Special Report: $10 billion in the bank

'The Facts'

The Government has budgeted to save over $2.70 for every $1 spent on new medicines between 2010 and 2018.

The new PharmaDispatch analysis shows the Government has already budgeted at least $10 billion more in savings than it has invested in new medicines since 2010.

The analysis largely matches a May 2013 Victoria University report, which was funded by Medicines Australia, that forecast savings from reform would significantly exceed the cost of new listings over the decade to 2017-18.

Former health minister Tanya Plibersek dismissed the report when it was released, claiming it contained "errors, inaccuracies and selected statistics."

The new PharmaDispatch analysis comes as Health Minister Sussan Ley pressures the pharmaceutical sector to come up with options to, as she has said, ensure PBS sustainability.

In her recent address to the Medicines Australia annual parliamentary dinner, which was followed by a similar address to the association's members-only conference, Ms Ley hinted the Government would struggle to fund $2.5 billion in new listings recommended by the PBAC at its recent meeting.

"When new medicines are listed, this is a new and added expenditure not factored into the forward estimates. As such, the Government looks to me first to find offsets to pay for that within my portfolio. So every new drug begs the questions: Where the dollars will come from?" she said.

The Department of Health recently confirmed that it has included savings from future patent expiries in the PBS forecast, leaving virtually no room to formally offset spending on new listings.

According to the new analysis, the Government has already budgeted over $16 billion in PBS savings between 2010 and 2018. 

Of this $16 billion, $12 billion is from the impact of previous reforms, including mandatory price reductions and price disclosure, with over $4.3 billion coming from other one-off measures, including yet-to-be approved changes to patient co-payments and safety net thresholds and a price cut to the high potency statin therapeutic group.

New listings between 2010 and the current year have added almost $6 billion in new spending to the PBS out to 2018 - more than $10 billion less than savings generated.

Given the PBS forecast already includes savings generated from future patent expiries, the Minister does not have readily identifiable new PBS savings to offset to cost of new listings, including the $2.5 billion in new spending recommended by the PBAC in early March.

Under the Abbott Government, all new spending is required to be offset.

While Ms Ley's did not confirm this in response to a question from PharmaDispatch, in an interview with ABC Radio last week, Social Services Minister Scott Morrison said: "Of course, every area of new expenditure has to have offsets, that’s how we run a budget."

Mr Morrison repeated the statement during a Sky News interview on Sunday.

The full analysis can be viewed here: Savings and listings.pdf