Now that the party’s over and the legislation enacting the Australian Government/Medicines Australia Memorandum of Understanding (MoU) has been passed, industry is reaching for the Berocca to overcome its hangover and trying to work out the implications for business.
According to a recent PricewaterhouseCoopers study, 59 per cent of respondents said they did not fully understand the implications of the new accelerated Pharmaceutical Benefits Scheme (PBS) Price Disclosure Arrangements.
Before studying the new arrangements, however, we need to look at how price disclosure has operated over the past two years.
As is well known, the current price disclosure arrangements allow all medicines on the F2 formulary to transition to the new arrangements gradually. This will mean:
- all new medicines entering the F2 formulary must comply with the PBS price disclosure arrangements;
- all new brands of existing listed medicines on the F2 formulary must comply with the PBS price disclosure arrangements; and
- all existing brands of existing listed medicines on the F2 formulary must ‘opt-into’ price disclosure.
Forty-five drugs are currently subject to PBS price disclosure arrangements. To date, 14 drugs have incurred (or will in incur) a price disclosure price reduction on 1 April 2011. Furthermore, six of those 14 drugs have received (or will receive) an additional price reduction in their second disclosure cycle.
The range of reduction for drugs incurring a first price disclosure price reduction was between 15 per cent and a staggering 72 per cent. For drugs incurring their second price disclosure price reduction, the range was between 12 and 35 per cent.
While industry and government opinions differ about price disclosure’s success to date, these statistics show that the PBS price disclosure arrangements are delivering price reductions on those medicines, offering significant trading terms in the market.
Implementing the MoU
The Government started implementing the MoU measures in early December. The two major price disclosure changes affecting PBS medicine sponsors are:
- The introduction of mandatory price disclosure for all medicines listed on the F2 formulary (both new and existing listed drugs). This means it is now mandatory for all sponsors of affected medicines to disclose pricing information. All medicines in F2 that were not subject to price disclosure arrangements started disclosing on 1 December 2010.
- An average 23 per cent price reduction guarantee for all medicines included in the 1 December 2010 to 30 September 2011 price disclosure cycle only. In practice this means that if the average price reduction across this cycle is greater than or equal to 23 per cent, price reductions will proceed as intended. However, if that percentage is not achieved, a further adjustment will be made in accordance with the provisions outlined in 14 (f) of the MoU. Companies should also note that calculations will be based on 10 months of data. When this cycle is complete, the regular 12-month cycle will recommence.
Other major measures outlined in the MoU that affect sponsors of PBS-listed medicines include:
- the 1 December merger of F2A and F2T formularies into the F2 formulary (bought forward from 1 January 2011); and
- on 1 February 2011;
- price reduction will increase from 12.5 per cent to 16 per cent on entry of the first new generic brand;
- a two per cent price reduction for all medicines listed on the F2A formulary on 11 October 2010; and
- a five per cent price reduction for all medicines listed on the F2T formulary on 11 October 2010.
Advice for affected companies
If you are a sponsor you need to ensure you are ready to comply with the measures outlined in the MoU by:
- ensuring your company can comply with the new mandatory price disclosure requirements, including starting to provide necessary pricing data on all F2 medicines in time for the 12 May 2011 data submission cut-off;
- reviewing your company’s standard operating procedures to ensure that changes to price disclosure and mandatory price reductions are updated;
- updating forecasts and budgets to account for the new mandatory price reductions;
- developing appropriate measures to ensure ease of supply chain after price reductions occur; and
- for the 23 per cent average price disclosure price reduction guarantee, ensuring appropriate monitoring of the 1 December 2010 to 30 September 2011 cycle. You should also prepare for potential price adjustments if that average price reduction is not met.
Further information regarding the new price disclosure arrangements can be obtained from the PBS website.