Australia's Pharmaceutical Benefits Scheme (PBS) is, without a doubt, one of the most respected systems in the world. And why shouldn't it be? Known for its equity, efficiency, quality and acceptance, it boasts a sophisticated process of subsidizing drugs and is an excellent system for funding access to medicines. It has served Australia well for many years.

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Implemented in July 1948, the PBS is administered by the Department of Health and Ageing (DHA), and is fully supported by the Pharmaceutical Benefits Advisory Committee (PBAC) and the Pharmaceutical Benefits Pricing Authority (PBPA), which were established to list and price drugs respectively. Both domestic and eligible visitors who have a Reciprocal Health Care Agreement with Australia, which includes countries such as Sweden, The Netherlands, the UK and Malta, have many reasons to be thankful for the PBS, as it offers a huge umbrella of medical coverage. Ian Chalmers, Chief Executive Officer of Medicines Australia, says: "The great strength of the PBS is that it seeks to provide universal access to medicines for all Australian patients. Its importance is recognized by the government as one of the four arms of the National Medicines Policy. From the government's point of view, it provides medicines that deliver value for money.

"The priority for the PBS is to ensure that innovative new medicines reach Australian patients when they are needed. That access has to be improved by reducing the time it takes a medicine to pass through the registration and listing process. Medicines Australia is engaged in ongoing discussions with the Australian government on this issue through the Access to Medicines Working Group."

The reality check

So, is the system flawless? Actually, no — a reality check shows that PBS expenditure, in the form of the increasing availability of new medicines for treating conditions that were not previously treated (or inadequately treated), has risen during recent years. According to a report, Demand and Price Dynamics Within The Pharmaceutical Benefits Scheme, the cost of the PBS was AUD$4.5 billion between 2000 and 2001. Sixteen percent of this was bore by consumers and the rest by the government. However, the cost has now grown by approximately 14% every year — mainly because of an increase in drug listings and the amount of people entitled to healthcare support. The number of medicines has increased by 28% from 544 in 1991–1992 to 699 in 2006–2007.

The solution to this problem is to introduce a wave of reforms that bring about significant savings while not compromising the quality of healthcare that Australians are accustomed to. The main changes to the PBS will be the pricing of the medicines in a competitive market. It includes a series of price drops, and the government will migrate the system to one where the price sold in the market is the price that the government pays.

The reforms are designed to benefit patients, pharmacies and doctors across the board. The standard copayment contribution remains, but patients will pay less for some medicines that are cheaper than AUD$29.50. Pharmacists will be paid AUS$0.40 for each prescription processed via PBS online, and doctors will be given the authority to write approximately 200 of 450 medicines, which translates to fewer phone calls to Medicare Australia to obtain approval.

Chalmers says: "The PBS reform sought to deliver savings of AUD$3 billion during 10 years by taking advantage of a competitive generic medicines market. The savings have strengthened the capacity of the PBS to deliver more life-enhancing, innovative new medicines."

The PBS will be separated into two groups: F1 and F2. Medicines where there is only a single brand listed (containing both on patent and off patent medicines that are not substitutable with other brands or medicines) fall into F1. F2 refers to medicines that include many brands and groups of medicines that are interchangeable between patients. With effect from 1 August 2008, a price drop of 2% for 3 years of medicines where price competition between brands is low, will be affected. There will also be a one-off price drop of 25% for medicines where price competition between brands is high.

The government has already proceeded to separate the list of F2 medicines into low-competition and high-competition categories. For example, medicines such as simvastatin and amoxycilin are multiple brand medicines under the high competition group. In the long term, the government hopes to migrate to a system of price disclosure where the price that it pays will reflect the actual price at which the medicine is being sold.

Price disclosure will apply to medicines operating in a competitive market. Since 1 August 2007, suppliers have been required to disclose price where price competition is low. These prices changes will take effect from 1 August 2009. For a high-price competition environment, suppliers will be required to disclose the price from 1 January 2011, after which the price changes will apply from 1 August 2012.

The PBS's ability to keep drug prices low seems to be what catches the attention of the global pharma industry. In general, prices in Australia are three to four times cheaper compared with the US. The Australian system establishes prices based on the true value of drug benefits through pharmacoeconomics analysis and reference pricing. The national bargaining power then counteracts any price-setting monopoly for patent holders.

An ideal world?

Australia may once have enjoyed a blissful home front with some of the lowest drug costs in the world, but many believed that this changed when the US proposed a Free Trade Agreement (FTA) in 2004.

Logically, any country would be more than happy to rub shoulders with the world's superpower — for both political and economic reasons — and it just doesn't make sense to turn down a FTA offer.

And yet, many people in Australia were concerned that the FTA would give US drug companies the upper hand in drug listing and eventual control over the PBS, as well as an increase in PBS expenditure that would be passed onto hospitals and the final consumer. Also, generic companies were expected to suffer as the agreement discouraged 'springboarding', a process where a generic drug can obtain approval from the Therapeutic Goods Administration on the basis of test data proving the drug's safety and efficiency. 'Evergreening', another tactic to delay generic entry, is discouraged as it allows the renewal of patents towards the end of an existing one, which results in a situation where generics may be sold for some uses of a drug, but not others.

However, despite the concerns, Australia signed the treaty and not everyone is pessimistic about the alliance. Chalmers thinks that the FTA is likely to bring about improvements to the PBS. He says: "The FTA resulted in a number of improvements to the PBS listing process. These include greater transparency and accountability of decision-making through offering companies the opportunities to have hearings before the PBAC to discuss their submissions. In addition, an independent review mechanism is now available to sponsors should they wish to seek a review of a PBAC decision on their product. With time, these initiatives will facilitate dialogue and enhance the transparency of the PBAC process."

The PBS remains a role model and has left footprints for others to follow. Undeniably, it enjoys strong support and applause from many. There's no doubt that it is generally a well-devised and calculated system packaged in such a way that healthcare authorities and patients are finding it hard to find fault with it or to say no to the chain of health benefits that PBS brings.