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  • Brendan Shaw

The next 20-year PBS agenda: government commitments to new medicines spending

Brendan Shaw

If it's real and if it sticks, the Australian government’s ‘New Medicines Funding Guarantee’ will be a significant improvement to Australia’s Pharmaceutical Benefits Scheme.

The first Intergenerational Report released in 2002 by the then Australian government painted a doomsday scenario of the PBS becoming one of the major causes of government expenditure growth over the next 40 years.

Back then it predicted that the PBS would equal 3.4% of GDP by 2042.

Even at the time this was met with incredulity in some quarters, particularly as the 2002 report predicted that the PBS would cost much more than other parts of the health system like the Medicare Benefits Schedule.

Since that time, there has been 20 years of PBS policy evolution to introduce a series of price cuts and provide fiscal certainty to government.

With some exceptions, much of the attention of governments on the PBS over the last two decades has focussed on savings.

Today the original 2002 IGR projections seem even more ridiculous than they were when they were released.

As the chart below shows, the chance of Australia's PBS ever reaching the panicked 2002 IGR projections seem remote at best.

Just as an example, for the PBS to reach the IGR's 2021-22 projection next financial year of 1.3% of GDP compared to the projection of 0.72% implied in this year's Federal Budget, the PBS would have to basically double in size overnight, adding almost $12 billion in additional expenditure.

It's hard to see the government agreeing to do this.

There has been far less attention on securing additional spending for new medicines.

Some of us have been complaining for years that, despite all the reforms the industry worked on with governments to secure financial stability and 'headroom' for new medicines. we have not seen the same policy certainty from those efforts.

Until now, perhaps.

The New Medicines Funding Guarantee announced in this year’s Budget perhaps marks a long overdue start of a shift in the policy debate about the PBS.

The government has said:

"While the PBS remains a demand-driven program, this PBS New Medicines Funding Guarantee will deliver new funding each year for the listing of new medicines on the PBS, to be replenished each year to meet the expected cost of new and amended listings."

With the assurance that the PBS is a demand-driven program, this could be a welcome development.

The key is to ensure this guarantee becomes a reality.

For two decades the primary focus of governments in PBS budget reform has been to lock-in savings as the number of medicines on the PBS experiencing patent expiry and thus experiencing substantial price reductions has exploded.

There has been talk of ‘financial headroom’ and verbal commitments from governments from time to time, but patients and industry have had little policy certainty about this.

In a way, the New Medicines Funding Guarantee makes good on the need for consistency in guaranteeing both price reductions and new spending on medicines.

Just as the system has evolved since 2000 to guarantee governments minimum spending reductions through mandatory price cuts with the flexibility to allow more savings through price disclosure, a New Medicines Funding Guarantee looks like it guarantees a minimum spend on new medicines with the flexibility to spend more should additional new medicines come along.

It might be that the next 20 year project for PBS policy is to lock-in minimum guarantees on spending on new medicines in the same way that the first 20 years were spent locking-in minimum guarantees on savings and spending cuts.

There's a lot of questions still to be resolved about the Guarantee. What are the details? How will it be implemented? Is it funded? What commitment or lock-in is there for governments to stick to it?

All of this and more still need to be worked out.

But if governments implement the New Medicines Funding Guarantee in good faith and stick to the deal over the long-term, it could be a major step forward.

A post-COVID world where we have been dramatically reminded about the importance of medicines might be a good moment to switch the policy focus away from savings and towards investment in new technologies.

The Australian pharmaceutical industry has done a lot of work with governments over the last 20 years to provide a sustainable PBS for the Australian community.

It's now up to the government and politicians to deliver on their part of the bargain to secure access to new therapies for the next 20 years.

Ultimately, how this Guarantee helps Australians depends on current and future governments.

The ball is in their court.

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