August has seen the rules for funding under the Pharmaceutical Benefits Scheme (PBS) being hotly debated in the media. It stems from an unexpected change to the government’s program to access cost savings from the competition between drug companies manufacturing equivalent generic drugs, the impact on the pharmacy industry, and their contribution to the scheme overall. HPS Pharmacies wholeheartedly supports the program, but the point of debate is that the Government committed to a 12 month notice period before applying the changes. They have altered this to only six months without consultation.

Medicines under patent protection are priced to reflect their value to patients, rather than the cost of production, while enabling the drug company to recoup the cost of substantial research and development, and to maximise their returns while they have a period of exclusivity on the discovery. On expiry of the patent, the discovery is able to be used by generic manufacturers, who then develop equivalent products and compete in a free trade environment. This leads to a natural reduction in price through healthy market based competition, which ultimately contributes to consumer savings.

Price Disclosure (the Federal initiative to reduce PBS spending) sees each manufacturer of a generic product “disclosing” to the government the net price they are now offering, and the lowest of these becoming the new base price paid by the government for prescriptions dispensed under the PBS. It is a Federal initiative that accelerates the price reduction of patent expired drugs from what would have been observed under a normal free trade environment.

PBS expenditure reached $8.9 billion in the 2010-11 financial year, and the introduction of Price Disclosure has seen it grow even slower than was forecast since then, with savings estimated at $2 billion over the next 10 years.

A report by the Centre for Strategic Economic Studies (CSES) at Victoria University estimates the full impact of PBS reforms will reduce government expenditure from 2010-11 to 2017-18 by $3.37 billion, of which 8% will be drawn from pharmacy revenue.

The dependence of most of our 5,240 pharmacies on the PBS, and the difficulty of budgeting for the reforms, has coincided with a record number of community pharmacies becoming bankrupt in 2012.

The Pharmacy Guild of Australia observes that:

  • Australia has one of the lowest pharmaceutical spends as a % of GDP in the world
  • Pharmaceutical expenditure as a % of GDP is falling despite our ageing population
  • Pharmaceutical growth in dollar and % terms is much lower than the wider health system
  • Consumer medicine price increases are lower than both CPI and household incomes.

The Pharmacy Guild of Australia has reiterated their support of the objectives of Price Disclosure and cheaper prescriptions. They do however call on the government to observe the Fifth Community Pharmacy Agreement and to support the pharmacy industry through its transition from a focus on supply towards that of professional services.

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