The transparency conundrum

True transparency requires more than making information available.

According to Rio Tinto, it was a ‘misunderstanding’ with the local Indigenous community that resulted in the destruction of 46,000 year-old sacred sites in May this year. The company had Government approval and stakeholders had been informed. All boxes checked. Obviously, that was not enough.

Since 2015, the Australian Government has been a member of the Open Government Partnership (OGP), committing to support the goals of increasing the transparency and accountability of government. The first OGP Global Report (May 2019, page 20), identifies these as generally lacking in health procurement decision-making in the 78 nations involved. In this article, I assume procurement includes the registration and reimbursement of therapeutic interventions by the Government on behalf of Australian taxpayers. My thesis being that openness may not necessarily be transparent, using two examples to illustrate.

Example 1. The presentation of options by the Therapeutic Goods Administration (TGA) for which type of medicines would have evaluation status made public.

Option 1: maintain TGA’s current publication arrangements [to not make public]

Option 2: list all applications accepted for evaluation

Option 3: list all applications at two different time points

Option 4: list applications of innovator medicines of highest public interest, but not generic or biosimilar medicines

The explanations given for providing Options 3 and 4 include: ‘Generally, there is less public interest in whether a generic or biosimilar medicine is under evaluation by TGA in Australia’, and ‘Earlier publication of generic or biosimilar approvals prior to ARTG entry allows more transparency of forthcoming competition to sponsors of originator medicines and potentially, purchasers of biosimilar and generic products.’

The TGA has been in the unenviable situation of neither being able to confirm nor deny whether a particular medicine is currently in the evaluation process. Other similar jurisdictions, such as Europe and Canada publish this information. It is a good initiative. The particular drivers of this 2019 consultation on transparency were: from the TGA side, inconsistencies with other agencies, especially evident during joint evaluations of new molecules; from the innovator sponsor side, more time to initiate legal proceedings against potential patent infringing generics/biosimilars and avoidance of liability for damages by the Commonwealth; and from generic/biosimilar applicants, maintain the status quo.

The inclusion of Options 3 and 4 show that there is an awareness of the potential negative commercial/financial implications to applicants and the Government of originator sponsors knowing the timing of registration of a generic or biosimilar. Is this made clear? Does ‘less public interest’ justify being selectively transparent?

Example 2. Measures associated with the ongoing Medicines Australia-Commonwealth Strategic Agreement PBS process improvements include the PBAC preference for greater transparency to be introduced in Public Summary Documents (PSDs) through a standardised approach to redactions.

Objectives of proposed PSD Changes – PBAC (Medicines Australia, Feb 2020)
•Increase transparency of PBAC’s decision-making processes.
•Publish PSDs in an efficient and consistent manner through establishment of a standardised approach to redacting information.
•Provide consumers with access to information to assist with making decisions about their individual health needs.
•Increase the public’s understanding about PBAC decisions.
•Align Australia’s practices with leading international jurisdiction approaches*.

*This refers specifically to the additional, and unexpected, push for PSD inclusion of all clinical data provided in PBAC submissions, irrespective of the publication status nor commercial impact. While no other jurisdiction currently requires it, other countries are considering in response to calls for increased pricing transparency (WHO, WHA, 2019).

While appropriate that the PBAC want to clearly indicate how each recommendation was reached, what is the point of providing even more information in PSDs when the existing format is, realistically, inaccessible to anyone without disease and technical knowledge and an appreciation of the meaning of uncertainty in this context? Inclusion of a summary in lay-man’s language in PSDs would go much further towards openness. It is like providing a patient with a copy of his/her CT scan and the report without an explanation as to what it means.

Pew Research Center, August 2019,
“Trust and Mistrust in Americans’ Views of Scientific Experts, Page 24

Do we want people to be able to understand the information OR is the fact that it is openly available more important?

According to a 2019 Pew Research survey, it is the later. Americans confidence in scientific findings are most influenced by open public access to data and independent committee reviews. There appears to be no similar survey providing Australian opinions.

Scientific journals are strongly encouraging authors to make datasets open source at the time of study publication with the intent of it becoming a mandatory requirement. Should sponsors of reimbursement submissions expect anything different? It is notable that journals target technical audiences, while PSDs are ostensibly for consumers (patients, healthcare professionals, competitors).

