PBS expenditure is contained and sustainable

Government expenditure on the Pharmaceutical Benefits Scheme (PBS) is currently not only sustainable, but actually declined last financial year.

In the past few months, major reports from three separate government agencies have confirmed that PBS expenditure is contained and that price disclosure is delivering savings far in excess of what was expected.

The regular Medicines Partnership of Australia (MPA) PBS Scorecard update released today outlines the current state and trajectory of PBS spending, as confirmed by the Department of Health, the Federal Treasury, and the Productivity Commission.

The Medicines Partnership welcomes the statement from the Minister for Health, Peter Dutton, that Australia needs “to have a national discussion about who pays for what and how the Government pays going forward.”

As part of that national discussion it is important to acknowledge that price disclosure has been and continues to be an extremely effective tool in ensuring that PBS expenditure remains contained and sustainable.

The most current update on PBS expenditure is in the Medicines Partnership of Australia scorecard, issued today.

The Medicines Partnership of Australia is: The Pharmacy Guild, Medicines Australia, the Generic Medicines Industry Association, the Australian Self-Medication Industry, the Pharmaceutical Society of Australia and the National Pharmaceutical Services Association.

20 February 2014

Media inquiries: Greg Turnbull 0412 910 261

May 2013 – PBS: a Budget bright spot

Figure 1 – PBS forward estimates downgraded by $4 billion over two budgets

In last year’s Budget the expectation of expenditure on pharmaceutical benefits was reduced by $1.6 billion over four years. This year’s Budget has gone even further – downgrading estimates by an additional $2.5 billion over four years. None of this has come from new savings measures. All of the savings from Expanded and Accelerated Price Disclosure and the Fifth Community Pharmacy Agreement (combined, a total saving of $2.5 billion over five years), were already factored in to the 2010 Budget. The additional $4 billion downgrade over the last two budgets is simply the result of Treasury having previously underestimated the impact of PBS Reforms and overestimated the demand for medicines.

The latest forward estimates also show that PBS expenditure as a percentage of Gross Domestic Product (GDP) is expected to decline in each of the next four years.

Figure 1 – PBS forward estimates downgraded by $4 billion over two budgets

Figure 2 – PBS expenditure is growing slower than other major areas of the health budget

The Budget states that total Health expenditure is estimated to increase by a total of 8.6% in real terms through to 2016-17, driven by a growing and ageing population. However, the PBS expenditure component of this budget is estimated to grow by a much lower rate of only 5%. In contrast, expenditure for Public Hospitals is set to increase rapidly by 17% in real terms.

Public Hospitals and Medical Services make up more than two thirds of total health expenditure, with a total cost over the forward estimates of $186 million compared to $47 billion for the PBS. It is worth noting that the total growth in annual expenditure on Public Hospitals and Medical Services over the next four years ($10 billion) is equivalent to the total amount currently spent on PBS medicines in one year.

Figure 2 – PBS expenditure is growing slower than other major areas of the health budget

Figure 3 – Price Disclosure in action

Through until April 2013 reductions in the price of PBS medicines as a result of Price Disclosure have applied to 130 drugs. The impact of these price reductions is depicted below. A further 39 price reduction will apply on 1 August 2013. Every off-patent drug is subject to Price Disclosure, ensuring that taxpayers reap the benefit of the highly competitive market for these drugs.

Figure 3: Price Disclosure in action Figure 3 – Price Disclosure in action

Figure 4 – Low growth in out-of-pocket costs for medicines

Figure 4 uses data from the Australian Bureau of Statistics to look at the growth in the price consumers pay for medicines compared with the growth in overall inflation and household incomes. The data shows that over the last two decades between June 1991 and June 2012, consumer medicine prices have grown by 57%. This might sound large, however, this compares with overall prices in the economy growing by 70% over the same period. This means that the prices consumers pay for their medicines has been lower than inflation over the last 20 years.

Interestingly, median household income has grown by 118% over the same period, meaning that over the last 20 years household incomes have grown at more than double the rate of medicine prices. This compares with other areas of household expenditure which have grown at more than the rate of general inflation and household income, such as the prices for utilities and petrol.

Over the same 20 year period the prices consumers pay for medical and hospital services have increased by 191%, or more than three times the rate that medicine prices have grown, and faster than household incomes have grown over the same period. So while certainly consumers may be feeling the pressure of higher prices for health costs, this has not been due to medicine prices.

Figure 4 – Low growth in out-of-pocket costs for medicines

Download this PBS Scorecard in PDF format.

