Australia: Federal Budget puts more pressure on pharmaceutical prices

Last Updated: 15 May 2017
Article by Lucy Hartland and Lis Boyce (formerly with DibbsBarker)
Services: Intellectual Property & Technology
Industry Focus: Life Sciences & Healthcare

What you need to know

  • The 2017 Federal Budget has introduced new one off price reductions for Formulary 1 (F1) medicines listed on the Pharmaceutical Benefits Scheme.
  • There will also be an increase in the statutory price reduction for medicines moving from F1 to Formulary 2 (F2) from 16% to 25%.
  • These measures may change how patent owners approach questions of litigation and negotiations about early entry of generic products, potentially leading to the faster introduction of generic products into the Australian market.

Under the National Health Act 1953, medicines listed on the Pharmaceutical Benefits Scheme (PBS) are assigned to either Formulary 1 (F1) (usually single brand medicines) or to Formulary 2 (F2) (usually medicines that have multiple brands, or are in a therapeutic group with other medicines with multiple brands). When a second brand of a PBS listed medicine is listed, the listed medicine is transferred from F1 to F2, with a consequential statutory price reduction.

The 2017 Federal Budget includes several measures to introduce new price reductions for F1 medicines and increase the price reduction for medicines moving from F1 to F2. These measures may change how patent owners approach questions of litigation and negotiations about early entry of generic products.

The PBS measures

Among measures announced in the 2017 Federal Budget are changes to the prices of PBS listed medicines. These changes include1:

  • extending the current one off 5% reduction for F1 medicines, by two years to 2022: this applies when these medicines reach their 5 year anniversary2
  • introducing a one off 10% statutory price reduction for:
    • F1 medicines which have been listed on the PBS for 10-14 years as at 1 June 2018
    • F1 medicines which reach their 10 year anniversary between 2 June 2018 and 1 June 2021
  • introducing a one off 5% statutory price reduction for:
    • F1 medicines listed on the PBS for 15 years or more as at on 1 June 2018
    • F1 medicines which reach their 15 year anniversary between 2 June 2018 and 1 June 2021
  • increasing the statutory price reduction from 16% to 25% for medicines moving from F1 to F2 between 1 October 2018 and 30 June 2022.

This series of measures, which have come about as part of an agreement with Medicines Australia3, is expected to achieve savings of $1.8 billion over 5 years, with those savings being used to offset the costs of other health policy priorities.

Implications for pharmaceutical products

For the pharmaceutical industry, the measures will increase pressure on prices of patented pharmaceutical products that are PBS listed, whether those products become subject to generic competition or not.

The increase in the statutory price drop for pharmaceutical products moving from F1 to F2, from 16% to 25%, also potentially raises the level of risk for patent owners who seek an interlocutory injunction to prevent third parties from marketing generic versions of the pharmaceutical product. The reason for this is that if the patent owner is ultimately unsuccessful in the proceedings, with the result that the injunction is dissolved, the potential compensation payable to the Commonwealth Government will be greater. Accordingly, this may change how patent owners approach litigation and negotiations about early entry of generic products, potentially leading to the faster introduction of generic products into the Australian market.

Implications for health policy generally

The PBS measures will be complemented by increased Government support for the uptake of generic and biosimilar medicines4, which can also be expected to increase access to generic products.

These changes reflect a new approach to health policy, with a deeper level of collaboration between the Government and key stakeholders. A series of 'compacts' between the Government and stakeholders such as Medicines Australia and Generic and Biosimilar Medicines Association have been made5, and these are expected to lead to further changes, including in the area of pricing (for example price disclosure mechanisms).

Footnotes

1 Budget Paper No. 2, Budget Measures 2017-18, p 113-114.

2 First implemented in 2015: National Health Act 1953 (Cth), s 99ACHA.

3 Australian Government 2017–18 Health Portfolio Budget Statements, Outcome 4 Individual Health Benefits, Program 4.3 Pharmaceutical Benefits, p 97.

4 Ibid.

5 See for example Medicines Australia Media Release at https://medicinesaustralia.com.au/media-release/strategic-agreement-between-the-innovative-pharmaceutical-industry-and-government-delivers-certainty-for-industry-savings-to-taxpayers-and-benefits-to-patients/ and Generic and Biosimilar Medicines Association website at http://www.gbma.com.au/strategic-agreement/.

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories

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Lucy Hartland
 
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