Before public release of information, consideration should be given as to who will use it, for what purpose(s), and the most appropriate release format, which is what the TGA and PBAC have undertaken via consultation in the examples provided. Is it enough?

Note: There is an opportunity to voice your opinion on ‘What does open government mean to you’ as input to the Third National OGP Australian Action Plan 2020-2022.

Image source: Jim Pavlidis

NICE and PBAC

The current review of NICE is a useful foil upon which to consider the announced refresh of the Australian National Medicines Policy. Both are being driven by concern that access processes are not keeping pace with biomedical innovation.

The table below provides a side by side comparison of the two appraisal systems and HTA reimbursement environments. Of interest is the relatively recent increase in NHS responsibility and focus on overall budget impact of reimbursing a new technology.

The need to effectively manage uncertainty whilst still making decisions is a key challenge of providing timely access, especially as patient populations are becoming smaller and more targeted.

 
EstablishedNICE became a legal entity in April 1999.
First guidance published was an assessment of zanamivir for flu.
The PBAC evolved from the Formulary Committee and became an independent statutory body under s 101 of the National Health Act (NHA) in 1953.
Cost-effectiveness was introduced into the NHA in 1998, with the first PBAC Guidelines published in 1992.
Responsible forTechnology appraisals (TAs) that assess the clinical and cost effectiveness of health technologies (pharmaceuticals, biopharmaceuticals, procedures, devices, diagnostic agents) and highly specialised technologies (HST). The primary role of the PBAC is to recommend new medicines for listing on the Pharmaceutical Benefits Scheme (PBS), taking into account the medicine registration, its clinical effectiveness, safety and cost-effectiveness compared with other treatments.
Cost Recovery FeesNew regulations came into effect 1 April 2019 allowing NICE to charge for appraisals. A single TA costs approximately US$ 156 K for large, and US $40 K for small companies.Significant increases from 1 July 2019, with the full process to listing, including one major submission, costing approximately US$ 300 K. A second stage is to be implemented from July 2020 but may be delayed.
Current review Review of Methods and Processes
Announced July 2019
Federal Government review of the National Medicines Policy. Formerly announced October 2019
Review ScopeEvaluation methods of technology appraisals and highly specialised technologies (HST).   The QALY as a decision tool is not included with NICE indicating that changes to methods will only occur if there is a compelling case.Consider whether the policy in its current form continues to meet the needs of Australians.  
Task force established, Terms of Reference pending. On-hold as resources directed to COVID-19.
StakeholdersSubstantial interest from external stakeholders and interest groups.    Wide-spread interest and involvement of health stakeholders, patient and consumer groups.
Review Concerns – access and impact on patients
-affordability in the NHS
-clearer criteria for HST
-improved representation of the patient view
-inclusion of non-health benefits
-success of the life sciences sector
-timely and equitable access to new, innovative therapies
-affordability (Govt, community, patient)
-supply chain (shortages, rebates)
-integration of patient voice
-viable medicines sector
Average evaluation16.0 months (2009 – 2016)4.5-month cycle from submission to PBAC consideration
Average time registration to reimburse (2012-2017)*4.2 months13.8 months
% NCEs registered, subsequently reimbursed (2012-2017)* 84.3%
(29% not funded for full licence, and 5% only recommended for the Cancer Drugs Fund).
46%
PricingVoluntary Pricing and Access Scheme (VPAS) came into effect in January 2019, replacing the Pharmaceutical Price Regulation Scheme (PPRS). VPAS promises more and faster NICE appraisals for NCEs and speed up of appraisals for non-cancer medicines to be in line with cancer medicine timelines. Following loss of the Pharmaceutical Benefits Pricing Authority (PBPA) in 2014, the Department of Health has become the sole arbitrator of pricing. Reforms in 2015 introduced statutory price cuts at 5, 10 and 15-year anniversaries from PBS listing targeting patented medicines.
Last major reviewIntroduction of end-of-life criteria and formation of the Cancer Drugs Fund (CDF) that relaunched under NICE in 2016.Strategic Agreement 2017-2022 – Streamlining PBS Processes in progress.
PBAC Guidelines Version 5.0 published September 2016.
Parliamentary level reviewsAn inquiry by the All-Party Parliamentary Group (APPG) on Access to Medicines highlighted demand for wider value thresholds and modifiers, better management of uncertainty and improvements in the use of data and real-world evidence be brought into the methods. Senate Inquiries into the Supply of Chemotherapy Drugs (2013); Availability of New, Innovative and Specialist Cancer Drugs in Australia (2015) and Funding for Research into Cancers with Low Survival Rates (2017). Recommendations accepted and implemented by Goverment to varying degrees.
US trade dealsUK-US post-Brexit trade agreement under negotiation.
While US propose to redesign the NICE process, NHS England has been taking steps to increase its role in affordability and to effectively bypass NICE when appraising innovative medicines.
NHS will play a key role in applying pressure on drug prices irrespective of any trade deal.
2005 AUSFTA was instrumental in introducing major reforms to PBS listing process.
Many, such as Independent Reviews and Public Summary Documents have been diluted, or configured to suit DoH purposes. For example, recent call for 100% transparency of clinical data. Others, such as PBAC hearings, continue to be invaluable.
Budget impact
(Ghabri and Mauskopf 2018).
NHS Commercial Medicines Unit responsible for Patient Access Schemes and negotiation of outcomes-based pricing agreements. Introduction of the budget impact test makes a high budgetary impact the reason for manufacturers to reduce their price, either directly or indirectly, by lowering the cost-effectiveness threshold.Since 2010–2011, any recommendation by PBAC that has a financial impact for the Federal Government is considered by the cabinet. The estimated financial impact of a drug on the Australian drug budget is a significant predictor of the PBAC recommendation for reimbursement
Managed EntryReview will consider how to better managing uncertainty around early data and surrogate endpoints, such as collecting RWE while trials pending.Process available since February 2011. Infrequently utilised following outcomes of initial agreements, .
Political InterferenceHealth Secretary Matt Hancock’s recent intervention in funding decisions around cystic fibrosis drugs, Orkambi and Trikafta, shows that NICE’s independence can be compromised.Parliamentarians exert pressure on the Minister of Health (MoH) to enact listings once a positive PBAC recommendation has been made. However, MoH can deflect back onto Sponsor for not meeting the advice (conditions) of the PBAC recommendation. Strong commitment to this ‘independence’ of the PBAC.
Role of consumer and patient advocacy groupsThe Review proposes new responsibilities for external stakeholders, such as delivering quantitative evidence of disease modifiers to be used in assessments and decision making. Disparity of resource and HTA skills within the patient group community to address these issues could risk furthering the inequality and lead to a misrepresentation of some therapy areas.Increasing call, and opportunities for patient voice to be heard during evaluation of new medicines.
Pilot initiative whereby patient groups meet with PBAC members prior to consideration of a relevant submission, is to be formalised. Industry increasingly engage with patient groups, especially around relevance of clinical endpoints and capturing real impact of disease. Government focus on transparency has lead to development and launch of a publicly accessible Medicines Status Website.

