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.