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Professor Philip Clarke, The University of Melbourne, Reforms to the PBS to promote technical and allocative efficiency
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Professor Philip Clarke, The University of Melbourne, Reforms to the PBS to promote technical and allocative efficiency


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Professor Philip Clarke delivered the presentation at 2014 Future of the PBS Summit. …

Professor Philip Clarke delivered the presentation at 2014 Future of the PBS Summit.

The 11th annual Future of the PBS Summit marks a wonderful opportunity to review future frameworks and preferred outcomes for pharmacy regulators, pharmaceutical companies and wholesalers, practitioners, educators and consumers.

For more information about the event, please visit:

Published in: Health & Medicine, Education
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  • 1. Reforms to the PBS to promote technical and allocative efficiency Prof. Philip Clarke Centre for Health Policy University of Melbourne School of Population Health University of Melbourne
  • 2. Disclosure Professor Philip Clarke does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this presentation, and has no relevant affiliations. School of Population Health University of Melbourne
  • 3. Audit Commission Report PBS is the 10th largest Government Program Drivers of growth: Ageing of the population Rise of chronic conditions New and relatively expensive medicines Cost containment has been achieved, real rate of 1.4% growth over the forward estimates, but new listings have potential to be a major contributor to growth. Reductions in Australian medicine prices often lag behind those of many other advanced countries.
  • 4. Audit Commission Recommendations Fixed PBS funding envelope that extends for a seven year cycle; Establishing an independent authority ('PBS Entity') to manage budget & negotiate prices Increase co-payments by between $2-$5 per script Opening up the pharmacy sector to competition, including through the deregulation of ownership and location rules;
  • 5. Pharmaceutical Expenditure Pharmaceutical Benefits Scheme Historic data, Deflated using CPI. Useofeconomicevaluation Intergenerationalreport
  • 6. School of Population Health University of Melbourne 4SStudy LipidStudy HPSStudy
  • 7. Source: 4S study 1994 School of Population Health University of Melbourne
  • 8. Technological advance? Few new drug options to further reduce cardiovascular disease RCT of drugs such as Saxagliptin show modest improvements in HbA1c No impact on CVD risk and serious adverse-events: elevated risk of both heart failure and hypoglycemia NEJM, 2013
  • 9. The “Patent cliff” Source: RSC, Google images School of Population Health University of Melbourne
  • 10. What else was happening in the 1980s? Mobile phones were also introduced in 1980s By 1987 they had: 1.5 hours of talk time 1.5 inches wide “Lightweight” (only 750gms) Cost $1500 (~$3000 today) School of Population Health University of Melbourne
  • 11. Technology Change While new technologies are expensive to develop – cost of production rapidly falls; Generally there are refinements which improve the product Prices can decline to <2% of the initial price Move from being niche to mass market Unlike pharmaceuticals the smart phone is a recent breakthrough technology, that has allowed high profit margins to return. School of Population Health University of Melbourne
  • 12. Problem No.1 High price of generic drugs
  • 13. Tony Abbott, 2006 From a former Health Minister…. Abbotts PBS “reforms” of 2007: - Aimed to reduce price of generics through price disclosure - Moved away from reference pricing by creating F1 (patented) and F2 (off-patent) formulary - Did not implement PBAC recommendation linking price of atorvastatin to simvastatin
  • 14. Price Check: Atorvastatin Australia (Last years price $52; $38 wholesale price) Prices on 1 December ($19.32) New Zealand ~$2 England ~$3 School of Population Health University of Melbourne
  • 15. Paying too much is an old problem for Australia Roy Harvey 1976 M.Ec thesis “Discounts for patent drugs were often in the range of 25-35% and for non-patented drugs 70-85%.” Searles et.a.l. MJA 2007 found generics up to 70% cheaper in NZ Bulfone L. Aus Health review 2009 found generics generally much cheaper in the US. Clarke & Fitzgerald MJA 2010 find we are paying up to 10 times more for statins Spinks J. 2011 ANZPH find prices almost twice as high as in New Zealand Duckett S. 2013 Grattan Report finds we are paying too much for generics
  • 16. Six out six economist agree we are paying too much for generic medications... International comparison* of ex-manufacturer prices Selected therapies Pricepertablet($Aus) Q uetiapine (100m g) C lopidogrel(75m g) Atorvastatin (40m g)+ Pioglitazone (30m g) O lanzapine (10m g) $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 Australia England Sweden New Zealand
  • 17. Arguing for Change 15 May 2010 School of Population Health University of Melbourne
  • 18. Recent prices for our most used generic medications.School of Population Health University of Melbourne $575 million cost per year Millions$
  • 19. Still arguing for change School of Population Health University of Melbourne
  • 20. Problem No.2 Over use of high cost medications
  • 21. Beyond Prices Source: MJA 2010 In the UK when generic prices fall, demand rises In Australia when generic prices fall, demand falls! School of Population Health University of Melbourne