References and Notes:

Lanning R. Does NICE hold the cards to drug pricing and reimbursement? PharmaField 30 March 2020.

Boyd N. A NICE Transformation? PharmaTimes Magazine, April 2020, p. 25-26.

*Medicines Australia 2018 COMPARE 4 Report

Image

Globalisation and the pricing of biopharmaceuticals

As the Sponsor of a new medicine seeking listing on the national Pharmaceutical Benefits Scheme (PBS), pricing used to be relatively straightforward once a positive Pharmaceutical Benefits Advisory Committee (PBAC) recommendation had been received.

The Pharmaceutical Benefits Pricing Authority (PBPA), defunct as of 1 April 2014, would determine the price based on: (1) PBAC advice accompanying the recommendation and, (2) the Sponsor’s pricing submission. Calculation methods were explained in the PBPA Manual (last edition 2009) and, sometimes further discussion with the Pricing Section of the Department of Health (DoH) was required to finalise, for example, exact amount of cost offsets etc. From a company perspective, as long as you stayed above the specified ‘global floor’, the local price was a matter for the local affiliate.

Prior to August 2007 reforms, when the PBS was split into two formularies (F1, F2) based on the availability of a generic brand following lost of exclusivity, the ‘reference pricing method’, was most commonly used. This is where drugs are priced based on their relative safety and efficacy, as determined by the PBAC and documented in Therapeutic Relativity Sheets. Where drugs are considered to be of similar efficacy and safety, the lowest priced brand or drug sets the benchmark price (‘cost-minimised’).

