Greg Hunt calls sector-wide meeting on rebate reform

Latest News

Health minister Greg Hunt is bringing together a range of stakeholders to discuss his push for reform of special pricing arrangements.

The sector is increasingly concerned by the inability of officials to answer even the most basic questions about the proposed reform designed to eliminate rebates paid under special pricing arrangements. 

This week's meeting, hosted in Canberra by Minister Hunt, is the first time the sector's key stakeholder groups will be brought together to discuss the issue.

The Minister's intervention is thought designed to facilitate some level of cross-sector understanding of the reform but also help build trust given the implementation of a trial is proposed by 1 July this year. Implementing legislation will need to be drafted and navigate the parliamentary approval process in just weeks.  

Under the arrangements, which currently apply to around 85 PBS-listed medicines, manufacturers agree to rebate government the difference between the higher published price and what is considered the cost-effective price. 

The arrangements, which are a feature of reimbursement systems globally, ensure Australian patients can access new medicines despite the low cost-effective prices paid by the PBS.

Rebates under deeds of agreement between manufacturers and government, including those paid as part of special pricing arrangements, spending, and utilisation caps, have grown significantly in recent years. They reached $3.3 billion in 2016-17, more than double the year before, but are expected to be lower this year following a decline in uptake of hepatitis C therapies.

Special pricing arrangements have been the significant driver of the increase in rebates paid in the past three years.

The proposed reform, being pushed by the Department of Finance, will see medicines navigate the supply chain without money changing hands between manufacturers, wholesalers, and pharmacy. 

The government will directly remunerate the supply chain.

Wholesalers believe the reform will require the reconfiguration of distribution centres, at significant cost, with an associated change to software to manage the manual tracking of impacted medicines through the supply chain.

It remains unclear whether wholesalers and pharmacy will be remunerated at the published price or the lower cost-effective price. They are currently remunerated at the published price. Manufacturers repay a share of supply chain costs through rebates.

Remunerating at the lower cost-effective price seems unlikely because it would have negative financial implications for wholesalers and pharmacy. However, the new model is also likely to show the real cost of the supply chain, traditionally thought to be around 30 percent of PBS spending, is closer to 40 percent or even higher.

Manufacturers remain concerned over the risk the reform could expose the cost-effective price. This would have global implications.

Rebates have already made monthly PBS benefit statistics published by the Department of Human Services mostly worthless. Manufacturers believe that, as a consequence of the reform, it will no longer be able to publish PBS benefit and volume data for the impacted medicines because it will enable anyone to readily calculate the cost-effective price special pricing arrangements are designed to conceal. 

The Department of Finance is pushing the reform because of what it claims is the distortionary impact of rebates on the Budget. The fact they are paid in arrears creates a time lag between upfront spending on the PBS and the payment of rebates.

The Department of Health recently rejected advice presented by the relevant industry associations suggesting the government could address this claimed distortionary impact by changing the way it accounts for PBS spending and rebates.