Government targets PBS in Budget

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The Government is targeting the PBS for savings in the Budget.

News the Government is targeting the PBS comes as reports emerge that it is also planning an audit of the Medicare Benefits Schedule as one way to address the political failure of co-payment measures announced in last year's Budget.

It also follows a report in PharmaDispatch that Health Minister Sussan Ley has been set a very significant total savings target for her first Budget in the portfolio.

PharmaDispatch understands that the Government has targeted the PBS for several billion dollars in savings.

It is understood that specific measures are now being considered and discussed in advance of the Budget, which is due to be announced in less than four weeks.

While some speculation has focussed on an incentive for consumers to choose generic medicines, PharmaDispatch understands that this is not under active consideration.

Savings could target ex-manufacturer prices or the distribution network, and could be generated through the next Community Pharmacy Agreement or a second agreement with at least one manufacturer group, like the first Memorandum of Understanding.

Significantly, the discussed savings target is understood to be around the $2.9 billion savings forecast in the 2010-11 Budget from the combined impact of savings originally identified in the Memorandum of Understanding, which included the expanded and accelerated version of price disclosure, and the Fifth Community Pharmacy Agreement.

PharmaDispatch understands that the savings target would equate to just under 10 per cent of the most recent forecast for spending on the PBS, and comes on top of vast savings generated since 2010.

A recent PharmaDispatch analysis showed that the Government had already budgeted over $16 billion in PBS savings since 2010.

However, the new savings target would barely offset the cost of new listings.

In her recent address to the Medicines Australia annual parliamentary dinner, Health Minister Sussan Ley said that recommendations from the two most recent meetings of the Pharmaceutical Benefits Advisory Committee equated to $4 billion.

"So every new drug begs the questions: Where the dollars will come from?" she asked.

"Savings delivered in the past have been factored in already, new medicines have been listed, and many new medicines will need to be listed into the future," Ms Ley said.

The Department of Health recently confirmed that the Government now forecasts patent expiries and related savings from the 16 per cent mandatory cut and price disclosure over the forward estimates.

This would make it relatively easy to generate budgeted savings from increasing the current 16 per cent mandatory price cut or through further changes to price disclosure.

It remains unclear how the Government will manage its failed co-payment measures. 

The proposed increase in PBS patient co-payments and safety net thresholds was forecast to generate savings of $1.3 billion over four years from 1 January 2015. 

While the Senate has blocked the enabling legislation, the Government could choose to retain the savings in the forward estimates, with a view to reintroducing the legislation at a later date, which is what the Howard Government did with the co-payment increase announced in the 2002-03 Budget.