PBS: A Budget bright spot

Amid the gloom of collapsing Commonwealth revenues, the Pharmaceutical Benefits Scheme has provided a sustainable bright spot for the Federal Government.

This week’s Budget provided confirmation of the significant impact that PBS price reforms are having on PBS expenditure, delivering the Government an additional $2.5 billion saving over four years.

None of this expenditure write-down has come from new savings measures – most is delivered by the existing program of price disclosure which reduces the prices the government and consumers pay for off-patent medicines.

The goods news on the PBS is outlined in the Medicines Partnership of Australia PBS Scorecard – which will be available here (please follow link)

The Budget papers reveal that the Commonwealth’s savings from price disclosure will increase from $296 million in 2013-14 to a massive $1.1 billion a year in 2016-17, underpinning the sustainability of the subsidised medicine scheme.

The aggregate savings from price disclosure, including the MOU with Medicines Australia, are now estimated to reach $4 billion over the forward estimates period.

Currently, the real rate of growth in pharmaceutical benefits expenditure is only 2% a year, despite Australia’s ageing population, and an estimated 6% annual growth in PBS volumes. This rate of growth is significantly lower than the overall health system and other major health expenditure drivers such as the Medical Benefits Schedule and public hospitals.

The Budget revealed that for the second year in a row, the Government has significantly lowered its own estimates of the likely future costs of the PBS.

For example, the Government is now estimating that pharmaceutical benefits and services costs will be at least $1 billion a year less than it estimated only two years ago.

These Budget figures dispel once and for all the poorly researched reports that have been released over recent months wrongly claiming that there has been a lack of real reform to bring PBS expenditure under control.

Expenditure on pharmaceuticals as a percentage of GDP is now expected to decline every year between 2012-13 and 2016-17. The pharmaceutical and pharmacy sectors are doing their bit to maintain the affordability of the PBS.

The Medicines Partnership of Australia is: The Pharmacy Guild, Medicines Australia, the Generic Medicines Industry Association, the Australian Self-Medication Industry, the Pharmaceutical Society of Australia and the National Pharmaceutical Services Association.

17 May 2013

Media inquiries:Greg Turnbull 0412 910 261

Consumers benefit from affordable medicines

Consumers have been getting very good value for money when purchasing medicines over the past twenty years when compared with the rising prices for other commodities, and household income growth.

Data from the Australian Bureau of Statistics data shows that over the last two decades between June 1991 and June 2012, consumer medicine prices have grown by 57 per cent. This compares with overall prices in the economy growing by 70 per cent over the same period. This means that the prices consumers pay for their medicines have not kept pace with inflation over the last 20 years.

In the same period, median household income grew by 118 per cent, meaning that household incomes have grown at more than double the rate of medicine prices. This compares with other areas of household expenditure which have grown at more than the rate of general inflation and household income, such as the prices for utilities and petrol.

Over the same 20 year period, the prices consumers pay for medical and hospital services have increased by 191per cent, or more than three times the rate that medicine prices have grown, and faster than household incomes have grown over the same period. So while consumers may be feeling the pressure of higher prices for health costs, this has not been due to medicine prices.

These findings are contained in the Medicines Partnership of Australia’s PBS Scorecard for December, issued today. The scorecard can be viewed here

While individual households will vary, according to ABS data average consumersspend only $5.83 per week of their household budget on prescription medicines. This compares with $6.16 a week on milk, $11.34 a week on cigarettes, $12.17 on mobile phones, $30.50 on fast food and takeaway, $31.97 a week on meals in restaurants and clubs, and $36.66 a week on petrol.

The Medicines Partnership of Australia is: The Pharmacy Guild, Medicines Australia, the Generic Medicines Industry Association, the Australian Self-Medication Industry, the Pharmaceutical Society of Australia and the National Pharmaceutical Services Association.

4 December 2012

Media inquiries:Greg Turnbull 0412 910 261

December 2012 – Government spending on PBS remains under control

Figure 1 – PBS growth

Figure 1 shows Medicare Australia data which shows PBS expenditure growth at 6% per annum in nominal terms in the twelve months to September. This growth has been driven by growth in the volume of prescriptions at 4.8% over the same period. It is highly likely that this growth rate has been heavily skewed by Medicare Australia continuing to process
prescriptions in a particular month, in this case the month of September. September 2012 had unusually high monthly expenditure (around $300m higher than September last year) and prescriptions (almost 7 million prescriptions higher than September last year).

Source: Medicare Australia. Excludes expenditure on s100 drugs including highly specialised drugs (HSD) used in public hospitals.

