National Health Amendment (Pharmaceutical Benefits) Bill 2015

I rise to speak on the National Health Amendment (Pharmaceutical Benefits) Bill 2015 and to speak in favour of the following amendment. While not declining to give the bill a second reading, the House notes Labor's concerns about the potential unintended consequences caused by a lack of consultation during the negotiations for the Sixth Community Pharmacy Agreement.


This government bill seeks to amend the National Health Act 1953 to implement measures in the Pharmaceutical Benefits Access and Sustainability Package. This includes changes to the Pharmaceutical Benefits Scheme, measures implementing agreements with the Generic Medicines Industry Association and Medicines Australia, and of course the Sixth Community Pharmacy Agreement, the new five-year agreement with the Pharmacy Guild of Australia.

I should note at the outset that at no stage was Labor consulted by either the government or indeed any of the parties to these agreements prior to this legislation being tabled. Indeed, the first time Labor was ever made aware of the substantive detail in the legislation was the night before it was tabled, in a briefing from the department. Yet here we are, less than a month before the existing pharmacy agreement expires, with the government insisting that we now have to get this through the House this week so that it can be taken to the Senate in time to pass before the 30 June deadline. This is entirely due to the government's own incompetence—and I say 'incompetence' quite deliberately, because the Fifth Community Pharmacy Agreement sets out a timetable, and it is very specific about this, to ensure that negotiations for a new community pharmacy agreement will commence 12 months prior to the expiry of the agreement and conclude by 31 March 2015.

So, we have had 12 months notice, if not five years. And the agreements were supposed to conclude by 31 March. And while we are now standing here with a gun to our head being asked to vote on and send this to the other place so that it can be concluded before the deadline, it is an urgency of the government's own making and it speaks to the complete chaos which is the hallmark of this government when it comes to health policy. Instead of having 12 months, negotiations did not start until just four months before the expiry date, and they concluded only last week. Now, that is not understandable, given the complexity of this matter. But they have been in government for over 18 months—a fact that is often lost on many members of the public who tune in to question time and hear the Prime Minister and so many other members of the government spending so much time talking about Labor and not nearly enough time talking about their plans for the country. So, now the minister insists, because of her government's incompetence, that it is vital that the parliament rushes this straight through to the Senate without a proper debate. Well, when a bill commits a government that has ripped the guts out of health funding to spending another $18.9 billion, Labor believes that it is worth taking some time to have a good look at the detail. That is what I will be doing in the time available to me today and that is what all Labor members will be doing when they speak in relation to the bill and the proposed amendments. I also indicate that we believe, notwithstanding the urgency created by the government's incompetence, that this bill does warrant more detailed investigation in the Senate, and that is what we will be moving for when the bill goes to the other place.

I will now talk about the PBS package. Unlike the previous pharmacy agreements, this bill seeks to bundle up a series of other measures that are not directly linked to the remuneration of pharmacists and what commentators have suggested was a deliberate tactic to put pressure on the government. The government is calling this the PBS Access and Sustainability Package, which it says aims to deliver a more sustainable Pharmaceutical Benefits Scheme, with better value for taxpayers, cheaper medicines for consumers and improved access to innovative medicines. Given the government's repeated claims that its massive cuts to health funding and the GP tax were also about sustainability, one could forgive us on this side of the parliament if the warning lights go off every time we hear members opposite talking about wanting to make any part of the health system more sustainable. This is a government, it is worth noting, which last week described a cut of $600 million out of the health flexible funds, which are devastating crucial health support groups and services around the country, as rationalising and streamlining health programs.

According to the government, the Access and Sustainability Package contains more than 20 measures and is designed to achieve $3.7 billion in net savings over the next five years. It includes $6.6 billion in savings across the entire pharmaceutical supply chain, partially offset by $2.8 billion of these savings going back into the pharmacies as part of the Sixth Community Pharmacy Agreement. Of the remaining $3.7 billion, the government is proposing, though not at this stage, budgeting for some of this money to be invested in new drugs. In other words, cuts to the prices paid to the drug companies are being used to prop up the budget and fund the additional money going into the Sixth Community Pharmacy Agreement, with industry newsletter Pharma in Focus declaring that research pharma companies are by far the hardest hit in contributing $6.6 billion in total savings.

