Can We Keep Pharmaceutical
Costs Affordable and New
Medicines Development
Viable?
A P.B.S. Perspective
Andrew Wilson
Chair, Economic Sub Committee
PBAC
Faculty of Health Sciences
University of Qld
PBS History
Repatriation Scheme Commenced in
1919
Pharmaceutical Benefits Act Passed in
1944
History
 The 1944 Act was opposed by the Australian
Branch of the BMA
 BMA saw the provisions of the Act as
restricting doctors’ freedom of choice in the
treatment of their patients
History
 October 1945 ,as a result of a writ from the
Medical Society of Victoria,the High Court
ruled the PBA 1944 went beyond the powers
of the constitution
 1946 Constitution amended
The Australian Policy Context
NATIONAL MEDICINES POLICY
 Timely access to the medicines that Australians
need ,at a cost individuals and the community can
afford
 Medicines meeting appropriate standards of
quality,safety and efficacy
 Quality use of medicines
 Maintenance of a responsible and viable
medicines industry
Access to Medicines
 Financing and supply arrangements for medicines
optimise health outcomes and represent value for
money
 All partners take adequate responsibility for
achieving value for money
 Access to necessary medicines occurs at a cost
the community as a whole can afford,particularly in
the context of pressures such as the development
of new high cost drugs and Australia’s ageing
population
Access to Medicines
 Access processes are made as simple and
streamlined as possible,so that subsidisation of
medicines is timely, mechanisms are understood
and unnecessary administrative barriers and
expenses avoided
 Financing arrangements for medicines avoid
incentives for cost-shifting between levels of
government or other funders,or other perverse
incentives
Current Coverage and
Expenditure
Background
 1947: 139 life-saving drugs at cost
A$300,000.
 2005: >650 drugs at cost $5.8 billion.
 Australia spends 9.3% of its GDP on
health.
 By 2042 the cost of the PBS is
predicted to be 3.5%GDP.
Australian Govt Health Expenditure
($29.7bn) 2002-2003
Other
health
PBS
16.1%
27.5%
29.5%
26.9%
Public
hospitals
MBS
GROWTH RATE IN PBS
6
5
4
3
$ BILLIONS
2
1
0
1991
1993
1995
1997
1999
Excludes co-payment
2001
2003
Relative Expenditure PBS and
Patient CoPayment 02-03
14.2%
Patient Contribution
4.5%
Highly Specialised
Drugs Other S100
PBS/PPBS
79%
Total Expenditure $6.2 Billion
Other S100
PHARMACEUTICAL EXPENDITURE
 80% OF THE COST WAS DIRECTED
TOWARDS CONCESSIONAL
CARDHOLDERS
 PATIENT CONTRIBUTIONS AS A % OF
TOTAL COSTS WAS:
– 19.5% in 90/91,
– 22.2% in 94/95
– 17.0% in 01/02
– 14.2 %in 02/02
What did the PBS cover?

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602 generic drugs in 1,502 forms and strengths
(items) marketed as 2,617 different drug products
(brands) as general listings
10 generic drugs in 42 forms and strengths
marketed as 48 products as palliative care listings
78 generic drugs in 209 forms and strengths
marketed as 475 products as dental listings
27 generic drugs in 34 forms and strengths
marketed as 51 products as Doctor’s bag listings
75 generic drugs in 257 forms and strengths
marketed as 273 products as Section 100 listings.
PBAC Processes
Process leading to PBS Subsidy
 Drug approved for marketing by TGA
 Company submits to PBAC for subsidy
– Sponsor intitiated
– Submission assessed by evaluation group,
considered by ESC, DUSC, RWG
 PBAC recommends or rejects subsidy
 Purchasing Authority negotiates price
with company
 Listing in Yellow Book
Registration vs Subsidy Listing
 Products registered on the basis of
– Safety
– Quality
– Efficacy
 No requirement for comparative data.
 Once registered the product may be
prescribed without government subsidy.
PBAC PROCESSES
 PBAC considers
– effectiveness
– cost effectiveness
– clinical place of the product
 Requires comparisons to other products (or
standard medical care) already listed(or
used) for the same or similar indications.
