May 2014: The PBS leads Budget ‘heavy lifting’

Figure 1: PBS forward estimates downgraded by another $4.5 billion

This year’s budget revealed that the PBS will cost $4.5 billion
less from 2013-14 to 2016-17 than was expected in last year’s
budget. $0.7 billion of that was attributed to increases in
co-payments and safety net thresholds to be introduced from
January 2015. However the remaining $3.8 billion is simply
windfall benefit from existing reform and lower than expected
growth. This is on top of a total of $4.1 billion in forward
estimate downgrades across the previous two budgets.

The amount taken out of the PBS forward estimates over the
next three financial years had a larger positive impact on the
budget bottom line over that period than any savings measure
in the 2014 Budget. The PBS continues to do more than its
share of fiscal “heavy lifting”.

As shown below, these latest forward estimates show that PBS
expenditure as a percentage of Gross Domestic Product (GDP)
is expected to decline to less than 0.62% by 2017-18.

Figure 1: PBS forward estimates downgraded by another $4.5 billion

Figure 2 – Savings from PBS Reforms top $2 billion per year

The 2014-15 Health Portfolio Budget Statements included a
new table showing all ongoing savings from PBS Reforms. Next
financial year the savings will be running at more than $2 billion
per year. Two years later they will have increased to more than
$2.5 billion per year and cumulatively they will deliver $9.9
billion over the next four years.

Clearly, PBS Reforms are delivering massive savings. With those
savings come significant—and growing—impacts on all parts
of the pharmaceutical industry—manufacturers, the supply
chain and community pharmacies.

Figure 2 – Savings from PBS Reforms top $2 billion per year

Figure 3 – PBS expenditure is growing slower than other major areas of the health budget

The Budget papers show that expenditure on the PBS will decline significantly in 2014-15, followed by further declines in each of the out years. This is despite significant savings measures in other areas of the health budget such as the MBS.

Figure 3 – PBS expenditure is growing slower than other major areas of the health budget

Figure 4 – How will PBS co-payment and Safety Net changes affect the PBS in 2015?

The Budget papers show that expenditure on the PBS will
decline significantly in 2014-15, followed by further declines
in each of the out years. This is despite significant savings
measures in other areas of the health budget such as the MBS.
It was announced in the Budget that PBS co-payments will
increase by 13% on 1 January 2015, over and above the usual
CPI increase – an increase of $0.80 per prescription for patients
with a concession card and of $5.00 per prescription for those
without a concession card. Of at least equal significance,
especially in the longer term, were progressive increases to
safety net thresholds. The concessional threshold will reach 68
co-payments by 2018, while the general safety net will increase
at 10% above inflation each year for four years, and will be well
over $2,000 by 2018.

The most recent major increase in co-payments was a 24%
increase to both co-payments effective from 1 January 2005.
A major study by the University of Western Australia found
that, compared with dispensings prior to the co-payment
increase, prescriptions fell by 8% for combination asthma
medicines, 9% for proton pump inhibitors and 5% for statins.
The study concluded that increases in patient contributions
particularly impact on concessional patients’ ability to afford
medicines. The increase in the co-payment in 2014 will be
somewhat smaller than in 2005 and the reductions in filled
prescriptions are likely to also be smaller. However the
introduction of a GP co-payment from 1 July 2015 may also
impact on the number of prescriptions written.

As shown below, following the 2005 co-payment increases, PBS
prescription volumes decreased in the two subsequent years.

Figure 4 – How will PBS co-payment and Safety Net changes affect the PBS in 2015?