Can We Keep Pharmaceutical Can We Keep Pharmaceutical Costs Affordable and New Costs Affordable and New Medicines Development Medicines Development

Viable?Viable? A P.B.S. PerspectiveA P.B.S. Perspective    

Andrew WilsonAndrew Wilson

Chair, Economic Sub Committee Chair, Economic Sub Committee PBACPBAC

Faculty of Health Sciences Faculty of Health Sciences University of QldUniversity of Qld

PBS History PBS History

Repatriation Scheme Commenced in Repatriation Scheme Commenced in 19191919

Pharmaceutical Benefits Act Passed in Pharmaceutical Benefits Act Passed in 19441944

HistoryHistory The 1944 Act was opposed by the The 1944 Act was opposed by the

Australian Branch of the BMAAustralian Branch of the BMA BMA saw the provisions of the Act as BMA saw the provisions of the Act as

restricting doctors’ freedom of choice in the restricting doctors’ freedom of choice in the treatment of their patientstreatment of their patients

HistoryHistory October 1945 ,as a result of a writ from the October 1945 ,as a result of a writ from the

Medical Society of Victoria,the High Court Medical Society of Victoria,the High Court ruled the PBA 1944 went beyond the ruled the PBA 1944 went beyond the powers of the constitutionpowers of the constitution

1946 Constitution amended1946 Constitution amended

The Australian Policy ContextThe Australian Policy Context

NATIONAL MEDICINES POLICYNATIONAL MEDICINES POLICY Timely access to the medicines that Australians Timely access to the medicines that Australians

need ,at a cost individuals and the community can need ,at a cost individuals and the community can affordafford

Medicines meeting appropriate standards of Medicines meeting appropriate standards of quality,safety and efficacyquality,safety and efficacy

Quality use of medicinesQuality use of medicines Maintenance of a responsible and viable Maintenance of a responsible and viable

medicines industrymedicines industry

Access to MedicinesAccess to Medicines Financing and supply arrangements for medicines Financing and supply arrangements for medicines

optimise health outcomes and represent value for optimise health outcomes and represent value for moneymoney

All partners take adequate responsibility for All partners take adequate responsibility for achieving value for moneyachieving value for money

Access to necessary medicines occurs at a cost Access to necessary medicines occurs at a cost the community as a whole can afford,particularly in the community as a whole can afford,particularly in the context of pressures such as the development the context of pressures such as the development of new high cost drugs and Australia’s ageing of new high cost drugs and Australia’s ageing populationpopulation

Access to MedicinesAccess to Medicines Access processes are made as simple and Access processes are made as simple and

streamlined as possible,so that subsidisation of streamlined as possible,so that subsidisation of medicines is timely, mechanisms are understood medicines is timely, mechanisms are understood and unnecessary administrative barriers and and unnecessary administrative barriers and expenses avoidedexpenses avoided

Financing arrangements for medicines avoid Financing arrangements for medicines avoid incentives for cost-shifting between levels of incentives for cost-shifting between levels of government or other funders,or other perverse government or other funders,or other perverse incentivesincentives

Current Coverage and Current Coverage and ExpenditureExpenditure

BackgroundBackground

1947: 139 life-saving drugs at cost 1947: 139 life-saving drugs at cost A$300,000.A$300,000.

2005: >650 drugs at cost $5.8 billion.2005: >650 drugs at cost $5.8 billion. Australia spends 9.3% of its GDP on Australia spends 9.3% of its GDP on

health.health. By 2042 the cost of the PBS is By 2042 the cost of the PBS is

predicted to be 3.5%GDP.predicted to be 3.5%GDP.

Australian Govt Health Expenditure Australian Govt Health Expenditure ($29.7bn) 2002-2003($29.7bn) 2002-2003

PBS

16.1%

29.5%

Public hospitals

26.9%

Other health

27.5%

MBS

GROWTH RATE IN PBSGROWTH RATE IN PBS

0

1

2

3

4

5

6

1991 1993 1995 1997 1999 2001 2003

$ BILLIONS

Excludes co-payment

Relative Expenditure PBS and Relative Expenditure PBS and Patient CoPayment 02-03Patient CoPayment 02-03

Patient Contribution

Highly SpecialisedDrugs Other S100

PBS/PPBS

Other S10079%

14.2%

4.5%

Total Expenditure $6.2 Billion

PHARMACEUTICAL EXPENDITUREPHARMACEUTICAL EXPENDITURE

80% OF THE COST WAS DIRECTED 80% OF THE COST WAS DIRECTED TOWARDS CONCESSIONAL TOWARDS CONCESSIONAL CARDHOLDERSCARDHOLDERS

