EXPLANATORY STATEMENT

 

Select Legislative Instrument 2007 No. 225

 

Subject: National Health Act 1953

National Health (Pharmaceutical Benefits) Amendment Regulations 2007 (No. 2)

 

Section 140 of the National Health Act 1953 (the Act) provides, in part, that the

Governor-General may make regulations, not inconsistent with the Act, prescribing all matters which are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for carrying out or giving effect to the Act.

 

The purpose of the Regulations is to prescribe the implementation detail associated with major reforms to the Pharmaceutical Benefits Scheme (the PBS) which will be given effect through amendments to the Act.

 

The National Health Amendment (Pharmaceutical Benefits Scheme) Act 2007 will commence on 1 August 2007 and will amend the Act to provide for new pricing arrangements to enable the Government to capture the benefits of competition where drugs have multiple brands. Key features of the new arrangements relate to:

 

·        Formularies – The amendments will divide the Pharmaceutical Benefits Schedule into two parts (known as ‘formularies’): one part for single brand drugs, the other part for drugs that have multiple brands or that are interchangeable at the patient level with drugs that have multiple brands. From 1 August 2007, these two parts will be respectively known as F1 and F2. Until 1 January 2011, F2 will be divided into a further two parts, F2A and F2T, to allow different pricing arrangements to apply to these two parts;

 

·        Pricing – The amendments will specify the pricing rules for drugs in each formulary and the circumstances in which price reductions will occur; and

 

·        Price disclosure – The amendments will insert price disclosure provisions into the Act to ensure that the price that the Government pays for a multiple brand drug on F2 more closely reflects the actual price at which that drug is being supplied to pharmacies. The changes require that (from 1 August 2007 for drugs on F2A and from 1 January 2011 for all drugs on F2), all new brands that list on F2 are subject to new price disclosure requirements. Related brands of that drug with the same manner of administration, provided by the same supplier, will also be subject to price disclosure requirements, along with any brands for which other suppliers volunteer to disclose their prices. The approved price to pharmacists may be reduced based on pricing information collected through the new price disclosure requirements.

 

Consistent with the amendments made to the Act, the Regulations prescribe:

 

·        the drugs that fall into F1 and F2 (including those that fall into F2A and F2T);

 

·        the co-marketed brands that will be included on F1 (because they are treated as single brands for the purposes of the criteria for allocating drugs to formularies);

 

·        the therapeutic groups for pricing purposes. These groups will contain drugs that provide the same health outcomes, and will therefore be priced similarly;

 

·        the means by which staged price reductions will occur for certain drugs; and

 

·        the detail surrounding the price disclosure requirements, and the means by which price reductions will be calculated as a result of price disclosure.

 

Details of the Regulations are set out in Attachment.

 

The new pricing arrangements have been subject to extensive consultation with the pharmaceutical industry, the Pharmacy Guild of Australia, the Australian Medical Association and the Consumers Health Forum. This has included consultations on matters addressed in the Regulations such as the allocation of drugs to formularies, co-marketed drugs, the 25 per cent phased price reductions and the price disclosure requirements.

 

The Office of Best Practice Regulation was consulted and determined that no Regulation Impact Statement was required (RIS ID: 9091).

 

The Act specifies no conditions that need to be met before the power to make the Regulations may be exercised.

 

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

 

The amendments to the Act will take effect on 1 August 2007, and the Regulations take effect on the same date.

 

 

 

ATTACHMENT

 

Details of the National Health (Pharmaceutical Benefits) Amendment Regulations 2007 (No. 2)

 

Regulation 1 – Name of Regulations

 

This regulation provides that the title of the Regulations is the National Health (Pharmaceutical Benefits) Amendment Regulations 2007 (No. 2).

 

Regulation 2 – Commencement

 

This regulation provides for the Regulations to be scheduled to commence on 1 August 2007. This corresponds with the date of effect of the related amendments that have been made to the Act.

