Professor Philip Clarke, The University of Melbourne, Reforms to the PBS to promote technical and...

Reforms to the PBS to

promote technical and

allocative efficiency

Prof. Philip Clarke

Centre for Health Policy

University of Melbourne

School of Population Health


Disclosure

Professor Philip Clarke does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this presentation, and has no relevant affiliations.



Audit Commission Report

� PBS is the 10th largest

Government Program

� Drivers of growth:

� Ageing of the population

� Rise of chronic conditions

� New and relatively expensive medicines

� Cost containment has been achieved, real rate of 1.4% growth over the forward estimates, but new listings have potential to be a major contributor to growth.

� Reductions in Australian medicine prices often lag behind those of many other advanced countries.

Audit Commission Recommendations

� Fixed PBS funding envelope that extends for a seven year cycle;

� Establishing an independent authority ('PBS Entity') to manage budget & negotiate prices

� Increase co-payments by between $2-$5 per script

� Opening up the pharmacy sector to competition, including through the deregulation of ownership and location rules;

Pharmaceutical Expenditure

Pharmaceutical Benefits Scheme Historic data, Deflated using CPI.

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Source: 4S study1994



Technological advance?� Few new drug options to

further reduce cardiovascular disease

� RCT of drugs such as Saxagliptin show modest improvements in HbA1c

� No impact on CVD risk and serious adverse-events: elevated risk of both heart failure and hypoglycemia

NEJM, 2013

The “Patent cliff”

Source: RSC, Google images



What else was happening in the 1980s?

Mobile phones were also introduced in 1980s

By 1987 they had:

� 1.5 hours of talk time

� 1.5 inches wide

� “Lightweight” (only 750gms)

� Cost $1500 (~$3000 today)



Technology Change

While new technologies are expensive to develop – cost of production rapidly falls;

� Generally there are refinements which improve the product

� Prices can decline to <2% of the initial price

� Move from being niche to mass market

� Unlike pharmaceuticals the smart phone is a recent breakthrough technology, that has allowed high profit margins to return.



Problem No.1

High price of generic drugs

Tony Abbott, 2006

From a former Health Minister….

Abbotts PBS “reforms” of 2007:- Aimed to reduce price of generics through price disclosure

- Moved away from reference pricing by creating F1 (patented) and F2 (off-patent) formulary

- Did not implement PBAC recommendation linking price of atorvastatin to simvastatin

Price Check: Atorvastatin

Australia (Last years price $52; $38 wholesale price)

Prices on 1 December ($19.32)

New Zealand ~$2 England ~$3



Paying too much is an old problem for Australia

� Roy Harvey 1976 M.Ec thesis “Discounts for patent drugs were often in the range of 25-35% and for non-patented drugs 70-85%.”

� Searles et.a.l. MJA 2007 found generics up to 70% cheaper in NZ

� Bulfone L. Aus Health review 2009 found generics generally much cheaper in the US.

� Clarke & Fitzgerald MJA 2010 find we are paying up to 10 times more for statins

� Spinks J. 2011 ANZPH find prices almost twice as high as in New Zealand

� Duckett S. 2013 Grattan Report finds we are paying too much for generics

Six out six economist agree we are paying too much for generic medications...

International comparison* ofex-manufacturer prices

Selected therapies

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$1.00

$2.00

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$4.00

$5.00 Australia

England

Sweden

New Zealand

Arguing for Change

15 May 2010



Recent prices for our most used generic medications.



$575 million cost per year

Mill

ions $

Still arguing for changeSchool of Population Health


http://ourhealth.org.au/medicines-savings-we-need-see#.Uzm2Hl24Zhh

Problem No.2

Over use of high cost medications

Beyond Prices

Source: MJA 2010

In the UK when generic prices fall, demand risesIn Australia when generic prices fall, demand falls!



MJA 2010: Potential Savings from price reductions and increased generic use



MJA 2010

Problem No.3

Lack of evidence & transparency in

decision making

Reducing price of Atorvastatin

“Therefore, the PBAC reaffirmed its

recommendations of 2005, 2006 and 2007 that

atorvastatin and rosuvastatin are more effective

than simvastatin … Furthermore, the PBAC does

not change its previous advice to the Minister that

a relative price differential of 12.5%, on average,

between atorvastatin and simvastatin was

acceptable” - PBAC Review 2012

$143 million in savings by December 2014



Pricing & evaluation of combination drugs

� Almost all combination drugs are listed on the basis of “cost-minimisation”

� Companies request an initial price that is less than individual component drugs

� Linkage only continues while there is a “single brand” combination item

� Multiple brand combination items treated as a separate item for price disclosure

Spot the difference…“Cadatin brand” “Caduet brand”

Amlodipine with Atorvastatin marketed by just one manufacturer.

