Academic journal article Australian Health Review

Exploring the Implications of a Fixed Budget for New Medicines: A Study of Reimbursement of New Medicines in Australia and New Zealand

Academic journal article Australian Health Review

Exploring the Implications of a Fixed Budget for New Medicines: A Study of Reimbursement of New Medicines in Australia and New Zealand

Article excerpt


In its recent report to the Federal Government, the Commission of Audit made several recommendations in relation to the Pharmaceutical Benefits Scheme (PBS).1 These recommendations were based on the premise that current spending on medicines is unsustainable and reform is needed. In particular, the Commission noted that government spending on medicines is expected to be one of the fastest growing areas over the medium to long term. This trend is underpinned by an aging population, the increasing prevalence of chronic disease and the expanding proportion of concessional cardholders.2 In addition, providing subsidised access to increasingly more personalised medicines and medical technologies has been cited as a contributing factor.3

However, the notion that Federal Government spending on health care is unsustainable in the long-term remains controversial. Commentators have cited spending in other Organization For Economic Cooperation and Development (OECD) countries as well as the government's latest health spending figures, which show the lowest growth rate since the 1980s, to refute this assumption.4,5 Regardless, as thepressure to find savings mounts, health expenditure, which cost Australian governments approximately A$100 billion in 2012-13,6 remains a prime target.

In order to find savings in PBS expenditure, a key recommendation by the Commissionwas forthe Federal Government to adopt a model similar to New Zealand's Pharmaceutical Management Authority (PHARMAC), where an independent authority manages subsidised access to new medicines under a capped budget. However, the opportunity cost of such a decision was not considered, which potentially includes reducing health benefits by limiting subsidised access to new medicines in important disease areas. Using recent research and an updated search for new listings in Australia and New Zealand, the purpose of the present study was to understand current differences in access to new medicines between Australia and New Zealand. In doing so, we question the notion that a capped budget for medicines is a good policy choice for Australia.


The PBS is managed by the Department of Health and governed by the National Health Act (NHA) (1953; http://www.comlaw.; cited 12 January 2015). The Schedule of Pharmaceutical Benefits (; cited 12 January 2015) lists all medicines that can be dispensed to patients at a subsidised price. To list a new medicine in the Schedule, the Pharmaceutical Benefits Advisory Committee (PBAC) considers the comparative costs and benefits and makes recommendations to the Minister for Health. The PBAC is an independent expert body appointed by the Federal Government and includes doctors, other health professionals, health economists and consumer representatives.7

Policy levers to contain expenditure

The Federal Government (henceforth referred to as the Government) has several ways to constrain the fiscal challenge of funding new medicines. We do not provide an assessment regarding the efficacy of these measures; rather, we note those measures that are currently in use by the Government and/or the PBAC.

The NHA (1953) includes a provision that medicines can be listed on one of two formularies (F1 and F2). In general, F1 includes single-branded medicines and F2 includes off-patent medicines with multiple brands. Medicines moving from F1 to F2 incur a statutory price reduction of 16%. For medicines listed in F2, the Government implemented a series of policies over recent years, collectively known as 'price disclosure'.8 Through sponsorsreportingdiscounts givento pharmacies,'price disclosure' uses a market-based mechanism to drive down the price the Government pays for F2 medicines. The Government 2013-14mid-yeareconomicandfiscal outlooknotedexpenditure on the PBS was lower than expected, due, in part, to higher-thanestimated savings from these pricing policies. …

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