dr teresa nicoletti - piper alderman - the need for a measured approach when it comes to pbs pricing...
DESCRIPTION
Dr Teresa Nicoletti delivered the presentation at 2014 Future of the PBS Summit. The 11th annual Future of the PBS Summit marks a wonderful opportunity to review future frameworks and preferred outcomes for pharmacy regulators, pharmaceutical companies and wholesalers, practitioners, educators and consumers. For more information about the event, please visit: http://www.informa.com.au/futurepbs14TRANSCRIPT
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PBS Reforms The Need for a Measured Approach
Dr Teresa Nicoletti
Partner, Piper Alderman Senior Member, Administrative Appeals Tribunal
Phone : 02 9253 9946
Email: [email protected]
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Outline of Presentation
! Why reform?
! Impact of PBS reforms
! How have the measures affected stakeholders?
! Finding the right balance
! Conclusion
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Why reform?
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A sustainable PBS
! Government must be able to sustain cost of PBS ! Sustainability concerns continuing “ability to pay”
or “affordability”
! What is the Government concerned about? > Ability to pay
> Willingness to pay
! Or is it both?
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What is “Sustainability”?
! Key considerations > Demand and supply
> Can the government allocate sufficient resources to meet its obligations (fiscal balance)
> Spending as a proportion of GDP (economic stability)
! Government’s ability to pay and willingness to pay in the face of rising costs and resource constraints
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Impact of PBS Reforms
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Drivers of PBS Costs
! Advances in technology > Account for between 50-75% of all growth in
health care spending
! Ageing population
! Increases in chronic disease
! Growth of preventative medicine
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Drivers of PBS Costs
! Leakage/off-label use ! Rising income and consumer expectations
> Access to medicines
> Access to the latest technology – Newer, more targeted drugs
– Fewer side effects
> Range of options to choose from
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Economic impact of PBS spending
! In the context of GDP
! Measure of the total health of the economy
! Sum of Consumption, Investment, Government Spending and Net Exports
> Government spending as a proportion of GDP – Total government expenditure on health
Ø PBS expenditure
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Economic impact of spending on health ! Health spending contributes to social welfare, but
so does education, food and leisure
! Opportunity cost of resources allocated to healthcare equals value that would have been gained from allocating those resources to their best alternative use
! If healthcare consumes an increasing share of GDP, resources are being directed from other valued activities
! Do welfare gains from higher spending outweigh opportunity cost of not spending those resources elsewhere?
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Economic impact of PBS spending ! PBS spending contributes to improved health and
welfare
! But so does Medicare subsidy, spending on Aged Care and other areas of health
! If the PBS consumes an increasing share of the health budget, less resources for spending in other areas
! Opportunity cost of allocating health budget to PBS equals the value that would have been gained from allocating those resources to other areas of health
! Do gains from PBS expenditure outweigh opportunity cost of not spending those resources in other areas of health?
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PBS Expenditure against GDP Table 2 : PBS Expenditure v GDP
Sources: Department of Health Annual Report, PBPA annual report, Australian Institute of Health and Welfare, Australian Government website
Year ending June 2009 2010 2011 2012 2013
GDP ($ billion) ^ 1037 1321 1583 1636 1580
∆ GDP (%) 5.54 27.39 19.83 3.34 -3.42
PBS Expenditure* ($ Billion)
7.66 8.34 8.87 9.19 9.00
∆ PBS Expenditure (%)
8.83 8.97 6.36 3.62 -2.15
PBS Expenditure as
% of GDP 0.85 0.63 0.56 0.56 0.56
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PBS Expenditure Trends
0.00
2.00
4.00
6.00
8.00
10.00
FY 00/01
FY 01/02
FY 02/03
FY 03/04
FY 04/05
FY 05/06
FY 06/07
FY 07/08
FY 08/09
FY 09/10
Ann
ual P
BS
Expe
nditu
re
($ b
illio
n)
Financial Year
PBS Expenditure over the Past Decade
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12 FY 12/13
Ann
ual P
BS
Expe
nditu
re ($
bill
ion)
Financial Year
PBS Expenditure over the Past Decade
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PBS Expenditure Trends
-5
0
5
10
15
20
25
FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12 FY 12/13
% C
hang
e
Financial Year
Change in PBS Expenditure over the Past Decade
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PBS Expenditure against Govt Health Expenditure
Table 4. PBS v Department of Health and Ageing Portfolio & Treasury Expenditure on Health
Sources: Department of Health Annual Reports, PBPA Annual Reports, Australian Institute of Health and Welfare
Expenditure 2009/10
Expenditure 2010-11
Expenditure
2011-12
TOTAL DoHA portfolio ($ billion) 121.4 132.6 140.2
Pharmaceutical Benefits Scheme ($ billion) 8.34 8.87 9.19
PBS expenditure as a Proportion of DoH Portfolio (%)
6.87 6.69 6.55
DoHA Expenditure as a Proportion of GDP (%)
9.19 8.39 8.57
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Health Expenditure of OECD Countries
Countries Range of Total Expenditure on Health relative to GDP from 2000-2013
Australia 8.1 – 9.0%
Canada 8.8 – 11.4%
Germany 10.4 – 11.8%
Japan 7.6 – 9.6 %
Switzerland 9.9 – 11.3%
United Kingdom 7.0 – 9.9%
United States 13.7 – 17.7%
Table 1. Total Health Expenditure as % GDP+
+Adapted from: OECD Health Data – www.oecd.org
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What does it all mean?
