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A Change in Understanding

It’s not an understatement to describe the Medicines Australia/Government Memorandum of Understanding (MOU) as historic. Brendan Shaw and his team at MA have done an excellent job and demonstrated that it’s not only the Pharmacy Guild that can negotiate successful outcomes with the Government. The Guild, of course,  removed itself from the Expenditure Review firing line in December last year, via a $1b saving under the next Guild agreement.

The MOU requires significant commitments from both industry and Government and should provide some stability going forward. One only has to think back to the 2009 Budget, when the industry was rattled by PBS changes, to appreciate the climate of uncertainty.

MA has presented savings that they had to provide, but unlike in the past, these have come with tangible Government concessions in return.

Story of Understanding

In the Budget lead up, MA negotiated with Minister Roxon and the Department on PBS Reform Mark 2. The Minister noted that the savings from PBS Reform Mark 1 were likely to be greater than expected, but this did not stop her pressing for additional savings.

Changes to the PBS will provide the Government with additional savings of $2b over the next five years. This estimate is based on an extension of price disclosure, increased price reductions on products when they become subject to generic competition (roll on Lipitor patent expiry) and further price reductions for F2A and F2T formulary products.

In turn, the industry appears to have succeeded in obtaining Government agreement to:

  • keep the PBS relatively stable over the next five years;
  • maintain existing F2 and F2A formulary structures; and
  • speed up the assessment and Cabinet approval process.

The Government has also committed to no new TGP groups, though this excludes the three TGP groups (covering depression, osteoporosis and Paget’s disease) that are subjects of a Senate hearing.

Generic Unrest

The MOU, however, represents a significant loss for the generics industry. It is extremely upset with the changes to disclosure and the lack of extension of TGP groups. The generic sector has said publicly that it was not consulted.

The positive outcome for MA reflects positively on not only the size and hence ‘weight’ of the innovator sector in comparison to the generics industry, but also factors such as MA’s Canberra location and having an ex-ALP staffer as CEO. The positive outcome also comes at a time when GMIA is facing criticism of its proposed Code for not capturing pharmacists. The Government, however, has provided $10m over four years for another NPS campaign to promote generics.

Forward estimates suggest industry savings of up to five per cent of expected PBS expenditure over the next five years. This is a testament to the strength of the Australian economy and the industry’s lobbying power. Compare this to Europe where, for example, Greece has implemented a 21.5 per cent price cut for drugs as part of an attempt to resolve its budgetary crisis. Spain has also just commenced a program to switch more patients to generic medicines, and the German Government has strengthened its right to negotiate drug prices.

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