 

Regulation 3 – Amendment of National Health (Pharmaceutical Benefits) Regulations 1960

 

This regulation provides that the National Health (Pharmaceutical Benefits) Regulations 1960 (the Principal Regulations) are amended as set out in Schedule 1.

 

Schedule 1 – Amendments

 

Items 1 - 4

These items insert new definitions within subregulation 5(1) for the words and terms ‘brand’, ‘drug in a pharmaceutical item’, ‘pharmaceutical item’, ‘pharmaceutical item has a drug’ and ‘responsible person’. These words and terms are also used in the National Health Act 1953 and the definitions in the Regulations rely on these definitions.

 

Item 5 (including Schedules 1 – 5)

This item inserts into the Principal Regulations – Part IIAAA ‘Formularies, co-marketed brands and therapeutic groups’.

 

The new Part includes four new regulations:

 

·        regulation 9AAA provide that a listed drug will be on F1 if the drug is included in Schedule 1 to the Principal Regulations. Drugs on F1 are, in general single brand drugs and are subject to different pricing arrangements than drugs on F2;

 

·        regulation 9AAB provide that a listed drug will be on F2 if the drug is specified in Schedule 2 to the Principal Regulations. Drugs within F2 are further specified as being in either Part A of F2 or Part T of F2. The drugs to be on F2 are those that have multiple brands, or that are interchangeable at the individual patient level with drugs that have multiple brands;

 

·        regulation 9AAC provides that brands of drugs that are to be treated as co-marketed brands for the purposes of pricing will be specified in columns 2 and 3 of Schedule 3 to the Principal Regulations. Schedule 3 then sets out the brand, drug, form and manner of administration of various listed brands and the associated ‘co-marketed’ brands (also described by reference to the brand, drug, form and manner of administration of the listed brand); and

 

·        regulation 9AAD provides that the therapeutic groups specified in Schedule 4 to the Principal Regulations will be prescribed for the purposes of subsection 84AG(6). Schedule 4 then sets out six therapeutic groups. These are referred to as the: Angiotensin converting enzyme inhibitor group (ACE inhibitor group); Angiotensin II receptor antagonist group (ATRA group); Dihydropyridine calcium-channel blocker group (CCB group); HMG Co-A reductase inhibitor group (Statins group); H2 receptor antagonist group (H2RA group); and Proton pump inhibitor group (PPI group).

 

Item 6

This item inserts a new Part VIA – ‘Price Reductions’ into the Principal Regulations. The new Part includes the following new regulations:

 

·        regulation 37A sets out the definitions used in the new Part VIA;

 

·        regulation 37B. Section 99ACK of the Act provides for price reductions of up to 25 per cent to be phased in for brands of pharmaceutical items prescribed in the Principal Regulations. Regulation 37B provides that the prescribed brands be those set out in Schedule 5 to the Principal Regulations. Schedule 5 specifies five brands of items on F2T. In relation to each of these, the Schedule sets out a percentage price reduction and the day on which these reductions will occur. The percentage reductions have been the subject of consultation with the relevant pharmaceutical companies; and

 

·        regulations 37C to 37J relate to the new price disclosure requirements and are described in more detail below.

 

As part of the PBS pricing reforms, amendments were made to the Act requiring companies to disclose, to the Department of Health and Ageing, the prices at which certain brands of drugs are supplied.

 

From 1 August 2007 for drugs on F2A, and from 1 January 2011 for all drugs on F2, new bioequivalent or biosimilar brands that list on F2 will be subject to the new price disclosure requirements. Related brands of these drugs that are provided by the same supplier will also be subject to price disclosure requirements, along with any brands for which other suppliers volunteer to disclose their prices.

 

Following a period of price disclosure, a ‘weighted average disclosed price’ will be calculated using the data disclosed. If the weighted average disclosed price is at least 10 per cent less than the approved ex-manufacturer price, the approved ex-manufacturer price and the approved price to pharmacists will be adjusted accordingly. The effect of this will be to reduce the amount that is paid by the Government for a particular brand of a pharmaceutical item.

