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Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms
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Dr Teresa Nicoletti - Piper Alderman - The need for a measured approach when it comes to PBS pricing reforms

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Dr Teresa Nicoletti delivered the presentation at 2014 Future of the PBS Summit. …

Dr Teresa Nicoletti 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: http://www.informa.com.au/futurepbs14

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  • 1. PBS Reforms The Need for a Measured Approach Dr Teresa Nicoletti Partner, Piper Alderman Senior Member, Administrative Appeals Tribunal Phone : 02 9253 9946 Email: tnicoletti@piperalderman.com.au
  • 2. Outline of Presentation !   Why reform? !   Impact of PBS reforms !   How have the measures affected stakeholders? !   Finding the right balance !   Conclusion
  • 3. Why reform?
  • 4. A sustainable PBS !   Government must be able to sustain cost of PBS !   Sustainability concerns continuing “ability to pay” or “affordability” !   What is the Government concerned about? >  Ability to pay >  Willingness to pay !   Or is it both?
  • 5. What is “Sustainability”? !   Key considerations >  Demand and supply >  Can the government allocate sufficient resources to meet its obligations (fiscal balance) >  Spending as a proportion of GDP (economic stability) !   Government’s ability to pay and willingness to pay in the face of rising costs and resource constraints
  • 6. Impact of PBS Reforms
  • 7. Drivers of PBS Costs !   Advances in technology >  Account for between 50-75% of all growth in health care spending !   Ageing population !   Increases in chronic disease !   Growth of preventative medicine
  • 8. Drivers of PBS Costs !   Leakage/off-label use !   Rising income and consumer expectations >  Access to medicines >  Access to the latest technology –  Newer, more targeted drugs –  Fewer side effects >  Range of options to choose from
  • 9. Economic impact of PBS spending !   In the context of GDP !   Measure of the total health of the economy !   Sum of Consumption, Investment, Government Spending and Net Exports >  Government spending as a proportion of GDP –  Total government expenditure on health Ø  PBS expenditure
  • 10. Economic impact of spending on health !   Health spending contributes to social welfare, but so does education, food and leisure !   Opportunity cost of resources allocated to healthcare equals value that would have been gained from allocating those resources to their best alternative use !   If healthcare consumes an increasing share of GDP, resources are being directed from other valued activities !   Do welfare gains from higher spending outweigh opportunity cost of not spending those resources elsewhere?
  • 11. Economic impact of PBS spending !   PBS spending contributes to improved health and welfare !   But so does Medicare subsidy, spending on Aged Care and other areas of health !   If the PBS consumes an increasing share of the health budget, less resources for spending in other areas !   Opportunity cost of allocating health budget to PBS equals the value that would have been gained from allocating those resources to other areas of health !   Do gains from PBS expenditure outweigh opportunity cost of not spending those resources in other areas of health?
  • 12. PBS Expenditure against GDP Table 2 : PBS Expenditure v GDP Sources: Department of Health Annual Report, PBPA annual report, Australian Institute of Health and Welfare, Australian Government website Year ending June 2009 2010 2011 2012 2013 GDP ($ billion) ^ 1037 1321 1583 1636 1580 ∆ GDP (%) 5.54 27.39 19.83 3.34 -3.42 PBS Expenditure* ($ Billion) 7.66 8.34 8.87 9.19 9.00 ∆ PBS Expenditure (%) 8.83 8.97 6.36 3.62 -2.15 PBS Expenditure as % of GDP 0.85 0.63 0.56 0.56 0.56
  • 13. PBS Expenditure Trends 0.00 2.00 4.00 6.00 8.00 10.00 FY 00/01 FY 01/02 FY 02/03 FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 FY 09/10 AnnualPBSExpenditure ($billion) Financial Year PBS Expenditure over the Past Decade 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12 FY 12/13 AnnualPBSExpenditure($billion) Financial Year PBS Expenditure over the Past Decade
  • 14. PBS Expenditure Trends -5 0 5 10 15 20 25 FY 03/04 FY 04/05 FY 05/06 FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12 FY 12/13 %Change Financial Year Change in PBS Expenditure over the Past Decade
  • 15. PBS Expenditure against Govt Health Expenditure Table 4. PBS v Department of Health and Ageing Portfolio & Treasury Expenditure on Health Sources: Department of Health Annual Reports, PBPA Annual Reports, Australian Institute of Health and Welfare Expenditure 2009/10 Expenditure 2010-11 Expenditure 2011-12 TOTAL DoHA portfolio ($ billion) 121.4 132.6 140.2 Pharmaceutical Benefits Scheme ($ billion) 8.34 8.87 9.19 PBS expenditure as a Proportion of DoH Portfolio (%) 6.87 6.69 6.55 DoHA Expenditure as a Proportion of GDP (%) 9.19 8.39 8.57
  • 16. Health Expenditure of OECD Countries Countries Range of Total Expenditure on Health relative to GDP from 2000-2013 Australia 8.1 – 9.0% Canada 8.8 – 11.4% Germany 10.4 – 11.8% Japan 7.6 – 9.6 % Switzerland 9.9 – 11.3% United Kingdom 7.0 – 9.9% United States 13.7 – 17.7% Table 1. Total Health Expenditure as % GDP+ +Adapted from: OECD Health Data – www.oecd.org
  • 17. What does it all mean? !   In the past 3 financial years: >  GDP has remained the same >  PBS expenditure has increased by 15% in dollar terms –  But PBS expenditure in 2013 decreased in dollar terms from 2012 expenditure >  PBS expenditure as a percentage of GDP has not changed >  PBS expenditure as a proportion of DoH expenditure has decreased by 4.66%