 

Figure 2 – Consumer medicine prices not keeping pace with inflation or household incomes

Figure 2 uses data from the Australian Bureau of Statistics to look at the growth in the price consumers pay for medicines compared with the growth in overall inflation and household incomes. The data shows that over the last two decades between June 1991 and June 2012, consumer medicine prices have grown by 57%. This might sound large, however, this compares with overall prices in the economy growing by 70% over the same period. This means that the prices consumers pay for their medicines has not kept pace with inflation over the last 20 years.

Interestingly, median household income has grown by 118% over the same period, meaning that over the last 20 years household incomes have grown at more than double the rate of medicine prices. This compares with other areas of household expenditure which have grown at more than the rate of general inflation and household income, such as the prices for utilities and petrol.

Over the same 20 year period the prices consumers pay for medical and hospital services have increased by 191%, or more than three times the rate that medicine prices have grown, and faster than household incomes have grown over the same period. So while certainly consumers may be feeling the pressure of higher prices for health costs, this has not been due to medicine prices.

Source:PBS expenditure-DoHA Annual Reports, Department of Health and Ageing, Various Years. GDP-Australian Bureau of Statistics, catalogue 5206.0 – Australian National Accounts: National Income, Expenditure and Product, various year

Figure 3 – Prescriptions only a small part of average household expenditure

While obviously it will vary household by household, according to ABS data average consumers only spend $5.83 per week of their household budget on prescription medicines. This compares with $6.16 a week on milk, $11.34 a week on cigarettes, $12.17 on mobile phones, $30.50 on fast food and takeaway, $31.97 a week on meals in restaurants and clubs, and $36.66 a week on petrol.

Again, while consumers may be facing cost of living pressures, prescription medicines are not the reason for this. In any event, just as the increase in household spending on mobile phones reflects adoption of new technologies, so too the growth in household spending on medicines reflects the fact that there are more medicines to treat more diseases available today than there were previously.

Source: ABS, Catalogue 6530, Household Expenditure Survey 2009-10 and ABS Catalogue 6535 Household Expenditure Survey 2003-04 (re-issue)

 

Figure 4 – PBS growth – Department of Health and Ageing data adjusted for inflation

Figure 4 avoids the problems of Medicare Australia (as outlined under figure 1) by utilising the data from the Department of Health and Ageing to measure growth in total government spending on the PBS on an accrual basis, after adjusting for inflation . For example, while PBS expenditure grew by 3.6% in nominal terms in 2011-12, once adjusted for inflation this figure drops to 2.4%, following a similar growth rate in 2010-11 of 2.1%. Once revenue received by the Government back from manufacturers is included in the growth rate, the 2011-12 real growth rate is actually 2.0% compared with 1.6% for 2010-11. This data adjusted for revenue paid back to the Government is only available from 2008-09 onwards.

Source: DoHA, Expenditure and Prescriptions twelve months to 30 June, various years, http://pbs.gov.au/info/browse/statistics#Expenditure : ABS cat. 6401.0, Consumer Price Index, http://abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6401.0Sep%202012?OpenDocument. Pharmaceutical Benefits Expenditure on accrual accounting basis figures deflated using ABS CPI data to adjust for inflation.

 

Figure 5 – PBS constant as a share of the economy

Despite the growth in PBS expenditure, as a share of the nation’s spending it remains constant. The PBS currently accounts for 0.62% of Australia’s gross domestic product, and has broadly remained in that range for the last decade. This compares with the most recent forecasts of the 2010 Intergenerational Report which projected the PBS to reach 0.7% by 2014-15. To reach this target, the PBS would have to grow by significantly more than GDP over the next few years.

Source: Source: PBS expenditure-DoHA Annual Reports, Department of Health and Ageing, Various Years. GDP-Australian Bureau of Statistics, catalogue 5206.0 – Australian National Accounts: National Income, Expenditure and Product, various years

Download this PBS Scorecard in PDF format.

August 2012 – Sharp drop in average cost of PBS medicines Pharmaceutical Benefits Scheme (PBS) Scorecard

Figure 1 – First impact of Expanded & Accelerated Price Disclosure Hits

Figure 1 shows the large drop in the average government cost of a PBS prescription in the June 2012 data, the first month of data to show the impact of the 1 April 2012 price reductions. This reduction in average cost shows that the PBS reforms are working and the Government is on track to save $1.9 billion over the forward estimates, keeping PBS expenditure well under control.