The ‘cost plus method’, where a gross margin of 30% is considered reasonable based on costs declared by the Sponsor in the PB11b form, became applicable to a larger range of drugs (F2, multiple brands) after the reforms, with reference pricing only applying to F1 (single brand, on patent) drugs.

A Price Disclosure policy was introduced for F2 medicines. This was necessary for the Government to realise the savings when generic brands cost-minimised to originator brand prices. Generic companies were using the excess margin above cost, due to lower development investment, to incentivise prescribers and pharmacists. Various iterations to price disclosure processes have been extremely effective in finding the lowest viable price. This policy is almost wholly responsible for over 30% of PBS services currently being below the general patient co-payment ($40) and in no need of Government subsidy.

Continuing adjustments to policies and Health Technology Assessment (HTA) evaluation guidelines maintained Government pressure on prices and risk mitigation. This resulted in the need for Special Pricing Arrangements (SPAs) and Risk Share Agreements (RSAs), respectively. Rebates of 100 % are now the norm. When ‘effective’ (i.e. real) prices being paid for new medicines are lower than the global floor these must be confidential otherwise long delays to PBS listing are likely. This is because of the increasing number of countries who base their local drug prices on those paid by a basket of countries (international reference pricing). This approach is proposed in the USA as part of the Pelosi bill.

Where a comparator is listed under a SPA, preparing an economic evaluation has become a guessing game as to the effective price. Needing to use the published list price disadvantages a new medicine in the evaluation process.

Things became more complicated when the PBS Access and Sustainability Package, introduced in mid-2015, included a 5% price cut to all F1 brands listed for five or more years. As the Table shows, F2 is a smaller source of potential savings for the Government. Anniversary cuts were extended to include 10 and 15 year listing marks as part of the 2017 Commonwealth-Medicines Australia Strategic Agreement.

Affiliate pricing of a new medicine is increasingly centralised by companies as Government payers push to use taxpayers’ money wisely. In both situations, prices expected, based on perceived and relative value, may be very different to those modelled on the available clinical evidence.

Collaboration between payers and pressure for reform (2), including transparency of real prices, may result in pricing becoming very simple if companies choose to set only one global price.

(1) Impact of introduction of value-based pricing in Germany (2) See articles by Neil Gubert on cross-border collaboration and the Commonwealth Fund on drug pricing reform.

Photo source: BIG Maze, National Building Museum, Washington DC, 2014

3 Reasons why Medicines Shortages will continue

Mandatory reporting of medicine shortages† from 1 January this year has seen new notifications to the Australian Therapeutic Goods Administration (TGA) increase by over 400% (n=1,455 for 2018-19) compared to the previous period (n=274).  Currently, over 10% of the drugs on the TGA ‘list’ are classified as critical with the potential to have a life-threatening or serious impact on patients. 

Miljkovic N et al. Results of EAHP's 2018 Survey on Medicines Shortages. Eur J Hosp Pharm 2019;26:60-65.
Miljkovic N et al. Results of EAHP’s 2018 Survey on Medicines Shortages. Eur J Hosp Pharm 2019;26:60-65.

The FDA Drug Shortages Task Force Report, released today, compared drugs that went into shortage from 2013 to 2017 to similar drugs that did not go into shortage. Drugs in shortage were more likely to be relatively low-price, in particular genericised sterile injectables, including anaesthetics, chemotherapy and pain treatments. Australian hospital (2017) and European Association of Hospital Pharmacists (EAHP) 2018 Medicines Shortages surveys reported similar groups of drugs most often impacted (Figure 2 from the report shown).

Shortages can and do have a significant impact on patient care, especially when there is little or no notice. Required reporting provides authorities, health care professionals and patients time to prepare. Unfortunately, this measure, like those taken elsewhere in the world will not reduce the problem because:

(1) Commodity pricing policies

Treating drugs as commodities exposes them to the rigours of supply and demand.

Although demand is increasing globally, due to ageing populations and availability of more effective medicines, the FDA Task Force found ‘prices rarely rose after shortages began, and during shortages, production typically did not increase enough to restore supply to pre-shortage levels.’ This points to a ‘broken marketplace‘, where scarcity does not result in the price increases predicted by basic economic principles.

