Pharmaceutical Funding in Australia
Over the Asia Pacific region, Australia is one of the richest pharmaceutical markets which also ranks as the 13th largest over the world with per capita spending is par with European markets such as Sweden or Netherlands.
75% of the market is located in the three states of Australia, the New South Wales, Victoria, and Queensland. Just over 60% of the market is under the Pharmaceutical Benefits Scheme, in which the government controls pricing and reimbursement tightly.
Pharmaceutical Benefits Scheme (PBS) is established by the Australian Government to provide Australian community with access to necessary therapeutic substances at the most reasonable cost to government and consumers, consistent with the reliable supply. PBS was developed in 1950 to provide “life-saving and disease-preventing drugs” to the community at no cost.
The objectives of the PBS are to:
· Provide timely and reliable access of the Australian community to necessary medicinal products of appropriate quality, safety, and efficacy.
· Promote rational and cost-effective use of medicines.
· Assist in measures to develop a viable Australian drug manufacturing industry.
· Contain the costs of the scheme.
Government, through PBS and the Repatriation Pharmaceutical Benefits Scheme (RBPS), is a monopsony purchaser of drugs in Australia. Drug products must meet efficacy, safety, and quality standards before they can be marketed and, once registered for marketing, can be supplied as private prescriptions with the patient paying the full cost.
Drug companies can market a drug after it receives general marketing approval from the Therapeutics Goods Administration (TGA). For new drugs and prescription drugs, this is usually based on a recommendation of the Australian Drug Evaluation Committee (ADEC). In most cases, market penetration is only obtained if the drug attains PBS listing.
After marketing approval is granted by TGA, companies can lodge applications with the Pharmaceutical Benefits Advisory Committee (PBAC), a comprehensive system for subsidy of prescription drugs covering the whole population, for the product to be considered for listing with PBS. Nonprescription products and complementary medicines are generally not covered, but some (for example, paracetamol and aspirin) are included when supplied under a prescription.
The PBAC is charged with making recommendations to the minister for health and aged care about which drugs and medicinal preparations should be listed for subsidy. Since January 1993, all new drugs must be supported by evidence of their cost effectiveness. Products are considered for subsidy within the boundaries of their registration (marketing approval), including indications and other marketing restrictions. The National Health Act was amended in 1987 to require the PBAC to consider comparative effectiveness and cost in making its recommendations.
The drug is then evaluated. It is mandated to fulfill the cost-effectiveness requirements. Under the cost-effectiveness arrangements, the pharmaceutical manufacturer needs to present cost-effectiveness data, usually based on randomized controlled trial evidence against a designated comparator, to the Pharmaceutical Benefits Advisory Committee (PBAC) (1992; 1994; 1997; 1997a; 1999; 1996, 2000).
To assess the effectiveness of the new drug, the most prescribed pharmacological analogue used for the same indication is usually preferred. If the drug is in a new pharmacological class, the drug most prescribed on the PBS for the same indication is the comparator. If no currently listed drug is available, the main comparator usually is standard medical (nondrug) management.
In addition, the sponsors are required to present all the clinical evidence available to assess the new drug against the comparator. The clinical evidence indicates whether a drug is better than, no worse than, or worse than the comparator and guides the type of economic analysis. Drugs that are worse overall than the comparator are generally not subsidized.
Finally, price is determined. The same amount of benefits should mean the same price. PBAC has taken the pragmatic approach in which a therapeutic equivalent are recommended and therefore initial prices based on all of the evidence would be submitted on the time of listing. The relative prices are then adjusted depending on the actual prescribed daily doses in the marketplace.
Drugs that are better than the comparator nearly always cost more than existing treatments, and sponsors are asked to quantify increases in health benefit and weigh them against increase in cost. In doing so, patient-relevant outcomes are preferred, particularly final outcomes such as death prevented or life years or quality-adjusted life years gained.
Medicinal products that are not included on the PBS are not subsidized by the government. The patient pays a fixed co-payment for subsidized items, and the balance is paid by the government. There are two categories of co-payment; concession patients who are eligible for Social Security entitlements (aged, disabled, unemployed, or students, for example) and the general patients. For both concession and general patients, there is a maximum out-of- pocket expense per year (safety net). No item listed on the PBS is priced below the concession co-payment, so concession patients receive subsidies on all items purchased from that list. However, some items on the PBS are priced below the general patient co-payment amount. Purchases of such drugs by general patients are regarded as private (nonsubsidized) purchases, although such purchases still count toward the individual’s annual out-of-pocket maximum.
Like other countries, Australia faces growing pressures on health funding because of the ageing of the population, technological changes and increasing patient expectations.
The Australian Government, through the Department of Health and Ageing, sets national health policies and subsidizes health services provided by State and Territory governments and the private sector.
The Australian Government funds universal medical services and pharmaceuticals, and gives financial assistance for public hospitals, residential aged care facilities and home and community care for the aged. It is also the major source of funds for health research, and provides support for training health professionals and financial assistance to tertiary students.
In both medical and pharmaceutical services, safety net arrangements exist to make sure that patients who need a high level of treatment do not incur significant out-of-pocket expenses.
