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Pricing and reimbursement

Under the PBS, the Commonwealth government subsidises the cost of certain prescription medicines. While manufacturers have a choice as to whether they supply their products under the PBS, it is generally accepted that PBS listing is a prerequisite to the commercial success of medicines.

Applications for listing of new medicines on the PBS are made to the Pharmaceutical Benefits Advisory Committee (PBAC), which in turn makes a recommendation to the Minister for Health. Under the NH Act, the PBAC must consider the effectiveness and cost of the proposed medicine compared with alternative therapies (comparators). The PBAC cannot make a positive recommendation for a medicine that is substantially more costly than a comparator unless it is satisfied that the proposed medicine also provides a significant improvement in health. Claims of cost-effectiveness must be supported by appropriate economic models.

In recent years, there has been a significant policy emphasis on managing and minimising the cost to government of the PBS. To manage the overall cost of a new medicine, the government may require a sponsor to enter into a cost-sharing agreement. This arrangement may take the form of a rebate, for example, whereby the sponsor rebates a percentage of government expenditure for sales in excess of a set dollar value.24

Products listed on the F1 formulary (which contains single-branded medicines that are deemed not interchangeable at the patient level with another medicine that has multiple PBS-listed brands) are subject to automatic one-off price reductions on the fifth, 10th and 15th anniversaries of the PBS listing date of 5, 10 and 5 per cent, respectively. These reductions take effect on 1 April each year (up to 2022 for the fifth anniversary reduction and 2021 for the 10th and 15th anniversary reductions).

In relation to follow-on products, applications for the listing of biosimilars will be considered by the PBAC whereas applications for the listing of generic medicines will usually be considered by a delegate of the DOH.

Applications for the listing of biosimilars must be supported by a clinical evaluation, with an estimate of the expected use of the product and its consequent impact on government expenditure. Applications for the listing of generic medicines must include a statement from the TGA regarding the equivalence of the new brand to currently listed brands. In some instances, the new brand may not have TGA approval for all indications of the currently listed brands and will only be listed for its approved indications.

The listing of the first generic or biosimilar version of a product on the PBS results in a statutory reduction in the price of the listed brand. On 1 October 2018, the minimum reduction was increased from 16 to 25 per cent.25 If, however, the listed brand has experienced price reductions since 1 January 2016 (or, if it was listed on a later date, since that date) of: 40 per cent or more, no statutory reduction will apply; or between 15 and 40 per cent, the new price of the listed brand must not exceed 60 per cent of the price as at 1 January 2016 (or, if it was listed on a later date, as at that date). In addition, the Minister may now exercise his discretion not to apply the statutory price reduction in whole or part.

Following this, the PBS price disclosure regime requires sponsors of all brands of the drug to provide data to the DOH concerning sales revenue, volume of sales, and discounts or other incentives offered by sponsors, such as cash rebates. This information is then used to adjust the subsidy that the government pays to more closely reflect the price at which the medicines are supplied in the market.

There is no formal scheme specifically for reimbursement for medical devices. However, under Medicare, a wide variety of medical procedures are reimbursed by the government, including diagnostic tests, thus providing a de facto reimbursement scheme for the use of those devices.