PATIENT CONTRIBUTIONS AS A % OF PATIENT CONTRIBUTIONS AS A % OF TOTAL COSTS WAS:TOTAL COSTS WAS:– 19.5% in 90/91, 19.5% in 90/91, – 22.2% in 94/95 22.2% in 94/95 – 17.0% in 01/0217.0% in 01/02– 14.2 %in 02/0214.2 %in 02/02

What did the PBS cover?What did the PBS cover?     602 generic drugs in 1,502 forms and strengths

(items) marketed as 2,617 different drug products (brands) as general listings

10 generic drugs in 42 forms and strengths marketed as 48 products as palliative care listings

78 generic drugs in 209 forms and strengths marketed as 475 products as dental listings

27 generic drugs in 34 forms and strengths marketed as 51 products as Doctor’s bag listings

75 generic drugs in 257 forms and strengths marketed as 273 products as Section 100 listings.

PBAC ProcessesPBAC Processes

Process leading to PBS Subsidy Process leading to PBS Subsidy

Drug approved for marketing by TGADrug approved for marketing by TGA Company submits to PBAC for subsidyCompany submits to PBAC for subsidy

– Sponsor intitiatedSponsor intitiated– Submission assessed by evaluation group, Submission assessed by evaluation group,

considered by ESC, DUSC, RWGconsidered by ESC, DUSC, RWG

PBAC recommends or rejects subsidyPBAC recommends or rejects subsidy Purchasing Authority negotiates price Purchasing Authority negotiates price

with companywith company Listing in Yellow Book Listing in Yellow Book

Registration vs Subsidy ListingRegistration vs Subsidy Listing Products registered on the basis ofProducts registered on the basis of

– Safety Safety – Quality Quality – EfficacyEfficacy

No requirement for comparative data. No requirement for comparative data. Once registered the product may be Once registered the product may be

prescribed without government subsidy. prescribed without government subsidy.

PBAC PROCESSESPBAC PROCESSES PBAC considers PBAC considers

– effectivenesseffectiveness– cost effectiveness cost effectiveness – clinical place of the product clinical place of the product

Requires comparisons to other products (or Requires comparisons to other products (or standard medical care) standard medical care) already listed(or already listed(or used) for the same or similar indications.used) for the same or similar indications.

PBAC PROCESSESPBAC PROCESSES

Under the Act a new drug entity may be Under the Act a new drug entity may be recommended for listing if:recommended for listing if:

It is needed for the prevention or It is needed for the prevention or treatment of significant medical treatment of significant medical conditions not already,or inadequately conditions not already,or inadequately covered by drugs in the existing list covered by drugs in the existing list

AND AND IS OF ACCEPTABLE COST EFFECTIVENESSIS OF ACCEPTABLE COST EFFECTIVENESS

RELEVANT FACTORSRELEVANT FACTORS

Readily QuantifiableReadily Quantifiable Comparative Cost EffectivenessComparative Cost Effectiveness Comparative Health GainComparative Health Gain AffordabilityAffordability Financial implications for PBSFinancial implications for PBS Financial implications for Gov health Financial implications for Gov health

budget budget

RELEVANT FACTORSRELEVANT FACTORS

Less Readily QuantifiableLess Readily Quantifiable Severity of condition treatedSeverity of condition treated Presence of effective alternativesPresence of effective alternatives Ability to target therapy to those likely to Ability to target therapy to those likely to

benefit mostbenefit most UncertaintyUncertainty EquityEquity Development of resistanceDevelopment of resistance Government health priorities and other Government health priorities and other

relevant factorsrelevant factors

ASSESSMENT OF EVIDENCEASSESSMENT OF EVIDENCE

Sponsor asked to categorize clinical Sponsor asked to categorize clinical characteristics against the main characteristics against the main comparator as:comparator as:

Having significant clinical advantagesHaving significant clinical advantages Being no worse in effectiveness and Being no worse in effectiveness and

toxicitytoxicity Being less effective and less toxicBeing less effective and less toxic

ECONOMIC EVALUATIONECONOMIC EVALUATION COST-MINIMIZATION…. Used when drugs COST-MINIMIZATION…. Used when drugs

have the same outcome.Ensure that the have the same outcome.Ensure that the new drug is no worse than comparator ie new drug is no worse than comparator ie therapeutic equivalencetherapeutic equivalence

COST EFFECTIVENESS….Clinical COST EFFECTIVENESS….Clinical advantage measured in natural unit ,eg life-advantage measured in natural unit ,eg life-years gained,points of BP reduction ie cost years gained,points of BP reduction ie cost per unit of effectper unit of effect

ECONOMIC EVALUATIONECONOMIC EVALUATION COST-UTILITY analysis-health outcomes COST-UTILITY analysis-health outcomes

rated by preference strength eg healthy rated by preference strength eg healthy years or quality adjusted life years years or quality adjusted life years (QALY).Output is cost per unit of preference (QALY).Output is cost per unit of preference state.state.