The Australian Government also subsidizes medical, pharmaceutical and hospital services for veterans and war widows under similar schemes administered by the Department of Veterans’ Affairs.
The Australian Government provides around two-thirds (68 per cent) of public sector expenditure on health while state, territory and local governments account for around one third (32 per cent).
Medicare is Australia’s comprehensive system of health coverage for both outpatient and hospital services. Community services are directly funded by the federal government on a fee-for-service basis. Hospital services for both inpatient and outpatient are the responsibility of the states but are largely funded by the federal government under a federal/state cost-sharing arrangement. A large proportion of the population takes out optional private health insurance for hospital and some ancillary services. Subsidized by the federal government, this insurance provides access to the private hospital system or to the doctor of one’s choice in public hospitals.
The PBS performs well in terms of criteria of equity, efficiency, quality, and acceptability. In terms of equity, the structure of the PBS minimizes the financial barriers to access to pharmaceuticals. The low copayment for concession cardholders ensure that they have access to the medication prescribed for them: only 2 percent of people age 65 or over have reported that they did not fill a prescription because of cost (2003). However, copayments for the general population are much higher than for concession cardholders, and may create a barrier, especially for people with low incomes. (2002) has reported that 23 percent of Australians did not fill a prescription because of cost.
In terms of efficiency, the PBS again performs well in the sense that all new drugs are subject to economic evaluation prior to listing. Because new drugs listed on the PBS have been evaluated for their cost effectiveness, it could be argued that any increased expenditure on the PBS is worthwhile in terms of savings in other sectors of the health care industry (for example, hospitals), in increased productivity (reduced time off work), or in terms of improved quality of life generally. Thus, even where there is increased expenditure on these drugs, this may be efficient and cost effective when viewed in a wider economic context.
Table 1. Australian Pharmaceutical Funding
Financial Year
Number of PBS and RPBS presciptions
Government benefits paid
Population
1992/1993
108,345,561
1,430,725,713
17,494,664
1993/1994
116,619,060
1,709,564,040
17,667,093
1994/1995
123,090,352
1,976,620,857
17,854,738
1995/1996
130,197,357
2,314,136,520
18,071,758
1996/1997
132,080,776
2,512,802,563
18,310,714
1997/1998
133,794,957
2,731,232,617
18,517,564
1998/1999
137,562,227
2,993,275,508
18,711,271
1999/2000
147,562,760
3,417,046,381
18,925,855
2000/2001
158,424,404
4,111,511,754
19,153,380
2001/2002
166,584,760
4,553,898,907
19,413,240
2002/2003
171,314,402
5,000,878,185
19,640,979
2003/2004
178,598,374
5,504,401,618
19,872,646
2004/2005
183,034,952
5,864,307,589
20,091,504
2005/2006
178,813,268
5,927,324,390
20,328,609
Chart 1 shows the continuous growth in pharmaceutical benefits expenditure since the inception of PBS. Expenditure on pharmaceutical benefits has increased exponentially since the beginning of the program. Growth in expenditure is distributed unevenly across the PBS with use of newer drugs increasing faster than older drugs. The average price of a new drug listed on the PBS is about two times that of all drugs on the PBS (2002). The growth in PBS expenditure has primarily been driven by increases in the number of prescriptions that had been listed on the schedule.
As the population increases the need for drugs has also increased as shown in the increased of number of prescription. However, in the last two years, there has been a slight decline. This can be due to the increase in PBS copayment which has been implemented by the Government in the January 2005.
Increasing co-payments for concessions and general patients are one approach to reducing the costs to the taxpayer of further growth in the PBS. However, this approach does not address the reasons the PBS is growing and is likely to produce negative consequences for those who use medicines most. An increase in co-payments in isolation from other measures is also unlikely to increase consumer awareness and knowledge of the wise use of medicines or contribute to changing prescribing behavior in the long term.
Co-payments are unlikely to change the trend for new, more expensive drugs to be preferred by prescribers and consumers over cheaper generic or non- drug approaches. Instead, increasing co-payments is likely to reduce access to medicines by those who most benefit and increase the disadvantage in relation to health status of those who are sickest. High copayments would likely reduce the likelihood of an individual to use the medication.
Research shows that increasing co-payments can have negative effects on both health outcomes and costs. The RAND health insurance experiment, for example, assigned families to one of fourteen health plans, which covered identical services but varied by level of cost-sharing. This rigorous, longitudinal study found that adults with any co-payments were less likely to purchase prescription drugs and, as cost-sharing increased, the number of prescriptions per person dropped (1985).
Co-payments also reduce the use of essential medicines (including those for hypertension, heart conditions, diabetes, and thyroid conditions) as well as the use of non-essential drugs (1996). Reducing the use of essential medicines costs much more money than it saves. For example, New Hampshire’s now-abandoned effort to limit Medicaid recipients to three prescriptions a month reduced drug expenses by thirty five percent, but overall health care costs rose; a -a-year drug saving for each schizophrenia patient was eclipsed by an increased cost of ,530 per patient in the use of other health care services (1991).
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