PBAC PROCESSES
Under the Act a new drug entity may be
recommended for listing if:
 It is needed for the prevention or
treatment of significant medical
conditions not already,or inadequately
covered by drugs in the existing list
AND
 IS OF ACCEPTABLE COST EFFECTIVENESS
RELEVANT FACTORS
Readily Quantifiable
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Comparative Cost Effectiveness
Comparative Health Gain
Affordability
Financial implications for PBS
Financial implications for Gov health
budget
RELEVANT FACTORS
Less Readily Quantifiable
 Severity of condition treated
 Presence of effective alternatives
 Ability to target therapy to those likely to
benefit most
 Uncertainty
 Equity
 Development of resistance
 Government health priorities and other
relevant factors
ASSESSMENT OF EVIDENCE
Sponsor asked to categorize clinical
characteristics against the main
comparator as:
 Having significant clinical advantages
 Being no worse in effectiveness and
toxicity
 Being less effective and less toxic
ECONOMIC EVALUATION
 COST-MINIMIZATION…. Used when drugs
have the same outcome.Ensure that the
new drug is no worse than comparator ie
therapeutic equivalence
 COST EFFECTIVENESS….Clinical
advantage measured in natural unit ,eg lifeyears gained,points of BP reduction ie cost
per unit of effect
ECONOMIC EVALUATION
 COST-UTILITY analysis-health outcomes
rated by preference strength eg healthy
years or quality adjusted life years
(QALY).Output is cost per unit of preference
state.
 MODELLED ECONOMIC
EVALUATION…estimation of remote
outcomes,final outcome,cost offsets
PBAC RECOMMENDATIONS
 LIST AS COST-EFFECTIVE AT PRICE PREMIUM
REQUESTED
 LIST AT A LOWER PRICE TO ACHIEVE
ACCEPTABLE COST EFFECTIVENESS
 REJECT AS HAVING UNACCEPTABLE COSTEFFECTIVENESS
 RESTRICT TO PATIENT SUBGROUPS IN WHOM
THE DRUG IS COST EFFECTIVE
RESTRICTIONS
 A DRUG MAY BE ACCEPTABLY COST
EFFECTIVE WHEN USED FOR ONE
INDICATION OR PATIENT GROUP BUT
NOT COST EFFECTIVE WHEN USED
UNDER OTHER CIRCUMSTANCES.
Initiation and continuing
requirements
 Cholinesterase inhibitors in dementia
– use of mini-mental scores
 Imatinib in chronic phase CML.
– Continuing therapy will require evidence of
continuance of cytogenic response annually
 TNF-alpha Inhibitors for RA
– must have failed other treatment options and
continuation depends on the attainment of a
pre-defined response
But
 Administratively complex, clinically intrusive,
and difficult to define.
Other Options
 Section 100 and High Cost Drug Scheme
 Life Saving Drugs Program
 Specific Purpose Allocation eg Herceptin
PRICING AND COST
CONTAINMENT
 BRAND PREMIUM POLICY AND GENERIC
SUBSTITUTION
 THERAPEUTIC GROUP PREMIUM
POLICY
 PRICE AVERAGING ACROSS
INDICATIONS
 WEIGHTED AVERAGE MONTHLY
TREATMENT COST
 PRICE VOLUME ARRANGEMENTS
Future Trends
Future
 Demand for health services,including
pharmaceuticals will continue to
increase…“The demand for health services
is insatiable”
 Aging population-more demand and lesser
capacity to pay
Future
 New agents available as a result of the
biotechnology including new delivery
systems
 More agents for “prevention”
 More agents taken for life (long term), but
only short term evidence of safety
 Incremental improvements in treatment of
malignancies,neurological disorders etc
Future
 High cost for drugs- many of them giving a
relatively small incremental improvement
resulting in what could be regarded as poor
cost effectiveness
 Due to rapid expansion of knowledge it is
unlikely that a patent life of 20+ years will be
relevant
Future
 Increasing pressure on the “globalization
concept” of pharmaceuticals as illustrated by
recent action in Africa and South America in
regard to HIV drugs and in the US itself,
Taiwanese threat re Tamiflu.
 Growing inability of the developing world to
afford new drugs.