  • 18. What does that tell us? !   PBS expenditure as a percentage of GDP has remained stable !   PBS expenditure stable as a percentage of overall expenditure on health !   This is in the face of the sustainability measures that have been introduced !   Would indicate that reform measures have had the desired effect
  • 19. How have measures affected stakeholders?
  • 20. Government !   Key beneficiary of PBS reforms !   Overwhelming majority of the savings (94%) estimated to accrue to Government !   Manufacturers (innovators and generics) estimated to contribute bulk of savings
  • 21. Government !   2007 PBS Reform package estimated to deliver $14.5 billion in savings to Govt and consumers to 2017-18 !   2010 PBS Reform will deliver an additional $3.4 billion in savings in same period !   2010 price disclosure reforms saved $1.9bn in the first year
  • 22. Government !   Price changes in 2012-13 and ongoing due to 2010 reforms will save approx $4 billion !   In FY13, Govt saved $661.3m from 2010 reforms !   Annual PBS expenditure decreased for the first time (from 9.19 in FY12 to 9.00 million in FY13)
  • 23. Government !   Treasury’s MYEFO shows that expenditure on PBS in 2013-14 will be $526 million lower than budgeted !   Overall savings from 2010 PBS Reforms from 2010-2015 estimated to be approx $1.8 billion
  • 24. Supply Chain Impact !   Revenue foregone by stakeholders from the 2010 PBS reforms Adapted from Dr K Sweeny, “Impact of Further PBS Reforms”, Report to Medicines Australia, Centre for Strategic Economic Studies, Victoria University May 2013
  • 25. Wholesalers !   ↓ in agreed manufacturers’ prices !   Wholesaler margins ↓ due to reduction in dollar value of wholesaler mark up !   Estimated to lose approx $116m in revenue from FY11 to FY15 due to 2010 reforms
  • 26. Innovator companies !   Negative impact on innovator companies as manufacturers !   ↓ in manufacturer component of PBS prices !   Depends if innovator has a majority of drugs still on the F1 !   Off-patent innovator brands to lose $883.7m in revenue from FY11 to FY15 as a result of 2010 PBS reforms
  • 27. Generic Companies !   Affected by price disclosure rules given that all of their drugs are in F2 formulary !   Despite more generics entering market, generic sector experienced decline in sales revenue !   Estimated to lose $654.8m in revenue from FY11 to FY15 as a result of 2010 PBS reforms
  • 28. Access to Medicines !   Access to low-cost medicines has improved !   Off-patent medicines cheaper for consumers !   Decline in number of new innovative medicines listed on PBS since 2009-2010 !   Access to innovative medicines hit an historic low in 2011-12 (cf past 20 years) >  Is it too expensive to bring a drug to market, when compared to price Govt is willing to pay? >  Is process of obtaining reimbursement more difficult?
  • 29. Patients !   Patients stand to save 6% due to the 2010 PBS reforms !   Positive flow-on effects from statutory price reductions !   Flow-on effects from price disclosure !   No evidence that manufacturers have offset statutory price reductions through increased prices !   Price-to-pharmacist is lower !   Price pharmacist charges consumer is lower !   Increased access to F2 medicines !   Increased access to cost-effective medicines !   Counter-argument of threatened access to new medicines due to unfavourable pricing environment
  • 30. Pharmacies !   Pharmacy Guild estimates reduction of $90,000 off bottom line !   Decreases in PBS remuneration due to price disclosure and price reductions !   Reduction of Govt funding for mark-up !   Loss of trading terms !   Increase in costs to pharmacy passed down from wholesalers
  • 31. Finding the right balance
  • 32. Sustainability Issues – Real or Perceived? !   Yes, but the reforms appear to be working !   PBS expenditure under control !   Stable as a percentage of GDP !   Stable or decreasing as a percentage of overall spending on health !   Market competition in the generics sector has created more headroom for innovative drugs
  • 33. Need for a measured approach !   Impact on all stakeholders must be considered before implementing PBS reforms !   PBS spending should be weighed against other health costs and other government expenditure !   Fundamentally, if a medicine returns more in terms of health and economic benefit than it costs, then expenditure should be justified and sustainable !   Indiscriminate costs may increase rather than increase pressure
  • 34. Is access to medicines in jeopardy? !   Possible long term implications of extreme PBS reforms and cost cuts >  Less incentive to introduce new medicines >  Compromised industry due to constant downward pressure on price >  Companies less willing or able to do business due to cost pressures –  Less suppliers in the market to meet whole of supply –  Impact on jobs in pharmaceutical industry >  Local research and manufacturing expertise to go off- shore
  • 35. Conclusions
  • 36. Conclusions !   Sustainability of the PBS is a real issue !   PBS and health expenditure are stable !   BUT this is in the face of a number of sustainability measures already implemented !   Effect of PBS reforms is ongoing – still to see long-term effect of these >  The next 2-3 years will be interesting !   Ad hoc measures introduced without consultation undermine industry’s confidence in government
  • 37. Conclusions !   Need to be mindful that ongoing downward pressure on price may have long term detrimental effects: > Reduced access to medicines > Reduced business in Australia !   Government and industry ought to work together to find a balance between sustainability measures and long-term viability of the sector

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