  • 22. MJA 2010: Potential Savings from price reductions and increased generic use School of Population Health University of Melbourne MJA 2010
  • 23. Problem No.3 Lack of evidence & transparency in decision making
  • 24. Reducing price of Atorvastatin “Therefore, the PBAC reaffirmed its recommendations of 2005, 2006 and 2007 that atorvastatin and rosuvastatin are more effective than simvastatin … Furthermore, the PBAC does not change its previous advice to the Minister that a relative price differential of 12.5%, on average, between atorvastatin and simvastatin was acceptable” - PBAC Review 2012 $143 million in savings by December 2014 School of Population Health University of Melbourne
  • 25. Pricing & evaluation of combination drugs Almost all combination drugs are listed on the basis of “cost- minimisation” Companies request an initial price that is less than individual component drugs Linkage only continues while there is a “single brand” combination item Multiple brand combination items treated as a separate item for price disclosure
  • 26. Spot the difference… “Cadatin brand” “Caduet brand” Amlodipine with Atorvastatin marketed by just one manufacturer. Cost combination 10 mg amlodipine and 40 mg atorvastatin is $76.10 Combined cost of individual therapies: 10 mg amlodipine $10.26 & 40 mg atorvastatin $30.52. = $40.78 Extra - $36 per script so the patient can take one rather than two pills ~ $30 million a year for the taxpayer.
  • 27. Better way Only pay for combinations if they can shown to have clinical benefit beyond individual therapies Evidence from a limited number of RCT has shown that combinations improve adherence Need to test in real word, taking into account dispensing of other drugs & impact of out-of- pocket costs Role for pragmatic RCT and example of how Medical research should be focused on improving decisions as recommended by McKeon Review
  • 28. Problem No.4 Lack of competition in pharmacy
  • 29. Current regulation Highly regulated through Community Pharmacy Agreement between the Pharmacy Guild & Government Restricts ownership to registered pharmacists 53 page book of regulations govern location rules- prevention new business setting up 1.5 km from an existing business.
  • 30. Since 1990 Australian population grown by 5 million No. prescriptions dispensed on the PBS by 90 million PBS expenditure increased four-fold No. of pharmacies have gone from around 5000 to 5200 These share in $3.2 billion pa- $600,000 per pharmacy Pharmacies claim they are “on the edge” – without additional money from discounts many claim they will go broke
  • 31. Effects of the agreement High cost of entry – prevents many graduates from ever owning a pharmacy High debt levels High rents – some pharmacists have become “rent hostages” to the location rules
  • 32. Tony Abbott’s promise “The reason why the savings to government become much more significant in five years' time and beyond is because there are about 100 major drugs that are coming off patent in that time and we are compensating pharmacists, we are explicitly compensating pharmacists for the loss of discounts over the next four years; but we are not explicitly compensating them for the much greater impact of the loss of discounts in the subsequent five and more years.” Tony Abbott 2006
  • 33. Problem No.5 Under use of low cost drugs
  • 34. Take account of price deductions US and England have recently revised guidelines for statin prescribing to greatly lower risk (between 7.5%-10%) when statins are initiated We urgently need a similar review Need to look at best ways to improve compliance which could include: Combinations Pharmacists Rebates to consumers for returning empty packets
  • 35. Return to the Audit Commission
  • 36. Recommendation #1 Funding envelope & independent authority Explicitly recommends the PHARMAC model Promotes efficiency – as saving must be found to list new drugs Requires a high level of technical skills and community discussion about explicit rationing In regard to New Zealand don’t confuse the country with the policy Would be the most significant change to the PBS in its history Could probably get a most of they way by evolutionary reforms
  • 37. 2. Increasing co-payments $5 increase for non-concession holders and $2 payment for concession card holders on the Safetynet No real price signals and risk of reducing adherence
  • 38. Alternative Proposal: Sharing price fall Co-payment for concessional: $4-$4.99 for drugs below $20 $5-5.99 for drugs between $20-50 $6 for drugs over $50 Similarly co-payment for non-concessional could reduce out-of-pocket costs to $25-$36 Gives consumers a stake in prices reforms, which is likely to be critical to long-term success School of Population Health University of Melbourne
  • 39. Open up the pharmacy sector to competition Hard to find economic arguments against it More competition is required especially as increasing number of drugs are below co- payment Location rules are more restrictive than ownership Need to look to new payment models to ensure viability- more OTC medications (e.g. statins in England), or fee for pharmacy service.
  • 40. Publication details: Philip Clarke, "The price is wrong: Pharmaceutical expenditure in, Australia over the last decade and options for reform, in Healthcare: Reform or ration. CEDA Report, April 2013. Clarke PM. and Avery A. “Evaluating the costs and benefits of using combination therapies”, MJA Early online. School of Population Health University of Melbourne