Future
 Growing accountability to ensure
government expenditure is”value for money”
 Difficult decisions by society as to whether
prioritisation of medicines expenditure is
appropriate for certain conditions
 Increased factionalism in clinical and
general community … “my disease deserves
more attention”
TRANSPARENCY
 NEED FOR
-fundamental right to know by ALL stakeholders
 HOW-issues of commercial-in-confidence
IN WHAT FORM-different audiences have special
needs
 LINKAGE WITH NPS-educational component in a
timely manner
NEW AGENTS WITH LIMITED
DATA
 More new drugs receiving marketing approval with
limited data Uncertainty in the model used to predict benefit
eg prolongation of life based on unsubstantiated
assumptions.Increasing uncertainty in magnitude
of benefit and thus in CE
 Need to develop risk sharing arrangements and
regular review(not just of utilisation) of new listings
eg at 1,2 and 5 years in order to make new agents
available earlier
TRIAL OUTCOMES v’s INPRACTICE OUTCOMES
 Essential to ensure that successful
outcomes in trials can be replicated in
practice eg Bupropion-in the listing it is
stated”For use within a comprehensive
treatment program”,but no requirement for
the patient to participate or even enrol in a
suitable program.
 Need for better post-marketing surveillance
for safety and real effectiveness
Risk Sharing
 Regular review of new listings eg at 1,2
and 5 years
 Issues to be considered:
– Continuation of benefits where trials were
short term
– Size of benefit (both clinical and savings) in
practice
– Use outside of approval
– Evidence of variable effectiveness
– Actual clinical practice
Making New Medicine
Development Viable
The Pharmaceutical Industry
 It is a commercial industry – they have to make
profit and have competitors.
– Shouldn’t be surprised that they behave like any other
industry most of the time
– Benevolent
 Its big – any country would like to be part of the
economic action
 They have been successful in developing many
important drugs (although less clear on discovery).
New Medicines
 There are plenty of diseases and conditions
where new medicines are needed or need to
be improved
– Some are not likely to be commercially
interesting or viable eg too small a population or
diseases of poor populations
– Commercial interest is greatest for diseases
that are common in wealthy nations eg CVD,
cancer
New Medicines
 Must be prepared to pay for real innovation
– Clinically meaningful improvements in survival
or quality of life
– Demonstrable resource saving that is realizable
 Many so called innovations are minor
improvements
– May give significant marketing advantage but
little improvement in cost-effectiveness
Consequences of the FTA
Impact of US-Australian
Free Trade Agreement
 Additional opportunity for companies to
comment on advice to PBAC
 Opportunity to present to PBAC at time
decision is being considered.
 Fuller reporting of decisions.
 Review (not appeal) mechanism for decision
Post US-Australia FTA
Review Process
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Independent of current process
Limited to rejections by PBAC
Any aspect of rejection
Review of technical aspects of decisions
One or more experts relevant to the area of
technical dispute.
TRANSPARENCY
PBAC decision making criticized for being
non-transparent
BUT
Industry maintains information that informs
decision can not be released because
commercial-in-confidence
US-Australia FTA
Transparency
 US-PHARMA interpretation – that the
processes and decisions of the PBAC-PBPA
processes are more open to applicant
 Australian govt – PBAC interpretation – all
processes and decisions are more open to
clinical and general community.
Post US-Australia FTA
Transparency
 Public Disclosure Document on all
approvals and on 2nd rejections
 Summary of the PBAC deliberations
including considerations on the
evidence presented by company.
 Some details will not be disclosed
where it is commercially sensitive (exact
price, market share etc)
Is the FTA a threat to the PBS?
 Political will to defend the Australian benefits
 Slow death by legal strangulation
 Bigger threats
– Loss of community and professional confidence
– Providing escape clauses when PBAC advise
is unpalatable
– Paper Overload
Implications for Private Health
Insurance
Why??
 If a drug is not cost-effective for public
subsidy through the PBS, how can it be
cost-effective through publicly subsidized
private health insurance?
Conclusions
 Do we get value for money for
pharmaceuticals?
– Yes if they selected for their cost-effectiveness
and used according to those criteria.
 Is the growth in cost of pharmaceuticals
sustainable?
– It depends on what the benefits are.
Conclusions
 Are the PBAC processes adequate to slow
PBS growth?
– This is not the sole function of the processes
and while demand grows it will not cape
expenditure alone.
 Does Australia pay its fair share through its
pricing of pharmaceuticals to support new
medicine development?
– Yes noting that more is spent on marketing
medicines then development.