Post on 05-Dec-2014
description
PBS Reforms The Need for a Measured Approach
Dr Teresa Nicoletti
Partner, Piper Alderman Senior Member, Administrative Appeals Tribunal
Phone : 02 9253 9946
Email: tnicoletti@piperalderman.com.au
Outline of Presentation
! Why reform?
! Impact of PBS reforms
! How have the measures affected stakeholders?
! Finding the right balance
! Conclusion
Why reform?
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?
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
Impact of PBS Reforms
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
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
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
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?
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?
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
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
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
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
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
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%
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
How have measures affected stakeholders?
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
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
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)
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
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
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
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
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
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?
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
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
Finding the right balance
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
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
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
Conclusions
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
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