RELATION BETWEEN PRICING POLICY AND MEDICINE SHORTAGES. From https://publicaties.vereniginginnovatievegeneesmiddelen.nl/magazine/mm2019uk/medicines-for-tomorrow/
RELATION BETWEEN PRICING POLICY AND MEDICINE SHORTAGES. From https://publicaties.vereniginginnovatievegeneesmiddelen.nl/magazine/mm2019uk/medicines-for-tomorrow/

As the graph shows the relationship between introduction of a preference policy in the Netherlands, where only the cheapest medicine for a specific disorder is reimbursed, has resulted in a greater proportion of these medicines being in shortage.

Companies seeking to enter the generic marketplace may not have the manufacturing history and quality safeguards in place to ensure sustainable supply. This is despite providing guarantees to Governments who preference suppliers based on price.

The production and supply of pharmaceuticals is regulated by Good Manufacturing Practice (GMP), as prices decrease, companies may consolidate manufacturing facilities to maintain profitability. Hence, those medicines with the most competition will be the most vulnerable to shortages.

(2) Expansion of reference pricing

As more Governments, including the US (see Pelosi Lower Drug Costs Act 2019) introduce reference pricing into their drug procurement policy mix, others are losing their appetite for the quid pro quo of access to new products at ‘hidden’ prices. The Dutch Health Minister has recently called to ignore the confidentiality of pricing agreements, while the Australian pharmaceutical industry was rocked last year by the presentation of a poster listing rebates by ATC code at an international conference. In addition, changes to supply chain rebate arrangements continue to be progressed by the Australian Government despite concerns around the impact on availability of new drugs.

There is a real possibility that companies will set a price for a product and that will be the price, irrespective of country. This will restore the marketplace but patients in countries that have come to expect, and demand, substantial discounts on new medicines will be left waiting for access.

(3) Solutions to date have been ineffective

TGA Annual Performance Statistics. Table 80. https://www.tga.gov.au/book-page/15-reporting-medicine-shortages
TGA Annual Performance Statistics, 2018-19, Table 80.
https://www.tga.gov.au/book-page/15-reporting-medicine-shortages

The EAHP 2018 survey found that medicines shortages have become more troublesome since the last survey in 2014, with 91.8% respondents reporting shortages impacting patient care. The FDA Task force found that the number of ongoing drug shortages has been rising, and that their impact is likely underappreciated. Note: the FDA infographic shows shortages averted, the how likely includes requested intervention by other suppliers.

Manufacturing issues continue to be the most common reason for supply shortages. As reported in 47% of cases to the TGA in 2018-19; and 37%, plus 27% other quality issues, to FDA in 2012. Medicines are not commodities.

The FDA conclude that: ‘The root causes of shortages involve economic factors that are driven by both private- and public-sector decision-making.’

Private sector decisions serve business interests. While public sector decisions aim to benefit societal, and political, interests. The Task Force suggests quality ratings of manufacturing facilities and new contracting approaches with incentives as possible levers.

In the meantime, there will always be someone seizing the day, in this case, a plethora of global wholesalers!

Notes: † Defined as when supply of a medicine in Australia will not, or will not be likely to, meet the demand for that product in Australia any time within the next 6 months; *Reportable medicines are Registered Schedule 4 (Prescription Medicine) or Schedule 8 (Controlled Drug) products, and certain non-prescription medicines considered critical and listed in the relevant legislative instrument. Chain photo from Google Images

Who is subsidising who?

Over 30% of all prescriptions written in Australia for PBS-listed medicines are self-funded as they cost less than the relevant Co-payment (under co-pay).

General patients (co-pay $40.30, 1 Jan 2019) are the sole recipients of this cost-shifting as the dispensing fee ($7.29) is greater than the Concessional co-pay amount ($6.50).

So why do the 8% of Services to General patients account for over 30% of Government PBS/RPBS expenditure?

The bar graph shows Benefit paid and differences in proportion of Services attributable to patient categories with and without inclusion of under co-payment numbers. Another way to present this, and as reported in the annual PBS expenditure & prescription tables, is as Average Government Benefit paid per Service.

The line graph shows the evolution of Average Benefit per Service by patient category over time. This graph is based on figures downloaded from Medicare Australia website (includes both Section 85 & Section 100). The total services (approximately 205 K) match the prescription numbers presented in the PBS Expenditure and Prescription Report for the same periods, which exclude under-co payment prescriptions (since reporting started in 2012-13).