 

Regulation 37C sets out the method for working out the adjusted approved price to pharmacists. As is required by subsection 99ADB(2), the method prescribed in regulation 37C is by reference to the adjusted approved ex-manufacturer price of a brand of a pharmaceutical item. In summary, the regulation provides that if the adjusted ex-manufacturer price is equal to or less than $930.06, the adjusted approved price to pharmacists will be the adjusted ex-manufacturer price multiplied by 1.0752 and rounded to the nearest cent. In any other case (that is, where the adjusted ex-manufacturer price is greater than $930.06), the adjusted approved price to pharmacists will be the adjusted ex-manufacturer price plus $69.94. This formula is based on the reimbursement arrangements as outlined in the Fourth Community Pharmacy Agreement between the Commonwealth of Australia and the Pharmacy Guild of Australia 2005-2010.

 

Regulation 37D sets out the method for working out the approved ex-manufacturer price, by reference to the approved price to pharmacists (as is required by subsection 99ADB(3) of the Act).

 

In summary, the approved ex-manufacturer price is to be calculated as follows:

·        if the approved price to pharmacists is equal to or less than $970 - the approved price to pharmacists divided by 1.0752; or

·        if the approved price to pharmacists is greater than $970 - the approved price to pharmacists less $69.94.

 

Regulation 37E deals with how information provided under the price disclosure requirements is to be used with the method set out in regulation 37F for determining the weighted average disclosed price.

 

Regulation 37F sets out the method for determining the weighted average disclosed price of a brand of a pharmaceutical item. This is a complex calculation which relies largely on information provided by suppliers in relation to brands of pharmaceutical items. The calculation is described in terms of the steps that will be undertaken by the Department of Health and Ageing.

 

This will involve:

·        calculating the net revenue and adjusted volume of each disclosing brand of a pharmaceutical item and using this to calculate an average price for all disclosing brands of a pharmaceutical item; and

·        calculating the percentage difference between the average price disclosed for the brands of the pharmaceutical item and the approved ex-manufacturer price for the brands (noting that the approved ex-manufacturer price will be the same for all brands of a pharmaceutical item).

 

These calculations are then performed for every pharmaceutical item with the same drug and manner of administration. The results are weighted according to PBS prescription volumes to determine a percentage difference between the prices disclosed and the approved ex-manufacturer price for all brands of the pharmaceutical item with the same manner of administration.

 

If that percentage is greater than 10 per cent, the weighted average disclosed price will be the approved ex-manufacturer price reduced by the percentage. The weighted average disclosed price then becomes the adjusted approved ex-manufacturer price.

 

Regulations 37G and 37H sets out the information that is to be disclosed, for quarterly and annual periods, by those who are subject to the price disclosure requirements. In summary, regulation 37G requires that the information submitted for the quarterly reporting period will include sales revenue and volume of the brand sold. Regulation 37H provides that the information submitted for the annual reporting period will include information about the types and value of incentives provided in connection with sales of a brand.

 

Regulation 37I provides that the price disclosure information that is submitted annually and quarterly (in accordance with regulations 37G and 37H) must be provided in a form approved by the Secretary of the Department of Health and Ageing. The form must include all required information, not contain false or misleading information and be signed (or authorised for electronic transmission) by a person who is authorised by the responsible person (that is, the supplier) to provide the information.

 

Regulation 37J details when quarterly and annual reporting periods are to commence for different types of brands. The regulation also provide that the quarterly and annual information is to be submitted to the Secretary of the Department of Health and Ageing within two months after the end of each reporting period.

 

Item 7

This item inserts five new schedules before the existing Schedule 1:

·        Schedule 1 – Drugs on F1

·        Schedule 2 – Drugs on F2

·        Schedule 3 – Co-marketed brands

·        Schedule 4 – Therapeutic groups

·        Schedule 5 – Listed brands of pharmaceutical items, reductions days and percentages

These new Schedules are described in more detail in relation to item 5.

 

Item 8

This item renumbers the existing Schedule 1 as Schedule 6.