Healthy Skepticism Library item: 993

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

Mitchell A.
PBS faces winds of change
Australian Financial Review 2004 Oct 20

Full text:

Late in the election campaign the government surprised itself and the pharmaceutical industry by finding a $700 million saving in the pharmaceutical benefits scheme (PBS).

The saving over four years is to be achieved by a 12.5 per cent price cut on drugs once their patents have expired and generic versions are available. Previously the government has negotiated the price reductions on a case-by-case basis.

It was a quick fix, roughly estimated (actually, overestimated by $130 million) on the back of a ministerial adviser’s envelope. But its roughness briefly drew attention to the next big pressure point in health care.

The pharmaceutical industry peak body, Medicines Australia, expressed concern about the possible effect on new-generation biopharmaceuticals still under patent.

Health Minister Tony Abbott immediately replied that he would ensure that holders of patents on medicines would get the benefits they deserve over the life of their patents.

The flames were doused, for now.

But the conflict between the government’s desire to restrain pharmaceutical costs and the industry’s determination to make a profit on its research and development has the potential to change the shape of the PBS.

Not long before the election the government told the Productivity Commission to begin a major study on the impact of new medical technology on health-care spending. There was scarcely a political ripple, perhaps because the commission was not explicitly asked to consider the future of the PBS.

But the first submission posted on the commission’s website left no doubt that the architecture of the PBS would become a major issue.

That submission was a paper by the University of Canberra’s National Centre for Social and Economic Modelling on the impact of the high-cost new-generation pharmaceuticals on the PBS.

The paper argues that the new biotech-based therapies have the potential to “increase considerably” the already high growth rates of PBS expenditure and explores the ways these cost pressures could be contained.

In the process it provides a road map of several major PBS reform options.

These possible reforms range from measures to oversee the use of the drugs to basic changes in the design of the patient co-payments.

As with past generations of pharmaceuticals, a key issue will be “leakage”, but the form of leakage has changed. Previously it occurred as the pharmaceutical companies found additional uses for their newly-listed drugs. The new high-cost biotech drugs are highly targeted therapies. Many of the drugs have been introduced to treat the advanced stages of particular diseases. The new form of leakage will be the use of the drug for different stages of the disease, where the benefit is not judged by the authorities to justify the cost.

One form of control is a central registry which permits authorities to oversee patient selection and medication. Other possible models include an extension of the existing highly specialised drugs program, in which drugs are supplied through hospitals under the supervision of specialists.

On the demand side, there is the possibility of budget-holding arrangements, such as those used with varying degrees of success in Europe. There is also scope for the reform of patient co-payments.
Co-payments in Australia are of the “fixed” variety, but in other countries they are proportional to the cost of the drugs. In several countries the extent of the government subsidy varies with the medical importance of the drug.

One claimed advantage of a proportional payment is that it gives patients a greater interest in the relative costs as well as the benefits of competing drugs. They also enable the government to recover a larger patient contribution to the total cost of new drugs, with safety nets to protect low-income families.

A further possible variation on the PBS theme is an expanded role for private health funds. The funds provide some reimbursement of pharmaceutical costs, but like the PBS they will have to adjust to pressures of the new high-cost technology.

In theory the funds could expand to provide an alternative to the PBS, with the cost of drugs shared between the funds and the government.

It seems inevitable that both the PBS and the rest of Medicare will be re-engineered gradually to meet the pressures of population ageing, increasing demand and the high cost of new medical technologies.

In the process, we should be prepared to revisit the issue of means testing.

At a time when the distribution of wealth and income has widened significantly in Australia, there is a stronger argument for insisting that the wealthy make a bigger contribution to the cost of their health care.

The availability of reverse mortgages, for example, should permit people who have made large capital gains in real estate to contribute generously to the cost of their health care in later life.