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