BioMelbourne Network
Progressing BioIndustry

• Home
• About Us
• Events
• Grants & Awards
• News & Opinion
• Membership
• Resource Library
• Contact

The PBS is the most cost-effective element of the health care system in Australia. Since 1993, every product put

on the PBS has undergone rigorous, independent health economic assessment to ensure it is cost-effective to

the nation. This means the price paid for each product reflects the health outcome it produces.

When benchmarked against expenditure on pharmaceuticals by OECD nations, the PBS is affordable. PBS cost

as a percentage of GDP peaked in 2004/05 at 0.67 per cent and has since declined to 0.62 per cent in 2007/08.

Cost-effective expenditure on pharmaceuticals should rise with the increasing and ageing population. Anything

less reflects insufficient investment in health care by government.

PBS costs are sustainable, especially as a result of the 2007 PBS reforms that introduced a mechanism to

ensure the prices paid by government for pharmaceuticals reflect their true market prices. The 2007 PBS

reforms, initially expected to return some $3 billion to government over ten years, are now expected – according

to three separate analyses, including the Government’s own - to return double that.

Recently released Medicare Australia figures show that the rate of growth in PBS spending is 30 per cent lower

than for the previous 12 months.

For the PBS to remain cost-effective, affordable and sustainable, all sectors of the pharmaceutical industry must

be viable. The PBS cannot function without both the originator and generic sectors of the industry interacting

appropriately.

Originator companies play an important role in discovering new therapies to treat or control diseases. The patent

period enables originator companies to negotiate higher prices for new, innovative medicines to recoup their

research investment costs. Once the patent expires, the entry of generic medicines allows consumers access to

medicines at a more affordable price. In fact, the introduction of generic medicines stimulates innovation by virtue

of the reduced profitability of medicines post patent expiry.

Generic medicines are therefore essential in balancing reward for innovation against long term medicines

affordability, and sustainability of the PBS

The 2007 reforms were the most major reform to the PBS since its inception in 1948. They were supposed to

begin a ten-year period of policy stability. Layering additional reforms on a system still undergoing major reform

is like building on a foundation of wet cement. Repeated reform that continuously reduces the profitability of the

sector will critically harm the sector and is entirely incompatible with making investment decisions that require

long term horizons, as required in the pharmaceutical industry.

Significant savings are already flowing to the government from the 2007 reforms and must be always considered

when Government projects future PBS costs.

The $1.9 b cash grab is a poor attempt by the Government to balance its budget. Grabbing an additional $1.9

billion from Australia's leading manufactured goods export industry is damaging public policy. It may balance the

budget in the short term but in the long term it will compromise access to affordable, high quality medicines and

lead to the loss of jobs, local investment and exports.

Instead of a cash grab that will damage the industry, the Government needs to change how it reports savings

from the 2007 reforms. That could give the Government an estimated $3 billion on top of what was expected in

2007, without further damaging Australia's leading manufactured goods export industry. GMiA is prepared to

work with the Government on the new reporting mechanism.

The proposed 2010 reforms are underpinned by an MoU that was negotiated without consultation with the GMiA

whose members supply 70 per cent of the volume of generic medicines. The greatest negative impact of the

MoU is on the generic sector. Sectional interests have been promoted and the reform is piecemeal, threatening

the optimal functioning of the PBS. The Senate Committee of Inquiry into the provisions of the legislation

[National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2010] underpinning the MoU, is expected to

restore the rights of GMiA members to be part of the consultation and to propose a new reporting mechanism

that will quantify and report savings without damaging our leading manufactured goods export industry.

Some aspects of the MoU will enhance access to affordable, high quality, necessary medicines, including

parallel TGA and PBAC processes and a managed entry scheme, although it is notable that no funds have been

allocated in the budget for these activities.

“The PBS is an important contributor to the health and well-being of Australians. The ramifications of policy

decisions can be far-reaching. We urge all politicians to take a considered, inclusive, and consultative approach

to PBS policy,” Ms Lynch said.