MODELLED ECONOMIC EVALUATION…MODELLED ECONOMIC EVALUATION…estimation of remote outcomes,final estimation of remote outcomes,final outcome,cost offsetsoutcome,cost offsets

PBAC RECOMMENDATIONSPBAC RECOMMENDATIONS

LIST AS COST-EFFECTIVE AT PRICE PREMIUM LIST AS COST-EFFECTIVE AT PRICE PREMIUM REQUESTEDREQUESTED

LIST AT A LOWER PRICE TO ACHIEVE LIST AT A LOWER PRICE TO ACHIEVE ACCEPTABLE COST EFFECTIVENESSACCEPTABLE COST EFFECTIVENESS

REJECT AS HAVING UNACCEPTABLE COST-REJECT AS HAVING UNACCEPTABLE COST-EFFECTIVENESSEFFECTIVENESS

RESTRICT TO PATIENT SUBGROUPS IN RESTRICT TO PATIENT SUBGROUPS IN WHOM THE DRUG IS COST EFFECTIVEWHOM THE DRUG IS COST EFFECTIVE

RESTRICTIONSRESTRICTIONS A DRUG MAY BE ACCEPTABLY COST A DRUG MAY BE ACCEPTABLY COST

EFFECTIVE WHEN USED FOR ONE EFFECTIVE WHEN USED FOR ONE INDICATION OR PATIENT GROUP BUT INDICATION OR PATIENT GROUP BUT NOT COST EFFECTIVE WHEN USED NOT COST EFFECTIVE WHEN USED UNDER OTHER CIRCUMSTANCES.UNDER OTHER CIRCUMSTANCES.

Initiation and continuing Initiation and continuing requirementsrequirements

Cholinesterase inhibitors in dementia Cholinesterase inhibitors in dementia – use of mini-mental scoresuse of mini-mental scores

Imatinib in chronic phase CML.Imatinib in chronic phase CML.– Continuing therapy will require evidence of Continuing therapy will require evidence of

continuance of cytogenic response annuallycontinuance of cytogenic response annually TNF-alpha Inhibitors for RATNF-alpha Inhibitors for RA

– must have failed other treatment options and must have failed other treatment options and continuation depends on the attainment of a continuation depends on the attainment of a pre-defined responsepre-defined response

ButBut Administratively complex, clinically intrusive, Administratively complex, clinically intrusive,

and difficult to define.and difficult to define.

Other OptionsOther Options

Section 100 and High Cost Drug SchemeSection 100 and High Cost Drug Scheme Life Saving Drugs ProgramLife Saving Drugs Program Specific Purpose Allocation eg HerceptinSpecific Purpose Allocation eg Herceptin

PRICING AND COST PRICING AND COST CONTAINMENTCONTAINMENT

BRAND PREMIUM POLICY AND GENERIC BRAND PREMIUM POLICY AND GENERIC SUBSTITUTIONSUBSTITUTION

THERAPEUTIC GROUP PREMIUM THERAPEUTIC GROUP PREMIUM POLICYPOLICY

PRICE AVERAGING ACROSS PRICE AVERAGING ACROSS INDICATIONSINDICATIONS

WEIGHTED AVERAGE MONTHLY WEIGHTED AVERAGE MONTHLY TREATMENT COSTTREATMENT COST

PRICE VOLUME ARRANGEMENTSPRICE VOLUME ARRANGEMENTS

Future TrendsFuture Trends

FutureFuture Demand for health services,including Demand for health services,including

pharmaceuticals will continue to pharmaceuticals will continue to increase…“The demand for health services increase…“The demand for health services is insatiable”is insatiable”

Aging population-more demand and lesser Aging population-more demand and lesser capacity to paycapacity to pay

FutureFuture New agents available as a result of the New agents available as a result of the

biotechnology including new delivery biotechnology including new delivery systemssystems