Figure 2 – Recent PBS data

Growth in government expenditure on the PBS in the 12 months to 30 June 2012 was 6.4% (Figure 2), before any adjustment for inflation. Despite a highly unusual spike in the official data at the end of the financial year (see Figure 5) this was similar to the growth recorded in the previous financial year and was well below the historical rates of growth in the previous three decades (see Figure 3). The trend of declining expenditure growth is likely to continue, as the largest single set of price reductions in the history of the PBS took effect on 1 April 2012 and the 2012-13 financial year data will include a full year of the impact of the reductions that showed in June 2012 data (Figure 1), as well as the impact of further reductions on 1 August and 1 December.

Figure 3 – PBS growth is declining decade on decade

The ten year average growth in PBS in the last decade (2000-2010) was one of the lowest since the 1980’s. The data for the first two years of the new decade has continued the trend, averaging 6.0%.

Figure 4 – PBS as a % of GDP remains stable

Over the last decade, PBS expenditure as a proportion of GDP has remained steady at between 0.6% and 0.65%. This percentage is now on a downward trend, as PBS expenditure has recently been increasing at a slower pace than nominal GDP.

Figure 5 – What happened to the June 2012 PBS data?

The volume of prescriptions recorded in the June 2012 PBS data was approximately 75% higher than the same month in 2011, and was 30% higher than any other month in history. Figure 5 shows the official volumes for the month of June over the last 20 years, highlighting the June 2012 aberration. Clearly this latest set of data could not have been a true reflection of actual dispensing activity.

Official PBS data is based on when the Department of Human Services (DHS, formerly Medicare Australia) completes the processing of each individual pharmacy claim. Detailed analysis of the official data reveals that DHS slowed down their average processing times in the nine months to April 2012. The backlog of pharmacy claims was rapidly cleared by DHS in May and June, to the extent that processing in June appears to be running ahead of the usual schedule. This volatility is likely to have resulted in 2011-12 financial year growth being overstated in the official figures.

Sharp drop in average cost of PBS medicines

Reforms of the Pharmaceutical Benefits Scheme have produced a large drop in the average cost to government of PBS prescriptions.

The sharp drop is confirmed in the June 2012 PBS data – the first month of data to include the full impact of the major 1 April 2012 price reductions.

The 1 April price reductions – the largest set of PBS price reductions in the history of the scheme – have seen a $5 drop in the average cost of prescriptions – falling from just over $44 to just over $39.

This is the clearest demonstration yet of the significant savings being reaped by the government through the Expanded and Accelerated Price Disclosure program. It is further confirmation that PBS expenditure is being kept well under control.

These findings are contained in the Medicines Partnership of Australia’s PBS Scorecard for August, issued today. The scorecard can be here (please follow link)

The data shows growth in government expenditure on the PBS in the 12 months to 30 June 2012 was 6.4%, before any adjustment for inflation. Despite an unusual spike in the official data at the end of the financial year, the annual figure was similar to growth recorded in the previous financial year, and well below historical rates of growth.

The volume of prescriptions recorded in the June 2012 PBS data was approximately 75% higher than the same month in 2011, and was 30% higher than any other month in history.

This has provoked some comment, and is clearly not a true reflection of actual dispensing activity in community pharmacies in June. Detailed analysis of the data reveals that the Department of Human Services (DHS, formerly Medicare Australia) slowed down their average processing times in the nine months to April 2012. The backlog of pharmacy claims was rapidly cleared by DHS in May and June. This volatility is likely to have resulted in 2011-12 financial year growth being overstated in the official figures.

This is another example of why the Medicines Partnership of Australia argues that we need to have clear agreed, publicly available measures of volume and price growth in the PBS, so that government, industry and all stakeholders can make meaningful comparisons and draw reliable projections of this important public sector expenditure item.

The Medicines Partnership of Australia is: The Pharmacy Guild, Medicines Australia, the Generic Medicines Industry Association, the Australian Self- Medication Industry, the Pharmaceutical Society of Australia and the National Pharmaceutical Services Association.

12 August 2012

Media inquiries:Greg Turnbull 0412 910 261

PBS expenditure now falling in real terms

Recent Pharmaceutical Benefits Scheme (PBS) data shows no growth in real terms,confirming the ongoing viability of the best subsidised medicine scheme in the world.

Growth in Federal Government expenditure on the PBS in the 12 months to 31 March 2012 was just 0.8%. After adjusting for inflation, currently at 1.6%, this represents a decline of 0.8% in real terms. This is well below the Government’s own target of two per cent growth in real terms.

