian Government measures, such as price controls and reference pricing of drugs for the Pharmaceutical Benefits Scheme, the issue hit a raw nerve with the Australian electorate.
The Commonwealth Government, however, reassured Australians that this legislated US agenda against reference pricing (a core PBS cost-effectiveness mechanism) had been unsuccessful.

Our chief AUSFTA negotiator stated before a Senate Select Committee that “We went into these negotiations with an absolutely clear mandate to protect and preserve the fundamentals of the PBS. This is what this agreement does … There is nothing in the commitments that we have entered into in Annex 2C or the exchange of letters on the PBS that requires legislative change.”

Now, Federal Health Minister Tony Abbott has announced that F1-F2 amendments to the National Health Act (1953), due to come into force on July 1, will restrict reference pricing as it applies under the PBS. Generic medicines will now be in the F2 Formulary.

One new Formulary 1 (F1), for the first time, will contain single-brand patented medicines that will not be “referenced” for cost-effectiveness against all other medicines and therapies in the same therapeutic class.

The outcome from this change could see Australia paying more for a new patented medicine that is no better and possibly even worse than a therapy we already have.

There will be a generic medicines awareness campaign but no financial incentives to use generic drugs.

New price disclosure arrangements will erode the profits of Australian generic drug manufacturers and pharmacists who will receive short-term compensation.

It is hard to see how anyone, other than multinational pharmaceutical manufacturers, will benefit from these F1 PBS changes and their weakening of reference pricing.

Certainly, pharmacists are angry that their new contract with the Federal Government was negotiated without them knowing that these new PBS changes were in the wind. Multinational pharmaceutical companies will want their new medicines listed in F1 to protect them from mandatory price cuts that will apply elsewhere.

Most importantly, if there are no other drugs in F1 that are “interchangeable” (an industry and not a PBAC word) with the new medicine, these new medicines may only have to show superiority over placebo. Even if the therapy they are found to equate with in terms of cost-effectiveness drops its price, they may not have to.

Why has a working group been established between Medicines Australia (the multinational patented pharmaceutical manufacturers lobby group) and the Department of Health and Ageing to implement these changes? Are these the best parties to ensure the PBS changes mesh with the principle of “affordable access to essential medicines” in the Australian National Medicines Policy? Are the PBS F1 changes part of a covert deal hatched during the AUSFTA negotiations to give the US PBS reference pricing, or merely the result of successful Medicines Australia lobbying?

John Montgomery, head of the Generic Medicines Industry Association, said that these PBS F1 changes “dismantle reference pricing, encourage ‘evergreening’ and provide no incentive for the use of true generics. This flies in the face of the Government’s stated aim of ensuring sustainability of the PBS. Eliminating the ongoing [reference] price link between patented medicines and medicines producing the same outcome but no longer patent protected, means Australian taxpayers will be paying higher prices for essentially the same health outcome. The reforms will undermine [PBS] fundamentals and will paradoxically increase its costs.”

Reference pricing is a central component of the basic architecture of the PBS system. It involves independent experts assessing the scientific evidence of a new pharmaceutical’s objectively demonstrated therapeutic significance against already available products and therapies for the same clinical condition. Reference pricing is pro-competitive and rewards genuine innovation bringing community value.

To implement the F1 category, the Federal Government may attempt to amend the National Health Act 1953, section 101 (3A). This requires that independent experts on the Pharmaceutical Benefits Advisory Committee (PBAC) can only recommend a drug for PBS reimbursement, after comparing its effectiveness and cost against all alternative therapies. If the new drug is substantially more costly, it can’t be recommended for listing on the PBS unless it provides a significant improvement in efficacy or reduction of toxicity.

Nothing in the F1 proposal states this section, the very core of the PBS, is now to remain unchanged, as was promised during the AUSFTA negotiations. Since the AUSFTA, the Australian generics industry has become an industry under siege.

Article 17.10.4 of the AUSFTA introduced ‘evergreening’ linkage amendments to the Australian Therapeutic Goods Act designed by US negotiators to inhibit generic competition for “blockbuster” drugs coming off patent. Then the Federal Government introduced a 12.5 per cent generic medicines price-cut policy and rejected policies for co-payment-cut for generic use or period of market exclusivity for first generic entrant.

At the same time, safety and quality approval times have increased for new generics because Australian drug regulators are under resourced.

Federal Government ‘springboarding’ changes to the Patents Act do not adequately counteract emerging data exclusivity claims likely to emerge from the AUSFTA. Australia’s largest generic manufacturer, Alphapharm, has recently been taken over by the US company, Mylan Laboratories. These problems are now compounded by the F1 category which suggests that reference pricing will only continue in a few limited “interchangeable” categories (the same restriction imposed after industry lobbying on medicines reference pricing in British Columbia). This means reference pricing may not be available to ensure value for expenditure on new gene-based and nanomedicines.

Any amendment undermining the legislative basis of reference pricing in the National Health Act should be opposed as breaching commitments made during the AUSFTA negotiations and not being in the long-term national interest. At the very least, instituting a review into the manner of development and content of the PBS F1 changes should be a priority.

The Government’s policy of running down our domestic generics industry to create “head room” for exorbitantly and unaccountably priced products from pharmaceutical multinationals shows how little it has thought through the ramifications in our world-class science base and biotech sectors. As Professor Hans Lofgren, at Deakin University, has indicated, industrial renewal in this sector requires policies driving more sophisticated pharmaceutical manufacturing in Australia (for example, expanding biologics, pharmacogenerics, nanomedicine by drawing on generics distribution strength).

Thomas Faunce is a Senior Lecturer at the Medical School and College of Law, Australian National University.

Andrew Searles is at the Division of Clinical Pharmacology, University of Newcastle