Healthy Skepticism Library item: 12714

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Publication type: news

Parnell S.
PBS cost recovery revisited
The Australian 2008 Feb 2
http://www.theaustralian.news.com.au/story/0,25197,23139787-23289,00.html

Full text:

A CONTENTIOUS policy that would make the drug industry fund the administration of the Pharmaceutical Benefits Scheme will be revisited by the Rudd Government amid warnings of a tight Federal Budget.

Full cost recovery for the PBS was announced by former treasurer Peter Costello in the 2005-06 Budget but, despite its implementation date being pushed back six months to 1 January 2008, the billing method was never announced — and last year’s federal election left the issue unresolved.

The 2005-06 Budget allocated the Department of Health and Ageing $3.7 million over four years to introduce full cost recovery “by charging fees to companies making submissions to the Pharmaceutical Benefits Advisory Committee”.

The policy was tipped to recoup $22.3 million over four years.

Consultants called in by the department subsequently examined the fees-based proposal and suggested other methods be considered.

A draft report by Acumen Alliance, obtained by Weekend Health under Freedom of Information laws, warned fees alone would create an environment where “the sponsors of generic medicines will receive a free ride”.

“The burden of fees rests solely with firms seeking to either list a medicine for the first time or change a listing, potentially stifling new products and innovation,” the draft report states.

The warning came ahead of legislation which controversially slashed the price the Government paid for generic medicines and provided extra protection for patented medicines.

Acumen Alliance recommended the cost burden be shared more equitably across the industry through the introduction of a part levy or annual charge on drug companies to make up 50 per cent of revenue.

But the department, while willing to consider a part-levy, told the industry it should only make up 10-20 per cent of revenue.

The department and Acumen Alliance — which acknowledged a levy would “lead to significant cross-subsidisation between firms” — agreed full cost recovery was appropriate given the multi-billion dollar drug industry benefited greatly from taxpayer subsidies and government marketing.

A spokesman for Health Minister Nicola Roxon confirmed legislation for full cost recovery was not introduced and the policy had not been implemented. “The Government is now considering whether or not to proceed with cost recovery,” Roxon’s spokesman said.

While Treasury Wayne Swan has promised a conservative Budget, and Prime Minister Kevin Rudd has embarked on a characteristic policy of cost-cutting across government, full cost recovery is not without controversy.

Ian Chalmers, chief executive of Medicines Australia, said the industry would urge the Rudd government not to adopt the policy of its predecessor.

“Cost recovery was imposed on industry as a fait accompli by the previous Government and we certainly didn’t welcome it then,” Chalmers said. “It’s not a measure that is appropriate. The procurement of pharmaceuticals for the PBS is a government function and it’s unreasonable for industry to be expected to pay for that government function. This would simply add an extra layer of unnecessary bureaucracy and ultimately increase the cost of medicines to the government.”

Former health minister Tony Abbott was last year warned by his appointee to the PBAC, then Australian Medical Association Victorian president Mark Yates, that full cost recovery would threaten the independence of the PBAC.

The department’s discussion paper for full cost recovery, released in April 2007, noted the industry had an expectation of improved PBAC performance after cost recovery .

“The efficiency and cost effectiveness of all processed covered by cost recovery will be under scrutiny,” the discussion paper acknowledged. “Improvements in the timeliness of PBS listing processes are anticipated.”

The discussion paper said given the benefit for drug companies in achieving a PBS listing, “there is a strong argument for a fee-for-service component” although a part levy would more equitably share the cost burden.

The Howard Government intended to extend full cost recovery, already used by the Therapeutic Goods Administration and other agencies, to the National Immunisation Program.