Key components of this package are: one, a new PBS pricing policy to reduce the price paid by the Commonwealth for innovative drugs, which are F1 formula drugs, and generic drugs, which are F2 formula drugs and medicines; two, increasing pharmacy competition by allowing pharmacies to discount the co-payment; three, removing some of the over-the-counter medicines from the PBS; four, changing the structure of the pharmacy remuneration to remove the link to PBS prices; and, five, providing for pharmacy to expand its role in the community. The government expects the majority of the savings achieved by the measures to come from PBS pricing changes. The key pricing changes are discussed individually below.

In terms of the F1 five per cent price reduction, around $1 billion of the cuts in this package come from the inclusion, for the first time, of a statutory price reduction for patented, or F1, medicines. The price paid for all patented medicines that have been listed on the PBS for at least five years will be cut by five per cent on 1 April 2016. This is expected to affect 400 medicines. Newer medicines that reach their five-year anniversary on the PBS following that date will take a five per cent price cut on the following April. The government argues that delaying the price reduction for five years after listing is intended to give the manufacturers time to recoup their investment costs. Prior to this agreement, Medicines Australia argued that drug companies had been forced to take significant cuts in recent years, most notably as a result of Labor's expanded accelerated price disclosure, and that reductions could put at risk Australia's access to innovative medicines. That was the argument of Medicines Australia immediately following Labor's introduction of accelerated price disclosure.

The industry argues that this F1 phase is when it recoups its research investment. It says it would affect the listing price of new drugs because part of the price struck was directly related to the price of comparable drugs. It also warned that the proposals made it more likely that some medicines would be delisted and could impact on research and development worth $1 billion. However a 2013 report by the Grattan Institute found exactly the opposite: Australia is paying more than many Western countries for pharmaceuticals in general and more than New Zealand for patented as well as generic drugs. Against this backdrop it is appropriate that these matters be investigated and debated. A proper parliamentary process, not the process that we are currently enjoying, would allow this to occur.

In the end, Medicines Australia signed on, though perhaps more because it had little choice and that, with a little hope, it might at least be protected from further cuts for some time to come. Medicines Australia CEO, Tim James, said:

In return for providing the majority of $6.6 billion in cuts outlined by the Government, our members have been given a number of undertakings and concessions regarding any future price-related savings throughout the life of the Agreement.

He goes on to say:

The continuation of this social compact requires stability in policy making. While this agreement does contain cuts to medicines already proven to be cost-effective, we welcome the limited stability and certainty that this agreement will provide over the coming 5 years.

I will talk about the F2, or generic, price disclosure. Generic and off-patented medicines, also referred to as F2 drugs, are, as a result of Labor's reforms, subject to accelerated price disclosure which requires the suppliers of these medicines to advise the Department of Health of the prices at which they are selling their brands. The government then uses this information to move the price paid by the government closer to the price at which the drugs are supplied in the market. It makes good sense. Under these changes, from 1 October next year the market price of medicines listed on the F2 for three years or more will no longer take into account the originator brand of the drug. This should see lower prices for both government and consumers as originator, or premium, brand names tend to maintain higher prices than their generic competitors, which draws the average price up. This measure alone is expected to deliver $2 billion in savings by the end of the agreement and is expected to reduce the price of generic medicines for consumers by as much as 50 per cent. Prices should also fall for general patients, though not concessional patients, who make up around 80 per cent of PBS prescriptions, as all PBS prescriptions are priced above the concessional co-payment of $6.10.