The decline in expenditure is likely to continue, as the largest single set of price reductions in the history of the PBS took effect on 1 April 2012 and the impact of these reductions has not yet shown in the official figures. The PBS reforms are working – the Government is on track to save at least $1.9 billion dollars over the forward estimates and the current lack of (real) growth reinforces the industry’s longheld position that PBS is well under control.

The ten year average growth in PBS in the last decade (2000-2010) was one of the lowest since the 1980s. The Department of Health and Ageing Annual Report 2010-11 reported that in the financial year to 30 June 2011, PBS expenditure grew by5.7%. The current growth rate (2.4%) for calendar year 2011 using Medicare Australia data reaffirms that the long term downward trend is continuing.

Over the last decade, PBS expenditure as a proportion of GDP has remained steady at between 0.6% and 0.65%. This percentage is now on a downward trend, as PBS expenditure is now decreasing (in real terms) while the economy continues to grow.

These findings are contained in the Medicines Partnership of Australia’s PBS Scorecard for May, issued today.

The Medicines Partnership of Australia is: The Pharmacy Guild, Medicines Australia, the Generic Medicines Industry Association, the Australian Self-Medication Industry, the Pharmaceutical Society of Australia and the National Pharmaceutical Services Association.

Media inquiries: Greg Turnbull 0412 910 261

May 2012 – PBS expenditure now falling in real terms

Figure 1 – Recent PBS data shows no growth in real terms

Growth in government expenditure on the PBS in the 12 months to 31 March 2012 was just 0.8%. After adjusting for inflation, currently at 1.6%, this represents a decline of 0.8% in real terms. This is well below the Government’s own target of two per cent growth in real terms. The decline in expenditure is likely to continue, as the largest single set of price reductions in the history of the PBS took effect on 1 April 2012 and the impact of these reductions has not yet shown in the official figures. The PBS reforms are working – the Government is on track to save $1.9 billion dollars over the forward estimates and the current lack of (real) growth reinforces the industry’s long-held position that PBS is well under control.

Figure 2 – PBS growth is declining decade on decade

The ten year average growth in PBS in the last decade (2000-2010) was one of the lowest since the 1980’s. The Department of Health and Ageing Annual Report 2010-11 reported that in the financial year to 30 June 2011, PBS expenditure grew by 5.7%. The current growth rate (2.4%) for calendar year 2011 using Medicare Australia data reaffirms that the long term downward trend is continuing.

Figure 3 – PBS as a % of GDP remains stable

Over the last decade, PBS expenditure as a proportion of GDP has remained steady at between 0.6% and 0.65%. This percentage is now on a downward trend, as PBS expenditure is now decreasing (in real terms) while the economy continues to grow.

Figure 4 – PBS as a proportion of GDP – Actual vs Projected

Australia’s 2010 Intergenerational Report predicted that expenditure on the PBS will remain steady at 0.7% of GDP through to 2020. Already, actual expenditure in 2009-10 and 2010-11 was below the 0.7% of GDP forecasted in Intergenerational Report 2010.

PBS – no real growth in 2011

Figure 1 – Recent PBS data shows no growth in real terms

Growth in government expenditure on the PBS in the year ended 31 Dec 2011 was 2.4%. After adjusting for inflation, this represents no growth in real terms. Given inflation over the same period was 3.1 %, it suggests that PBS expenditure actually fell in real terms. This growth rate is even below the Government’s own target of two per cent growth in real terms. The current growth is likely to continue as another major round of PBS Reform price reductions is due to take effect on 1 April 2012. The current lack of (real) growth re-iterates Industry’s position that PBS is well under control.

Figure 2 – PBS growth is declining decade on decade

The ten year average growth in PBS in the last decade (2000-2010) was one of the lowest since the 1980’s. The Department of Health and Ageing Annual Report 2010-11 reported that in the financial year to 30 June 2011, PBS expenditure grew by 5.7%. The current growth rate (2.4%) for calendar year 2011 using Medicare Australia data reaffirms that the long term downward trend is continuing.

Figure 3 – PBS as a % of GDP remains stable

Over the last decade, PBS expenditure as a proportion of GDP has remained steady at between 0.6% and 0.65%.

Figure 4: PBS as a proportion of GDP – Actual vs Projected

Australia’s 2010 Intergenerational Report predicted that expenditure on the PBS will remain steady at 0.7% of GDP through to 2020. Already, actual expenditure in 2009-10 and 2010-11 was below the 0.7% of GDP forecasted in Intergenerational Report 2010.

Download this PBS Scorecard in PDF format.