Why is the Average Benefit per Service currently over five times higher for the General patient category compared to Concessional?

 

Is there a difference in the demographics of General and Concessional patients such that higher cost (F1) medicines are prescribed more frequently to General category patients?

Benefit paid per service ($) by ATC CV CNS Anti-Infectives GI Respiratory Oncology-Immuno Other
2017/2018 $ 15.24 $ 28.65 $ 149.68 $ 31.64 $ 46.16 $ 966.48 $ 62.98

In recent years, the peak and drop for average benefit paid per service for the General ordinary category mimics that of usage of new Hepatitis C treatments. Is there disproportionate prescribing of these and other higher cost drugs, such as oncologics and immunomodulators, between categories? To test this, benefit figures were downloaded from the Medicare Australia website for Hepatitis C medicines and reveal a split between General and Concessional patient categories of 39% to 61% in $1.37 billion paid by Government during 2017-18. Total service numbers (72,266) show a similar ratio with General 37% and Concessional 63%. For the ImmunOncology medicine, Nivolumab (Opdivo, BMS) total services (40,560) were split General 32% to Concessional 65% in 2017-18.

Perhaps the cause is an artefact of the huge volume, relative to General patients, of low cost (F2) items prescribed, and paid by Government for Concessional patients? Rosuvastatin and Atorvastatin had the highest prescription volumes in 2017-18, of these 37% and 30%, respectively were under co-payment prescriptions.

As a proportion of over co-payment prescriptions in 2017-18, Safety Net (SN) accounted for by 1.3% of the General patient category and 18.2% Concessional. The addition of approximately $40 and $6.50, respectively per script to Government expenditure is unlikely to be responsible for the large difference in average benefit per service paid, given the General SN category is so small.

Suggestions on what may be driving this difference are welcome. Hope you can provide me with a D’oh moment!

 

Sources: Simpsons; Medicare Australia Statistics; PBS expenditure prescriptions report tables

Three slices of the PBS

Like it or not, product and service providers to the PBS are in competition. 

The winners and losers during development and roll-out of the 2015 PBS Access and Sustainability Package (PASP) left no doubt about that. 

A collaborative approach within the sector, to increase the size of the currently diminishing pie, will be more sustainable and deliver better health outcomes.

(1) Manufacturers

Manufacturer revenues accounted for approximately 70% of total Government Expenditure on the PBS/RPBS in 2017-18. In terms of costs, around 40% goes to innovator companies with single brand medicines in formulary F1; 20% to suppliers of multi-branded medicines in F2; and the remaining 10% for Combination products. The overall split, volume-wise, of prescriptions by formulary was F1, 11%; F2, 85% (half under co-payment and not represented in chart below); and Other, including combinations, 4%.

(2) Wholesalers

Wholesalers are remunerated via the regulated mark-up on ex-manufacturer price, currently 7.52%. This is agreed as part of the 5-year Community Pharmacy Agreement (CPA) negotiated with the Government of the day by the Pharmacy Guild. In 2017-18, payments to wholesalers represented only 4% of total Government expenditure on the schemes.

In their 2016 Submission to the King Review of pharmacy remuneration and regulation, the National Pharmaceutical Services Association (NPSA) re-iterated their view that the funding provided to wholesalers under the 6CPA is inadequate and unsustainable. This is even without including the impact of direct distribution to pharmacy model selected by some manufacturers.

The Community Service Obligation (almost $ 200 million per year) divided between full service wholesalers is not captured in the pie chart. However, a minimal increase on the previous CSO amount and a loss of  indexation during negotiation of the 6CPA, raises the question is anyone representing wholesalers at the table with Government?

(3) Pharmacy

The 2015 PASP/6CPA introduction of a flat, but CPI indexed Administration Handling and Infrastructure (AHI) fee successfully uncoupled community pharmacy remuneration from the price of medicines, and added to the growing range of professional services being remunerated. In addition to existing fees for dispensing, electronic prescriptions and incentives, such as to provide premium free medicines.

This approach has, and is, largely protecting pharmacy from the ongoing financial squeeze being experienced by manufacturers and wholesalers due to price disclosure, successive reforms and Department of Health activity.