Another change expected to save $610 million, over five years, is the closing of a loophole relating to combination drugs that allow them to avoid price cuts, from price disclosure, in certain circumstances. Price changes to the individual drugs in the combination generally flow onto the price of the combination drug. However, some companies have been able to avoid the price cuts required under price disclosure by rebranding their own combination drugs. The bill has provisions to close this loophole so that price-disclosure reductions for component drugs of combination drugs, on the F2 formulary, will flow onto the combination drugs, starting on 1 April 2016.

Perhaps the most significant and least understood change in this package is what is referred to as a technical amendment relating to PBS listing for bioequivalent and biosimilar medicines, which is expected to save the Commonwealth another $880 million. This involves the insertion of a new subsection into the act, allowing bioequivalent and biosimilar medicines to be taken as having the same drug as a listed brand. Another technical amendment allows the minister to determine that a brand is equivalent to another brand, for the purposes of substitution by a pharmacist, and requires the minister to have regard to any advice on equivalence given by the PBAC. Exactly how this is going to operate is unclear, with even the industry at this stage unsure as to the full details of the move.

On the surface, it appears to be designed to promote across-the-board substitution, which the industry magazine PharmaDispatch reports has 'shocked many in the industry, primarily because it would represent a profound and fundamental shift in Australia's approach to the regulation and reimbursement of medicines'. The magazine says:

… if biosimilars are just generics, and the plan is to treat them as such, then why has every Government around the world, including in Australia, developed and implemented approval processes that dearly distinguish them from generics.

This also appears to contradict the Therapeutic Goods Administration's biosimilar guideline. While this is currently under review, the existing July 2013 guideline specifically says that a biosimilar's product information should include a statement ruling out substitution.

Stephen Murby, a former chair of the Consumer Health Forum and now biosimilar's spokesperson for the International Alliance of Patients' Organizations, has recently written to my office and that of the minister expressing concern over these proposed changes to the regulation and reimbursement of biosimilars. In the letter, Mr Murby says there are 'growing concerns' internationally over Australia's move to implement pharmacy-level substitution of biosimilars, which he warns 'is not only moving away from best practice but seemingly is about to set itself on a path that will see patients at unnecessary risk'. As always, Labor will support moves to make the PBS more sustainable and medicines cheaper for patients, but we do believe this issue has not been explained properly by the government and requires further investigation. That is something that should be ventilated in a Senate inquiry. Quite simply, if we have a different basis from which we approve a drug for substitution, in a pharmacy, this is a matter which requires further investigation.

All of the pharmacy measures I have detailed to this point are, in effect, the lead-in to the real reason for this legislation—that is, the Sixth Community Pharmacy Agreement. This legislation encapsulates how the Commonwealth has, in the words of one commentator, 'basically, raided the drug company' to pay for the additional funding promised as part of the Sixth Community Pharmacy Agreement. However, it is deeply disappointing and of great concern to Labor that while the government boasts of how it has ripped $6.6 billion out of health as a result of these cuts across the pharmaceutical chain, just $2.8 billion is going back into the health system by way of increased payments to pharmacists.

The government has made vague promises about some of that money being made available for new drugs, but there is no mention of this, whatsoever, in the legislation. The government has not been able to commit that this $3.7 billion will go to reinvesting into new medicines or to other areas of health where, we know, the government has already cut billions of dollars. These include more than $57 billion from public hospitals, half-a-billion dollars from public dental programs, $397 million from preventative health and a further $2 billion from health programs, generally, in this year's budget. It is a budget that also cut $125 million from the Child Dental Benefits Schedule; $144 million from the MBS, including halving the amount paid for child-health assessments; $70 million from the veterans' dental and allied-health payments; $214 million from e-health and, most cruelly of all, $3 million by scrapping a tiny $250-a-month payment granted to assist people who need special foods because of genetic disorders.

This legislation—for all the fine words about pharmacists and drugs of the future—is, in the end, just another excuse to bash health as a savings exercise, with a net loss of $3.7 billion to the system. At no stage was Labor ever consulted about the details of this agreement and it had no involvement in any of the proposals that we now see before the parliament. The first time we received any details of this agreement was on Tuesday night, and on Wednesday morning it was before the parliament.

