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Pharma 2010: A View from the Rollercoaster

The Government started 2010 speaking of the continuing need for PBS savings and reform, despite the implementation of greater price disclosure and mandatory price cuts, etc.

Minister Roxon’s message to industry was that ‘only if the PBS is sustainable can industry have the certainty it needs to invest and develop in the future.’ She added that budgetary savings were also needed to help fund the Government’s wide-ranging health reforms.

In response, newly appointed MA CEO Brendan Shaw said ‘spending on medicines provides social and economic benefits that need to be recognised in any discussion about future policy and spending decisions.’

An understanding – almost

MA and the Government appeared to have achieved a coup when after four months of detailed industry consultation they announced on Budget Day that they had signed a MOU. The MOU forecast savings to taxpayers of about $1.9 billion over five years. These would largely come as a result of extending price disclosure to take advantage of discounting of off-patent medicines, including generics.

MA welcomed the certainty the MOU provided its members, but recognised it would also cause pain to its many members with significant generic portfolios. MA claimed its members represented 60 per cent (by cost) of off-patent medicines.

By contrast the GMIA appeared blindsided by the decision and spoke of a ‘cynical grab for cash akin to the resources rent tax’. The GMIA claimed it had not been consulted on the shape of the MOU, despite generic suppliers comprising 75 per cent of its membership.

Cards on the upper table

The Government did not have the lower house numbers to pass the Health Act Amendment Bills required to enact the MOU. Therefore, to actually ‘bank’ the MOU savings, the Government needed the Senate to pass the agreement. And the Minister did not have a good record in gaining Senate approval for health initiatives.

With delays caused by the August Federal election stacking its hand, the GMIA dealt itself back into calculations by lobbying Opposition and independent Senate members for a repudiation of the MOU.

Debate centred on the definition of ‘consultation’ and whether MA or the GMIA spoke for the generic industry. Claims that the MOU would send manufacturing offshore, resulting in supply chain disruptions, stock outs and a reduction in Australia’s capacity to respond to pandemics, inflamed the issue.

GMIA gets vocal

GMIA’s active and vocal new chairman Martin Cross was successful in ensuring the Senate Community Affairs Committee initiated an inquiry into the MOU and the consultation process. This provided an opportunity for the Opposition to embarrass the Government, despite its own limited consultation process when it developed the 2007 PBS reforms package. But, of course, consistency from a political party is unusual.

During the second week of November, the Senate Committee held public hearings, providing parties with stakes in the issue an opportunity to mount their arguments to an at times confused Committee.

The GMIA maintained a sense of outrage and claimed ‘the Bill is so flawed because it arose out of highly irregular and inappropriate Government processes that resulted in a protectionist deal negotiated in secret between the Government and . . . Medicines Australia’. The GMIA also ran newspaper ads about the reforms’ potentially adverse impacts on the community.

Pros and confusion

MA took a more studied approach, focusing on the savings the package offered Government and patients, and the certainty the MOU provided, guaranteeing continued access to new medicines.

It confused its message, however, when in November it attacked the Government over low expenditure on medicines by comparison with OECD levels.

The National Pharmaceutical Services Association (NPSA) spoke of limited distributor consultation and potentially significant impacts of its members’ post-price reduction stock devaluations. The Guild was relatively low key, pointing to the complexity of change and the need for a delay.

Calming the storm

It was fitting that the Committee’s final hearing was with David Learmonth, Deputy Secretary of the Department of Health and the man responsible for overseeing MOU negotiations.

Learmonth was calm, authoritative and upfront when he conceded that the GMIA was not involved in final MOU negotiations. He said, however, that GMIA had been involved in preliminary consultations and at that time had objected to price disclosure.

The Committee, with a majority of Government members, reported on 16 November, recommending the MOU’s implementation. In a dissenting report, the Opposition members heavily criticised the Government for the consultation process and the nature of the reforms. It recommended that Government re-negotiate the MOU to include all parties directly impacted, and to apply savings equally across the innovators and generics sectors. The GMIA’s views had obviously resonated.

New deals

Despite many willing to bet good money on the contrary, the Bill supporting the MOU was passed on 22nd November with agreement to resolutions proposed by the Greens and independent Senators Xenophon and Fielding.

While Medicines Australia will clearly welcome the passing of this Bill there could be significant challenges throughout the industry going forward with members unsure how the changes may impact on their business.

The outcome demonstrates that, for both Government and those advocating change, the new political environment makes achieving legislative outcomes more difficult. The need to work with all sides off a debate was emphasised, and it became clear that under Tony Abbott the Opposition would always look for opportunities to embarrass the Government.

For the GMIA, the process will highlight the need to be more open to ideas in the initial stages of consultation in order to be part of end negotiations.

The Department now knows that the ability to achieve legislative success will require more consultation, and sees that the PBS will potentially be subject to a higher level of transparency on fundamental decisions.

This entry was posted in Life Sciences Industry.
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