Cost combination 10 mg amlodipine and 40 mg atorvastatin is $76.10

Combined cost of individual therapies: 10 mg amlodipine $10.26 & 40 mg atorvastatin $30.52. = $40.78

Extra - $36 per script so the patient can take one rather than two pills ~ $30 million a year for the taxpayer.

Better way� Only pay for combinations if they can shown to

have clinical benefit beyond individual therapies

� Evidence from a limited number of RCT has shown that combinations improve adherence

� Need to test in real word, taking into account dispensing of other drugs & impact of out-of-pocket costs

� Role for pragmatic RCT and example of how Medical research should be focused on improving decisions as recommended by McKeon Review

Problem No.4

Lack of competition in pharmacy

Current regulation

� Highly regulated through Community Pharmacy Agreement between the Pharmacy Guild & Government

� Restricts ownership to registered pharmacists

� 53 page book of regulations govern location rules- prevention new business setting up 1.5 km from an existing business.

Since 1990� Australian population grown by 5 million

� No. prescriptions dispensed on the PBS by 90 million

� PBS expenditure increased four-fold

� No. of pharmacies have gone from around 5000 to 5200

� These share in $3.2 billion pa- $600,000 per pharmacy

� Pharmacies claim they are “on the edge” –without additional money from discounts many claim they will go broke

Effects of the agreement

� High cost of entry – prevents many graduates from ever owning a pharmacy

� High debt levels

� High rents – some pharmacists have become “rent hostages” to the location rules

http://www.pharmacysales.com.au/forsale/vic

Tony Abbott’s promise

“The reason why the savings to government become much more significant in five years' time and beyond is because there are about 100 major drugs that are coming off patent in that time and we are compensating pharmacists, we are explicitly compensating pharmacists for the loss of discounts over the next four years; but we are not explicitly compensating them for the much greater impact of the loss of discounts in the subsequent five and more years.”

Tony Abbott 2006

Problem No.5

Under use of low cost drugs

Take account of price deductions

� US and England have recently revised guidelines for statin prescribing to greatly lower risk (between 7.5%-10%) when statins are initiated

� We urgently need a similar review

� Need to look at best ways to improve compliance which could include:

� Combinations

� Pharmacists

� Rebates to consumers for returning empty packets

Return to the Audit Commission

Recommendation #1 Funding envelope & independent authority

� Explicitly recommends the PHARMAC model

� Promotes efficiency – as saving must be found to list new drugs

� Requires a high level of technical skills and community discussion about explicit rationing

� In regard to New Zealand don’t confuse the country with the policy

� Would be the most significant change to the PBS in its history

� Could probably get a most of they way by evolutionary reforms

2. Increasing co-payments

� $5 increase for non-concession holders and $2 payment for concession card holders on the Safetynet

� No real price signals and risk of reducing adherence

Alternative Proposal: Sharing price fall

Co-payment for concessional:

� $4-$4.99 for drugs below $20

� $5-5.99 for drugs between $20-50

� $6 for drugs over $50

Similarly co-payment for non-concessional could reduce out-of-pocket costs to $25-$36

Gives consumers a stake in prices reforms, which is likely to be critical to long-term success



Open up the pharmacy sector to competition

� Hard to find economic arguments against it

� More competition is required especially as increasing number of drugs are below co-payment

� Location rules are more restrictive than ownership

� Need to look to new payment models to ensure viability- more OTC medications (e.g. statins in England), or fee for pharmacy service.

Publication details:

Philip Clarke, "The price is wrong:

Pharmaceutical expenditure in,

Australia over the last decade

and options for reform,

in Healthcare: Reform or ration.

CEDA Report, April 2013.

Clarke PM. and Avery A. “Evaluating the costs and benefits of using combination therapies”, MJA Early online.



Professor Philip Clarke, The University of Melbourne, Reforms to the PBS to promote technical and...

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