Many of the professional service payments and pharmacy revenue, such as $600 m for the new Dose Administration Aid program and Minister Hunt announcements at APP2019, are not captured in the 26% of Government expenditure on the PBS/RPBS shown in the chart. For example, Clause 3.5 of the 6CPA notes: ‘The Commonwealth also estimates that community pharmacy will receive up to a further $4.8 billion from dispensing pharmaceutical items that are priced below the Maximum CoPayment.’ (1)

Bruce Annabel noted in a recent AJP article that ‘on average, pharmacies are receiving circa $30,000 pa services income’ with some generating over $200,000 pa.

With the PSA recently announced to join the 7CPA negotiations, and SHPA at APP2019 also wanting to play a role, as hospital pharmacists oversee more than 20% of annual PBS expenditure, there are going to be some unfamiliar faces at the table, very likely facing a new Minister of Health.

Sources: Department of Health Expenditure & Prescriptions Report; PharmaDispatch; Google Images

 

(1) The 6CPA bottom line of $18.9 billion to be paid to pharmacy over the life of the agreement, also excludes remuneration when community pharmacies dispense medicines under Section 100 special arrangements and the $372 m compounding fees which will be paid directly to chemotherapy compounders, who may not be approved suppliers.

PBS structural change

The long-term impact of 2007 PBS reforms are clearly evident when comparing patient categories by proportion of services and benefits. The introduction of separate formularies for single (F1) and multiple brand (F2) drugs plus successive price disclosure initiatives have fundamentally altered the structure of the Australian Pharmaceutical Benefits Scheme.

Despite ongoing increases in Concessional ordinary category (patient co-payment $6.50 in 2019) services (blue dashed line on graph), the cost paid/subsidised by Government (benefits, blue) has remained flat. Once a patient has paid $390 (60 items), the remaining services for the calendar year are provided free (Concessional Safety Net in green). Since the reforms the trend has been flat or downward, with recent significant drops most likely due to the $1 discount and other dampening policies on qualification.

While General category (co-payment $40.30 in 2019, shown in orange) services as a proportion of total has dropped away since the reforms, benefits paid by the Government for General patients (orange solid line) has almost doubled to account for 30% of total benefits in 2017-18. This is counter-intuitive as there are an increasing number of PBS items below co-payment and paid 100% out-of-pocket by patients. It is likely a consequence of the type and cost of medicines over the co-payment (refer earlier post PBS by therapeutic area showing increasing benefits paid for Oncology, Immunomodulators and Anti-infectives (Hep C) medicines).

The reducing service numbers in the General category (orange dashed) are influenced by the of loss of exclusivity on molecules with high prescription volumes and subsequent price disclosure. A similar dampening effect on the  Safety net qualification is also obvious over time.

Notes:

Patient category refers to a patient’s eligibility status at the time of supply of a PBS or RPBS pharmaceutical benefit. Concessions are available to Centrelink issued Pensioner Concession Card, Commonwealth Seniors Health Card and Health Care Card holders; as well as those with a Department of Veteran Affairs White, Gold, or Orange Card. General benefits apply if you do not have any of these cards. Further details are available on the PBS and DVA websites.

PBS Patient Category reports are available on the Government data.gov.au website as annual excel workbooks with month by month breakdown for the time period 1992 to 2016. Downloading directly from Medicare Statistics website is also possible for the period 1992 to current.

Image Source

PBS rewards innovation?

Last financial year (2017-18) the average benefit paid by the Australian Government per subsidised PBS/RPBS service was approximately AU $60 (1). However, separation of payments by therapeutic area (see graph) reveals a startling two-tier PBS with the majority of areas experiencing little growth in benefit paid since 1992-93, contrasted by those with consistent or dramatic spikes in growth.

How might this be interpreted?

 

One possibility is that, based on published list prices, the PBS/RPBS is rewarding innovation. The steady climb in benefit paid per service for Oncology-Immunological agents reflecting the ongoing innovation in this sector, with the consistent introduction of new, more cost-effective therapies.

The average benefit paid in 1992-93 for these drugs was $202.24 per service (in real 2017 dollars) representing approximately 3% of total cost to Government. In 2017-18, this had risen to $966.48 per service and Oncology-Immunology accounted for 32% of total Government cost of the PBS, but only 2% of total services. Specialists and patients in other therapeutic areas could question how representative this is.

