Commonwealth of Australia Explanatory Memoranda

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NATIONAL HEALTH AMENDMENT (PHARMACEUTICAL BENEFITS SCHEME) BILL 2007

                                2004-2005-2006-2007




        THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA




                                      SENATE




NATIONAL HEALTH AMENDMENT (PHARMACEUTICAL BENEFITS SCHEME)
                        BILL 2007




              SUPPLEMENTARY EXPLANATORY MEMORANDUM




                Amendments to be moved on behalf of the Government




(Circulated by authority of the Minister for Health and Ageing, the Hon Tony Abbott MP)
NATIONAL HEALTH AMENDMENT (PHARMACEUTICAL BENEFITS SCHEME)
                        BILL 2007

OUTLINE

Several Government amendments are being proposed in relation to the pricing of single
brand combination items in line with recommendations of the Senate Standing Committee on
Community Affairs in their Report on the Bill which was tabled in the Senate on 18 June
2007.

The Bill provides for the price of single brand combination items to be reduced whenever
statutory price reductions occur to their component drugs. The amendments allow for the
reductions in the price of the component drugs to be flowed on fully, partially or not at all. In
deciding whether to flow on a reduction, and the extent of the flow-on, the Minister may have
regard to advice from the Pharmaceutical Benefits Advisory Committee (PBAC) that the
combination item has significant advantages in the areas of patient compliance, efficacy or
toxicity over alternative therapies.

In addition, one minor technical amendment is being proposed to correct an error in the Bill.

FINANCIAL IMPACT STATEMENT

These amendments may have a small financial impact as they provide a basis for PBAC to
advise the Minister that a particular combination drug warrants a price advantage over the
price of its component parts.




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NATIONAL HEALTH AMENDMENT (PHARMACEUTICAL BENEFITS SCHEME)
                        BILL 2007

NOTES ON AMENDMENTS

Amendments 1-2
Proposed section 99ACC in the Bill provides for the prices of single brand combination items
to be adjusted whenever any defined statutory price reductions (ie, the 12.5%, 2% and 25%
reductions, plus reductions as a result of price disclosure) apply to their individually listed
component drugs. These amendments allow for price reductions to the component drugs in a
single brand combination item not to be flowed on, or to be flowed on in part only, to the
price of the combination item.

Amendment 1 inserts a note to confirm that despite reductions in the prices of component
drugs, the Minister may decide that no parts of those reductions should be flowed on to the
combination item, and its price may remain the same.

Amendment 2 substitutes three new subsections for the previous proposed subsection (4)
which required the reductions to be flowed on in full. New subsection (4) provides that the
Minister may have regard to PBAC advice in relation to the combination item in considering
the extent (if any) to which flow-ons should occur. The new PBAC function in relation to
providing such advice, including the matters on which advice is to be given, is provided for
in amendment 7.

Subsection (4A) provides that in agreeing a new price for the combination item, the Minister
may have regard to the PBAC advice, and must have regard to the reduced prices of the
component drugs and the quantity of those component drugs in the combination item.

Subsection (4B) provides that where PBAC has not provided advice, the Minister must take
into account the reduced prices of the component drugs and the quantity of those component
drugs in the combination item.

The effect of amendment 2 is that where PBAC has advised that therapy involving the
combination item provides for some patients a significant improvement in compliance or in
efficacy or a significant reduction in toxicity, over alternative therapies, including therapies
involving use of the individual component drugs, the Minister may decide not to flow on
price reductions in the component drugs to the price of the combination item, or may decide
to flow on those reductions only partially. Alternatively, the Minister may still decide to
flow on the reductions in full.

Amendment 3
Proposed subsection 99ACD(3) in the Bill is being omitted as it is no longer necessary in
view of the amendments to subsection 99ACD(6) proposed in amendment 5 below.
Subsection (6) will achieve the same result as the previous subsection (3), ie, under
subsection (6) a 12.5% reduction will not be applied to a new brand of a combination item in
the circumstances set out in previous subsection (3).




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Amendment 4
This is a technical amendment correcting an error in the Bill. The expression reduction day
in paragraph 99ACD(4)(a) should have been determination day, as this is the expression used
throughout section 99ACD.

Amendment 5
This amendment replaces proposed subsection 99ACD(6) and is necessary as a consequence
of amendment 2. Where a 12.5% price reduction to a component drug has only partially
flowed on to the combination item, the remainder of the 12.5% price reduction will be flowed
on under subsection (6), proportionally to the quantity of that component drug in the
combination item. The amendment ensures that when a new bioequivalent or biosimilar
brand of a combination item is listed, the new item and the existing item will have been
subject to the full 12.5% price reduction, taking into account previous reductions and the
reduction that occurs at the time of the new listing.

Amendment 6
This amendment ensures that when a 12.5% reduction is triggered under section 99ACD, the
flow-ons that occur under section 99ACE take account of the same matters that are taken into
account in applying the 12.5% reduction to the new brand of the combination item.
Specifically, it ensures that when a past 12.5% reduction has only been flowed on partially,
the remainder of the reduction is now flowed on. It is a parallel amendment to amendment 5.

Amendment 7
This amendment confers an additional function on PBAC of providing advice to the Minister
in relation to combination items. PBAC is required to advise the Minister if it considers that
therapy involving a combination item provides for some patients a significant improvement
in patient compliance, or in efficacy, or a significant reduction in toxicity over alternative
therapies.

This amendment relates to amendment 2 which provides that the Minister may have regard to
PBAC advice in deciding whether, and the extent to which, reductions in the prices of
component drugs should be flowed on to the prices of single brand combination items.

Amendment 8
This amendment inserts a new transitional provision to make it clear that a reference to the
approved price to pharmacists on a day in new subsections 99ACD(6) and 99ACE(5) is a
reference to the approved price to pharmacists as defined in the National Health Act 1953 on
that day. This provision is necessary because a new definition of approved price to
pharmacists is substituted by the Bill and the relevant day may be a day before the
commencement of the amending legislation.




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