An amendment to Australia's Pharmaceutical Benefits Scheme (PBS) pricing structure is set to see ex-manufacturer prices, rather than the "approved price to pharmacist", used as the basis of drug pricing and reimbursement negotiations in future. The effects of this change, which take effect from 1 October, are expected to be largely neutral but will provide a more uniform calculation system in future.
IHS Global Insight Perspective | |
Significance | Australia is revamping the Pharmaceutical Benefits Scheme (PBS) pricing structure, using ex-manufacturer prices rather than the "approved price to pharmacist" as the basis for calculations, taking effect from 1 October. |
Implications | The changes are expected to be largely neutral, and are designed to produce prices as close to the equivalent current prices as possible. |
Outlook | The PBS will benefit from more uniformity in its pricing calculations, although companies will need to adjust to the concept of lowest "pricing quantity" as a basis for price. |
An amendment to Australia's National Health (Pharmaceutical Benefits) Regulations 1960, passed on 28 July, is set to see ex-manufacturing prices, instead of "price to pharmacist", used as the basis for the Pharmaceutical Benefits Scheme's (PBS's) pricing structure, starting from 1 October.
The government has introduced the change to bring more uniformity to the pricing system. Under the previous legislation, the PBS carried out reimbursement and pricing negotiations on the basis of "approved price to pharmacist" (APP), which included the manufacturer price plus a wholesale margin, but entailed a number of inconsistencies. The wholesale margin component varied depending on medicine price and where a medicine was supplied, for example in a hospital or community pharmacy. Some drugs, meanwhile, had no applicable wholesale margin, requiring that a notional "approved price to pharmacists" be set. Essentially, the fact that the APP was not at the beginning of the pricing sequence made the administration of prices more cumbersome and prone to error.
Pricing Quantity
The approved amendment, the National Health (Pharmaceutical Benefits) Amendment Regulation 2012 (No. 4), replaces the APP with the "approved ex-manufacturer price" (AEMP), with only one AEMP set for each brand of pharmaceutical item. The AEMP for each brand will be determined in relation to "pricing quantity", the lowest PBS pack price of any brand of pharma item, and the AEMP for every brand of a particular pharmaceutical item must be the same. All other pack quantities will be a multiple of the AEMP for an item's lowest pack size, calculated as a proportional ex-manufacturer price.
Conversion to AEMP
A transition process is set to take place, with the current APP prices for each brand to be converted to single AEMP prices through a process of agreement or as described by the regulations. If there is no agreement and no AEMP is prescribed, the AEMP will be derived using a default calculation.
For 98% of the 2,400 pharma items listed on the PBS, the current ex-manufacturer price will be valid under the default calculation. In certain circumstances a different price may be reached where there are different pack sizes or quantities of an item listed, resulting in a lower AEMP than the current ex-manufacturer price for one or more brands or pack sizes of that item.
"Single-brand" combination items, the prices of which are affected by having different component drugs, will require a new price agreement with the PBS. The amendment makes the ex-manufacturer price the basis for calculating the Commonwealth price, the 16% price reductions for new drug listings, and price disclosure, with such calculations remaining essentially the same.
For items with existing special patient contributions (premiums), existing price reductions will be passed over to the new price, and the manufacturer's pricing point remains unchanged. In addition, because of the new concept of pricing quantity, some further changes have been made to enable claimed price determinations to be referable to a pack quantity, rather than the pricing quantity, allowing premiums to apply only to selected packs.
Outlook and Implications
To all intents and purposes, the effects of creating uniform pricing expressed at an ex-manufacturer level rather than "approved price to pharmacist" level will be neutral, smoothing the administrative process. Once introduced on 1 October, the new price structure will establish new prices as close to the equivalent current prices as possible. In future, however, the new concept of "pricing quantity" means new price agreements will be required whenever a new "lowest" pack size is listed with the PBS. There may be delays related to introducing a smallest pack size for any brand, given that the Department of Health and Ageing will have additional processing and negotiations to handle; the department has indicated that the result of this will be that new smaller packs will only be listed in the months where other price change listings occur, meaning only three times per year. The government has said it will not make any savings from the new arrangements.