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Medicine's Working Group + PBS « Previous | |Next »
June 15, 2007

One of the research projects of Thomas Faunce, a senior lecturer in the medical school and the college of law at the Australian National University, is investigating the impact of international trade agreements on Australia's medicines policy.

In a recent op-ed in The Age he argues that the Medicines Working Group, established under the free trade agreement between Australia and the United States, has played a significant role in creating the controversial changes to reference pricing arrangements for patented medicines under the Pharmaceutical Benefits Scheme, now in legislation before the Senate.

Faunce asks whether the agenda of the Medicines Working Group is similar to that of the US negotiators to the trade agreement, who had been required by legislation to seek the "elimination" of reference pricing under the PBS. He says that:

Australia's approach, expressed clearly in Annex 2C of the free trade agreement, was to value pharmaceutical innovation scientifically through expert assessment of its "objectively demonstrated therapeutic significance". This is the task of the existing Pharmaceutical Benefits Advisory Committee. It is a crucial part of such transparent, evidence-based assessment that new patented products be assessed for innovation against all available therapies, generic or even non-medical, for the same main clinical indication. If a new drug can't prove that it works better and is safer for a reasonable price difference than an existing generic competitor, why should the community have to pay more over time for its technical molecular flamboyance or associated advertising?

He says that the position of the the US medicines negotiators to Annex 2C (on pharmaceuticals) of the agreement was that new patented medicines should not have their claims to "innovation" assessed by comparison against cheap generic medicines.

This is crucial as one of the key drivers of rising health costs over the next decade is the PBS. The agenda of the Medicines Working Group would increase Australia's health care costs. We know that the text of the Agreement increase the pricing power of US drug companies operating in Australia. So it is unlikely, based on past practice, that they will not make use of that new pricing power.

Most of the measures in the FTA apply to new drugs rather than existing ones. In a submission to the Senate on the FTA and the PBS Faunce, Drahos and Henry argue that it is:

plausible that the gap between US and Australian drug prices could be cut in half. We estimate, very conservatively, that Australia’s PBS will have to pay at least one third more for its drugs with the FTA than without it. If the likely FTA effects are applied to 2003 figures, the extra cost to of the PBS to the government last year would have been around $1.5 billion for the same drugs at the same levels of use and with no increase in the health benefit to Australian patients. Similar pressures would be felt by other buyers of prescription pharmaceuticals, particularly hospitals.

Drug prices are around three to ten times lower than in the US because of this reference pricing policy. Will there be a new category of medicines (known as F1), which will not be subject to reference pricing, and for which the government will pay much higher prices?

What does that mean for co-payments? Isn't the commonwealth government seeking savings of $580 million over four years due to lower wholesale prices paid by the government for generic versions of some common medicines with expired patents? Will the higher prices be passed onto consumers?


He asks whether the agenda of the Medicines Working Group is similar to that of the US negotiators to the trade agreement, who had been required by legislation to seek the "elimination" of reference pricing under the PBS. He says that:

Australia's approach, expressed clearly in Annex 2C of the free trade agreement, was to value pharmaceutical innovation scientifically through expert assessment of its "objectively demonstrated therapeutic significance". This is the task of the existing Pharmaceutical Benefits Advisory Committee. It is a crucial part of such transparent, evidence-based assessment that new patented products be assessed for innovation against all available therapies, generic or even non-medical, for the same main clinical indication. If a new drug can't prove that it works better and is safer for a reasonable price difference than an existing generic competitor, why should the community have to pay more over time for its technical molecular flamboyance or associated advertising?

He says that the position of the the US medicines negotiators to Annex 2C (on pharmaceuticals) of the agreement was that new patented medicines should not have their claims to "innovation" assessed by comparison against cheap generic medicines.

| Posted by Gary Sauer-Thompson at 12:32 AM | | Comments (2)
Comments

Comments

The Parliamentary library backgrounder to the PBS bill shows the governments belief that the PBS is unsustainable, and the bill itself (introduced into parliament recently by Abbott) opens up a number of loopholes to the problems you discuss, while seeming sensible at first glane.

Your discussion about "trivial" innovation is correct, and hinges on the definition of "bioequivalence" used by the advisory panel. A panel stacked with representatives of industry could say that the new drug was not "bioequivalent" simply on the basis of a different coating that altered absorption or partitioning, or combine two pills into one tablet.

While a large manufacturer must get a lower price with generic competitors to a drug released a few years prior, all they have to do to keep their premium price is to release the new formulation or minor molecular tweak and withdraw their "older model" at the same time, i.e. not have two products in the same class.

Of course, the real means of ensuring the sustainability of the PBS is to promote preventative medicine programs that address lifestyle factors and education through GPs, rather than merely use them for treatment of acute issues. But the current model for paying clinicians - fee for service - does not make the introduction of such programs easy.

Thankyou for drawing my attention to the impact of the FTA on this bill.

Dave
I fully concur with your argument that:

..the real means of ensuring the sustainability of the PBS is to promote preventative medicine programs that address lifestyle factors and education through GPs.

The PBS bill that went through the Senate last week was fast tracked. A public hearing was conducted on Friday and a report completed by Monday afternoon. In the Report the Committee acknowledged that although concerns had been raised about the bill---undermining the principle of reference pricing--it had insufficient time to analyse the specifics or to form a concluded view of the merit of some of these concerns.