With that disclaimer, I now turn to the details of the bill and how they apply to the pharmacy sector. I will talk first about the pharmacy-location rules. A component of the National Health Amendment (Pharmaceutical Benefits) Bill is the extension of the pharmacy-location rules for another five years. These rules generally restrict a new pharmacy from operating within a certain distance of an existing pharmacy, usually 1.5 kilometres in a metropolitan area or 10 kilometres in more remote locations. These rules also prevent pharmacies from being placed either within or in a position directly accessible from a supermarket. This is, in effect, a Coles and Woolworths rule which prevents big supermarket chains from directly competing with chemists by denying them the right to dispense medicines. In recent years, there have been a number of inquiries concluding that the location rule should be scrapped. Earlier this year, the minister publicly indicated she was considering this—although mainly it appeared as a form of blackmail in negotiations with the Pharmacy Guild. It did not go well.

Labor support the retention of the location rules which we believe do play an important role in ensuring the viability of community pharmacies. Pharmacies are not just another store in the shopping centre; they play a vital role in our communities dispensing medicines and looking after their customers, and in particular the most elderly concession card holders, who make up the bulk of their patients. No-one here—no-one—could seriously argue that this sort of service could be provided out of a supermarket. There could be few more devastating blows to any town or suburb than if the local pharmacy closed up shop because the business was no longer viable. I do understand the arguments about competition and prices. But Labor believe community pharmacy does play a vital role in our society that goes beyond dollars and cents, and does deserve our support.

As such, Labor do support amending the existing legislation which sets a 30 June 2015 expiry date for the location rules. We support the amendment which will extend the location rules to 30 June 2020. This, of course, is the main reason the bill is before the House and is being attempted to be rushed through the House. Were this bill not to pass this month, then the location rules would expire on 30 June. In theory—in theory at least—anyone could apply for the right to open a new pharmacy in any location.

Once again, this haste highlights the competence—or, actually, the complete incompetence—of this government. The entire time it has been in office, it has known about this deadline. It has had nearly two years to do something about it but had done very little about it until February. Now, with just weeks left until the deadline expires, it rushes legislation into the parliament and demands that everyone else act with great haste to make up for its utter incompetence. The minister and, indeed, the explanatory memorandum note that a review of pharmacy location rules will be conducted within two years as part of a broader review of the pharmacy remuneration and other arrangements. Interestingly, there is no mention of this review in the bill, so I assume we will just have to take the minister's word on this matter—assuming, of course, she lasts in the position a little longer than her predecessor.

I want to say something about the co-payment discount. Easily the most contentious part of this legislation is the proposal to allow pharmacists to discount the PBS co-payment by up to $1 for every dispensed medicine from 1 January next year—perhaps an attractive proposition at a superficial level. But, from the moment this proposal first became public, it has prompted a furious backlash from those who know the details of how it would work in practice, in particular from pharmacists who have argued that it will harm chronically ill patients as it will take them longer to reach the PBS safety net and will, thus, be paying more for medications for a longer period of time. This is because the safety net is not set, as many have assumed, at a certain number of prescriptions but at a dollar amount. In the case of a concession card holder, for example, that dollar amount is $366 per annum. Therefore, cheaper drugs mean it will take them longer to reach the safety net. It is this delay which explains how the government expects to save more than $360 million over five years from this measure alone—again, superficial on its face but, as we can see, it is actually listed as a savings measure.

A reduction in the number of people reaching their safety net threshold means fewer free or concessional patients—or cheaper for general patients—medicines. A couple of points need to be made here. First of all, this discount is entirely voluntary. Unlike the cuts applied to drug companies, chemists can choose whether to offer their discounts to customers. Some will, perhaps, choose to do this because they want to offer their customers the best price. Others may be required to discount because of competition from a neighbouring chemist. But, ultimately, this will be their choice. It is not mandated by this bill. And, as the safety net is unchanged, ultimately no-one can be worse off. No patient can pay a cent more for their prescriptions under the proposal and many, indeed, may pay a bit less.