! In the past 3 financial years: > GDP has remained the same
> PBS expenditure has increased by 15% in dollar terms
– But PBS expenditure in 2013 decreased in dollar terms from 2012 expenditure
> PBS expenditure as a percentage of GDP has not changed
> PBS expenditure as a proportion of DoH expenditure has decreased by 4.66%
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What does that tell us?
! PBS expenditure as a percentage of GDP has remained stable
! PBS expenditure stable as a percentage of overall expenditure on health
! This is in the face of the sustainability measures that have been introduced
! Would indicate that reform measures have had the desired effect
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How have measures affected stakeholders?
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Government
! Key beneficiary of PBS reforms
! Overwhelming majority of the savings (94%) estimated to accrue to Government
! Manufacturers (innovators and generics) estimated to contribute bulk of savings
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Government
! 2007 PBS Reform package estimated to deliver $14.5 billion in savings to Govt and consumers to 2017-18
! 2010 PBS Reform will deliver an additional $3.4 billion in savings in same period
! 2010 price disclosure reforms saved $1.9bn in the first year
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Government
! Price changes in 2012-13 and ongoing due to 2010 reforms will save approx $4 billion
! In FY13, Govt saved $661.3m from 2010 reforms
! Annual PBS expenditure decreased for the first time (from 9.19 in FY12 to 9.00 million in FY13)
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Government
! Treasury’s MYEFO shows that expenditure on PBS in 2013-14 will be $526 million lower than budgeted
! Overall savings from 2010 PBS Reforms from 2010-2015 estimated to be approx $1.8 billion
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Supply Chain Impact
! Revenue foregone by stakeholders from the 2010 PBS reforms
Adapted from Dr K Sweeny, “Impact of Further PBS Reforms”, Report to Medicines Australia, Centre for Strategic Economic Studies, Victoria University May 2013
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Wholesalers
! ↓ in agreed manufacturers’ prices
! Wholesaler margins ↓ due to reduction in dollar value of wholesaler mark up
! Estimated to lose approx $116m in revenue from FY11 to FY15 due to 2010 reforms
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Innovator companies
! Negative impact on innovator companies as manufacturers
! ↓ in manufacturer component of PBS prices
! Depends if innovator has a majority of drugs still on the F1
! Off-patent innovator brands to lose $883.7m in revenue from FY11 to FY15 as a result of 2010 PBS reforms
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Generic Companies
! Affected by price disclosure rules given that all of their drugs are in F2 formulary
! Despite more generics entering market, generic sector experienced decline in sales revenue
! Estimated to lose $654.8m in revenue from FY11 to FY15 as a result of 2010 PBS reforms
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Access to Medicines
! Access to low-cost medicines has improved
! Off-patent medicines cheaper for consumers
! Decline in number of new innovative medicines listed on PBS since 2009-2010
! Access to innovative medicines hit an historic low in 2011-12 (cf past 20 years)
> Is it too expensive to bring a drug to market, when compared to price Govt is willing to pay?
> Is process of obtaining reimbursement more difficult?
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Patients ! Patients stand to save 6% due to the 2010 PBS reforms
! Positive flow-on effects from statutory price reductions
! Flow-on effects from price disclosure
! No evidence that manufacturers have offset statutory price reductions through increased prices
! Price-to-pharmacist is lower
! Price pharmacist charges consumer is lower
! Increased access to F2 medicines
! Increased access to cost-effective medicines
! Counter-argument of threatened access to new medicines due to unfavourable pricing environment
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Pharmacies
! Pharmacy Guild estimates reduction of $90,000 off bottom line
! Decreases in PBS remuneration due to price disclosure and price reductions
! Reduction of Govt funding for mark-up
! Loss of trading terms
! Increase in costs to pharmacy passed down from wholesalers
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Finding the right balance
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Sustainability Issues – Real or Perceived?
! Yes, but the reforms appear to be working
! PBS expenditure under control
! Stable as a percentage of GDP
! Stable or decreasing as a percentage of overall spending on health
! Market competition in the generics sector has created more headroom for innovative drugs
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Need for a measured approach
! Impact on all stakeholders must be considered before implementing PBS reforms
! PBS spending should be weighed against other health costs and other government expenditure
! Fundamentally, if a medicine returns more in terms of health and economic benefit than it costs, then expenditure should be justified and sustainable
! Indiscriminate costs may increase rather than increase pressure
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Is access to medicines in jeopardy?
! Possible long term implications of extreme PBS reforms and cost cuts
> Less incentive to introduce new medicines
> Compromised industry due to constant downward pressure on price
> Companies less willing or able to do business due to cost pressures
– Less suppliers in the market to meet whole of supply
– Impact on jobs in pharmaceutical industry
> Local research and manufacturing expertise to go off-shore
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Conclusions
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Conclusions
! Sustainability of the PBS is a real issue
! PBS and health expenditure are stable
! BUT this is in the face of a number of sustainability measures already implemented
! Effect of PBS reforms is ongoing – still to see long-term effect of these
> The next 2-3 years will be interesting
! Ad hoc measures introduced without consultation undermine industry’s confidence in government
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Conclusions
! Need to be mindful that ongoing downward pressure on price may have long term detrimental effects:
> Reduced access to medicines
> Reduced business in Australia
! Government and industry ought to work together to find a balance between sustainability measures and long-term viability of the sector
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