2018 Federal Budget Edition

Forefront

Date: 8 May 2018

The PBS - now more than ever the most sustainable part of the health system

The Pharmaceutical Benefits Scheme has again been confirmed in the 2018-19 Budget as the most fiscally sustainable component of the health system.

A major change to the way the Government pays for high-cost PBS medicines will drive a sharp reduction in the headline cost of the PBS – gradually removing most rebates previously paid to the Government by medicine manufacturers.

The Government says the change in the payment arrangements for high-cost medicines will, among other benefits, address pharmacy cash flow issues raised during the recently-completed Review of Pharmacy Remuneration and Regulation.

The change will see a significant reduction in revenue from rebates for high-cost medicines with special pricing arrangements, reducing PBS revenues and expenses by a corresponding amount. The Government’s Budget papers state that there will be no net reduction in the Government’s overall investment in the PBS as a result of this change.

The reduction in PBS revenue through the paring back of the rebates, and the corresponding reduction in PBS expenses (specifically high-cost medicine prices) amounts to $5.4 billion from 2018-19 to 2021-22.

While the details of the implementation of this change are yet to be finalised, the Pharmacy Guild welcomes the measure to the extent that it reduces the cash flow pressures on pharmacy small businesses when they purchase high-cost medicines for their patients. It will also make the Government’s investment in the PBS more transparent, which is also welcome.

Revenue rebates for some high-cost medicines will be reduced from 1 July 2018, with the agreement of the relevant medicine manufacturers, and with a corresponding reduction in the published price of those medicines. An improved payment administration trial for certain high-cost medicines with special pricing arrangements will commence from 1 July 2019.

The Government says it will continue to consult closely with the sector, including the Pharmacy Guild, on the trial design, implementation and transition arrangements. The Guild will insist that the administration of these arrangements is automated and seamless for community pharmacies and that there is no reduction in dispensing related remuneration, including the Administration, Handling and Infrastructure (AHI) fee.

This change has significant implications for the cost of the PBS – without changing the Government’s net overall investment in the PBS. Indeed, the headline cost of the PBS is expected to decrease by 19.8 per cent in real terms over the period 2018-19 to 2021‑22 due largely to the change to the rebate regime.

If the impact of this high-cost drug decision is removed from the numbers, the headline cost of the PBS is still estimated to decrease by 7.3 per cent in real terms over the period 2018-19 to 2021‑22 – mainly reflecting ongoing medicine price reductions through the price disclosure process.

Notwithstanding the projected reduction in aggregate PBS spending, the Government has included an additional $1 billion for new PBS listings over the next four years.

Graph - expenditure on pharmaceutical benefits services and supply

Graph - expenditure on medical services vs pharmaceutical benefits and services

New charges for pharmacy approval applications

Charges for applications for pharmacy approvals will come into force from 1 July 2019.
The Budget papers reveal the user pays measure is intended to recover the full cost of the community pharmacy approval process. It will raise around $5 million over four years from pharmacy approval applicants.

The application fee will be applied from 1 July 2019 for pharmacists seeking approval to supply PBS medicines at new or relocated premises. There will also be an application fee for a change of ownership of a pharmacy.

The Government will also streamline the administration of pharmacy approvals, including moving administration from the Department of Human Services to the Department of Health. This transfer of administrative functions from DHS to the Department of Health will allow for a more consistent and streamlined process – in line with recommendations of the Australian National Audit Office.

A stronger rural health strategy

The Budget provides a boost for the rural health workforce with $83 million over five years to achieve stronger rural, regional and remote health outcomes by aligning the distribution of the health workforce to areas of greatest need.

While primarily focussed on the doctor workforce, the Stronger Rural Health Strategy includes a Workforce Incentive Program to provide incentives for general practice to employ other health professionals, including non-dispensing pharmacists. The Guild will seek to confirm the important role of community pharmacy in this rural health strategy working closely with general practice.

The Strategy is also aimed at better monitoring and planning for future workforce needs in rural areas. Given the vital role of community pharmacies in the provision of medicines and health services in rural parts of Australia, the Guild will be urging the inclusion of the pharmacy workforce in the monitoring and planning undertaken as part of this strategy.

e-Prescribing for safer medicines

The Budget provides $28 million over five years to upgrade the e-prescribing software system used by clinicians to prescribe medicines.

The Budget papers say this measure supports a national electronic prescribing system that will contribute to PBS efficiency, compliance, drug safety and data collection. It is also intended to create an electronic prescribing framework that will provide an option for prescribers, pharmacists and their patients to have a fully electronic PBS prescription as an alternative to paper-based prescriptions.

It foreshadows upgrades to existing electronic prescribing systems to make them more user-friendly and enable prescribers to better identify prescribing options that best meet the needs of their patients.

Generic and biosimilar medicines boost

The Government will provide $5 million over three years to increase the use of generic and biosimilar medicines. This funding will see the continuation of the biosimilar medicines awareness campaign established as part of the PBS Sustainability Package announced in May 2015.

Educational material and training modules for health providers, along with changes to prescribing software, will increase clinician, pharmacist and consumer support for generic and biosimilar medicines. Changes to prescribing software will allow medicine ingredient name prescribing by default.

The Budget papers reveal that the Government has plenty of incentive to encourage faster and broader uptake of generics and biosimilars. The increased use of generic and biosimilar medicines is estimated to lead to a reduction in PBS expenditure of $335.8 million over five years from 2017-18.

Medicine bodies' funding reduced

Two well-known medicine bodies have received significant Budget cuts.

The National Prescribing Service MedicineWise (NPS) and the National Return of Unwanted Medicines (NatRUM) will see their funding cut by a total of $40 million over four years.

In the Budget papers, the Government says it will “offer National Prescribing Service MedicineWise and the National Return of Unwanted Medicines the certainty of a new four-year funding agreement in return for more efficient delivery of their services, saving $40 million over four years from 2018-19.”

“Health professionals and customers will continue to have free access to information to support the safe use and prescription of medicines, health care services and tests, and access to collection points to return expired and unwanted medicines,” the Budget papers say.

The cuts represent a reduction of about 25 per cent in the funding of the two agencies. The Government says the savings from this measure will be redirected to fund other health policy priorities.

Small business tax changes

The small business $20,000 instant asset write-off has been extended in the Budget for a further 12 months to 30 June 2019.

First introduced in the 2015-16 Budget, the measure is intended to improve cash flow for small businesses and help them to reinvest in their business and replace or upgrade their assets.

Despite uncertainties about passage through the Senate, the Government says it remains committed to implementing its full Ten Year Enterprise Tax Plan, which would reduce company tax for all incorporated businesses over time to 25 per cent.

The Government has already legislated the tax cuts for incorporated small businesses with annual turnover up to $50 million, commencing from 1 July 2018. Unincorporated small businesses receive an equivalent increase in their small business tax discount rate.

Contact: Adam Bramwell

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Page last updated 30 August 2018