The average concession card holder fills 40 scripts a year and 80 per cent do not reach the safety net. If their prescriptions were all filled by a chemist offering the discount, that is a saving of $40 a year—which, for many pensioners, is quite a significant amount. Notwithstanding the fact this is entirely voluntary, my office—as with, indeed, I know just about every other member in this place—has been deluged with emails, letters and phone calls and requests for meetings with local pharmacists, all urging us to block this measure. Even after the signing of the agreement last week, pharmacists continue to contact members urging that we reject this measure. I note that the Pharmacy Guild has indicated that it supports the package 'with the exception of the discounted co-payment, which is a matter for government'.

But the fact is this co-payment is embedded in the package and cannot be dealt with in isolation. Were the Senate to attempt to remove this measure and this were rejected by the government, the entire package would be blocked, including the location rules, which expire in 30 June, as I have noted. There is very little room to manoeuvre on any of this, which, again, goes back to the last-minute, chaotic handling of this legislation which is seeing it come before parliament so late. It is leaving virtually no room for members of either house to properly scrutinise these measures and, perhaps, make the changes necessary. Again, I also highlight the fact that at no stage was Labor even consulted about any of these aspects before the bill was brought before the House.

It is also worth noting at this point—and I am digressing slightly—to highlight the absolute hypocrisy involved here. The minister has boasted that the move to allow chemists to discount the PBS co-payment by $1 was making medicines more affordable for consumers, but at the very same time in the other place there is a bill before the Senate which proposes to increase the co-payments by $5 per prescription for general patients and 80c for concession card holders.

This is a perfect example of the government with its foot on the accelerator and the brake at the very same time. Only an Abbott government minister could seek to make medicines more affordable for consumers by asking chemists to cut their own income by $1 a script while simultaneously jacking up its own charges by $5. And, with the discount unlikely to be taken up in many parts of Australia, the Abbott government's policy is for people in rural and regional areas to pay even higher prices. If the minister is serious about making medicines more affordable for consumers, she must immediately scrap plans to hike the cost of the PBS co-payment which, unlike the fee charged by chemists, will not be voluntary at all.

Sadly, yet again the Abbott government's handling of this matter is complete chaos. Despite the price hikes being stalled in the Senate since last year, the budget recommitted to the increase in the PBS co-payment which, along with changes to the safety nets, will punish the most chronically ill by forcing them to pay for more and more drugs before the government sets in.

But just nine days later the health minister blew a $1.3 billion hole in that budget by declaring that she would not proceed with the legislation, insisting that she was not going to waste time putting things through the parliament that are going to be voted down by my colleagues. Before the day was out she was forced into an embarrassing backflip by the Treasurer, who was not happy with having this hole blown in his budget, and told the minister: 'No, those savings definitely are back on the table.' So we are back in the ridiculous situation where we have one foot on the accelerator and one foot on the brake.

We have one bill before the House which proposes to have a voluntary reduction in PBS listed pharmaceuticals and, at the same time, we have a bill before the Senate which proposes to increase the cost by a minimum of 80c for pensioners and by up to $5 for general patients. The government has got to make its mind up what it wants to do here: does it want to reduce the cost of pharmaceuticals or does it want to increase them? This is just one example of the chaotic approach that this government has to health policy. It is why we have deep concerns about this matter, and we believe it requires full scrutiny in the other place.

In conclusion, Labor welcomes the decision to recognise the hard work that has been done by chemists. We believe they are deserving of a living wage. We do believe that this bill requires full scrutiny, and that is why we are moving the following amendment to the bill, while not declining to give the bill a second reading: that the House notes Labor's concerns about what are potential unintended consequences.

I move:

while not declining to give the bill a second reading, the House notes Labor's concerns about the potential unintended consequences caused by a lack of consultation during negotiations for the 6th Community Pharmacy Agreement.