In 2016-17, anti-infectives accounted for over 25% of all benefits paid by Government coinciding with peak uptake of newly listed Hepatitis C treatments. Although given the magnitude of rebates required in this area, revealed by a now-withdrawn poster, this information should only be considered guidance to trends.

The impact of price disclosure on benefit paid is clearly illustrated by the Cardiovascular (CV) therapeutic area. Over the 26-year period graphed, services as a proportion of all PBS activity have increased from 22% to 31%. Meanwhile, in 1992-93 the average benefit paid by Government per service was $35.39, peaking at $40.99 in 2003-04, and dropping to $15.24 in 2017-18 where CV medicines account for only 8% of benefits paid.

In terms of proportions, CNS medicines have remained relatively stable over the time period: 18% in 1992-93 to 22% in 2017-18 of services; 10% and 11%, respectively for benefits.

Gastro-Intestinal medicines have experienced a similar trend with an increase in proportion of services from 11% to 15%, while the benefit dropped overtime from 16% to 9%. This is most likely a reflection of the continuing prescribing of PPIs, and their loss of patent exclusivity.

The Respiratory therapeutic area has experienced a decrease in both the proportion of services (10% to 6%) and benefit (12% to 5%). A look at raw numbers of services shows a slight increase from 11.4 to 12 million over the period.

Methodology:

PBS/RPBS data downloaded from the Medicare Australia Statistics website for the period 1992 through 2018 was analysed by therapeutic area. The Anatomical Therapeutic Chemical (ATC) classification system, as recommended by the World Health Organisation (WHO) for drug utilisation monitoring and research (WHO 2019 Guidelines), was used. Benefit and service data was collated separately and then used to calculate the average Government benefit paid ($) per service by therapeutic area. Adjusting the benefit to adjust for inflation into real 2017 dollars did not alter the trends.

References: (1) http://www.pbs.gov.au/info/statistics/expenditure-prescriptions/expenditure-prescriptions-twelve-months-to-30-june-2018

Image source: http://cancer.nautil.us/article/196/why-cancer-drug-prices-keep-rising-in-the- us

The size of the PBS in 2030?

Extrapolating historical cost data, total Government expenditure on the PBS in 2030 is predicted to range from AU$11.5 to $14.5 billion.

The linear model based on actual PBS/RPBS expenditure after rebates in real terms (2017 $) from 1992-93 to 2017-18 (first graph) predicts a 2029-30 total cost of $14,400 m. This approach does incorporate the impact of Government policy changes and fiscal constraints, as well as the listing of new medicines and adjustment for inflation. Hence, the number is plausible assuming more of the same.

The 2% annual growth rate predicted by the trendline aligns with the recent IQVIA Institute Report on Use of Medicine (2019) that forecasts between 2019 and 2023, medicine spending growth rates in countries similar to Australia, are expected to be within a 1-4% range year on year. However, the Budget 2018-19 program expense for Pharmaceutical benefits, services and supply suggest that over $14 billion should be considered a stretch upside. This is due to the magnitude of projections for 2020-21 ($9,864 m) and 2021-22 ($9,787 m) once changes to supply chain arrangements take effect.

To better reflect the current environment, using only the past 10-years data, the 2030 PBS size lands at $9.7 billion (R2=0.1, low validity); while a trendline based on the last 15 years, predicts a total PBS of approximately $11.5 billion for 2030 (R2=0.7).

If benefit growth rates (%) are used rather than actual spend on the program as the basis for extrapolation, using linear extrapolation results in increasing negative rates (to -6.8%) and a PBS of AU$6.3 billion in 2029-30! As this is nonsensical, a moving average over 3 periods has been used to construct a trendline (second graph) and this provides an estimate of total PBS size of $11,865 m in 2030.

Using projected growth from 2014-15 to 2027-28 in real pharmaceutical spending per person from the most recent Intergenerational report (2015), plus the assumption that 80% of the growth is expected to come from non-demographic factors, the 2027-28 PBS total figure can be expected to be around $ 10.5 billion, supporting that the 1992-2018 linear extrapolation may be an overestimate.

Assuming the future holds the same in terms of policy & innovation, the total PBS will cost Government < $13 billion in 2030. How much of that amount goes to which parts of the sector will depend on how effectively stakeholders make their individual cases.

 

 

Sources: Expenditure data available from 1992 on the Medicare Australia Statistics website, picture & PBS logo