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A Hypothetical Disclosure

PBS price disclosure is a major component of PBS reform. Since its introduction in August 2007, we have seen price reductions of up to 72 per cent on some products.

The initial price disclosure phase was limited to newly genericised products and some ‘low competition’ products. On 1 December 2010, however, the roll out to all products with generic competition commenced.

As part of Medicines Australia’s MoU with the Federal Government, this round of price reductions will reach the market in April 2012, four months earlier than originally planned under PBS reform.

Know your price

The responsibility for developing and implementing pricing strategies for products in genericised markets often spans across several company departments, including Reimbursement/Market Access, Marketing, and Sales and Finance.

Knowing how your activities will influence your products’ future PBS prices – and being aware of the timing of likely price reductions – will assist with planning activities such as budget development and price strategy discussions.

With this in mind, the following hypothetical example will help you understand how PBS price disclosure works.

Hypothetically speaking

  • Drug name is ‘astatin’ (generic name)
  • 1mg tablet x 30 pack size
  • Six brands on the market
  • Current PBS price is $10.00 (ex-manufacturer)

The PBS receives the following information from each company:

Total units sold Total sales Sell price per pack
Brand 1 1,000,000 $10,000,000 $10.00
Brand 2 500,000 $4,000,000 $8.00
Brand 3 400,000 $2,800,000 $7.00
Brand 4 100,000 $600,000 $6.00
Brand 5 80,000 $440,000 $5.50
Brand 6 70,000 $350,000 $5.00
TOTAL 2,150,000 $18,190,000

Based on the above, the average sell price per pack is calculated as $8.46 ($18,190,000 ÷ $2,150,000). This is more than 10 per cent lower than the current PBS price. As a result, the new PBS price for all astatin brands will in April become $8.46.

The detail

The Department of Health has prepared a price disclosure reference guide and several fact sheets to help companies and those directly responsible for reporting requirements. The following general overview may also help if you are unfamiliar with price disclosure or prefer a bird’s eye view of the changes:

  • · The number and total value of all packs sold under brands with generic competition must be disclosed.
  • · The volumes and sales of all brands are added together to establish an average price for the product:
    • If the calculated price is less than 10 per cent lower than the current PBS price, there will be no change to the PBS price for any brands.
    • If the calculated price is equal to or more than 10 per cent lower than the current PBS price, the PBS price (ex-manufacturer) will be reduced by that amount for all brands.
  • Drugs commencing disclosure on 1 December 2010 (generics with high competition) will form the ‘Main Cycle’.
  • All products with generic competition (current and future) will merge into the Main Cycle eventually.
  • Once a product becomes part of the Main Cycle, data is reported (and submitted) in two periods annually:
    • 1 October to 31 March
    • 1 April to 30 September
  • Data from both periods are used in the price calculations.
  • 1 April is the scheduled price reduction day each year for products in the Main Cycle.
  • Any price changes will be available to companies approximately three months prior to the reduction day.

If you would like more detailed information, the Department of Health fact sheets allow you to identify product groups, offer relevant information for that group, and provide implementation period and important future dates.

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