More agents for “prevention”More agents for “prevention” More agents taken for life (long term), but More agents taken for life (long term), but

only short term evidence of safety only short term evidence of safety Incremental improvements in treatment of Incremental improvements in treatment of

malignancies,neurological disorders etcmalignancies,neurological disorders etc

FutureFuture High cost for drugs- many of them giving a High cost for drugs- many of them giving a

relatively small incremental improvement relatively small incremental improvement resulting in what could be regarded as poor resulting in what could be regarded as poor cost effectivenesscost effectiveness

Due to rapid expansion of knowledge it is Due to rapid expansion of knowledge it is unlikely that a patent life of 20+ years will be unlikely that a patent life of 20+ years will be relevant relevant

FutureFuture Increasing pressure on the “globalization Increasing pressure on the “globalization

concept” of pharmaceuticals as illustrated by concept” of pharmaceuticals as illustrated by recent action in Africa and South America in recent action in Africa and South America in regard to HIV drugs and in the US itself, regard to HIV drugs and in the US itself, Taiwanese threat re Tamiflu.Taiwanese threat re Tamiflu.

Growing inability of the developing world to Growing inability of the developing world to afford new drugs. afford new drugs.

FutureFuture Growing accountability to ensure Growing accountability to ensure

government expenditure is”value for money”government expenditure is”value for money” Difficult decisions by society as to whether Difficult decisions by society as to whether

prioritisation of medicines expenditure is prioritisation of medicines expenditure is appropriate for certain conditionsappropriate for certain conditions

Increased factionalism in clinical and Increased factionalism in clinical and general community … “my disease general community … “my disease deserves more attention” deserves more attention”

TRANSPARENCYTRANSPARENCY NEED FORNEED FOR

-fundamental right to know by ALL stakeholders-fundamental right to know by ALL stakeholders HOWHOW-issues of commercial-in-confidence-issues of commercial-in-confidence

IN WHAT FORMIN WHAT FORM-different audiences have special -different audiences have special needsneeds

LINKAGE WITH NPSLINKAGE WITH NPS-educational component in a -educational component in a timely mannertimely manner

NEW AGENTS WITH LIMITED NEW AGENTS WITH LIMITED DATADATA

More new drugs receiving marketing approval with More new drugs receiving marketing approval with limited data-limited data-

Uncertainty in the model used to predict benefit Uncertainty in the model used to predict benefit eg prolongation of life based on unsubstantiated eg prolongation of life based on unsubstantiated assumptions.Increasing uncertainty in magnitude assumptions.Increasing uncertainty in magnitude of benefit and thus in CEof benefit and thus in CE

Need to develop risk sharing arrangements and Need to develop risk sharing arrangements and regular review(not just of utilisation) of new listings regular review(not just of utilisation) of new listings eg at 1,2 and 5 years in order to make new agents eg at 1,2 and 5 years in order to make new agents available earlieravailable earlier

TRIAL OUTCOMES v’s IN-TRIAL OUTCOMES v’s IN-PRACTICE OUTCOMESPRACTICE OUTCOMES

Essential to ensure that successful Essential to ensure that successful outcomes in trials can be replicated in outcomes in trials can be replicated in practice eg Bupropion-in the listing it is practice eg Bupropion-in the listing it is stated”For use within a comprehensive stated”For use within a comprehensive treatment program”,but no requirement for treatment program”,but no requirement for the patient to participate or even enrol in a the patient to participate or even enrol in a suitable program.suitable program.

Need for better post-marketing surveillance Need for better post-marketing surveillance for safety and real effectiveness for safety and real effectiveness

Risk SharingRisk Sharing Regular review of new listings eg at 1,2 Regular review of new listings eg at 1,2

and 5 yearsand 5 years Issues to be considered:Issues to be considered:

– Continuation of benefits where trials were Continuation of benefits where trials were short termshort term

– Size of benefit (both clinical and savings) in Size of benefit (both clinical and savings) in practicepractice

– Use outside of approvalUse outside of approval– Evidence of variable effectivenessEvidence of variable effectiveness– Actual clinical practiceActual clinical practice

Making New Medicine Making New Medicine Development ViableDevelopment Viable

The Pharmaceutical IndustryThe Pharmaceutical Industry

It is a commercial industry – they have to make It is a commercial industry – they have to make profit and have competitors.profit and have competitors.– Shouldn’t be surprised that they behave like any other Shouldn’t be surprised that they behave like any other

industry most of the timeindustry most of the time– BenevolentBenevolent

Its big – any country would like to be part of the Its big – any country would like to be part of the economic actioneconomic action

They have been successful in developing many They have been successful in developing many important drugs (although less clear on discovery).important drugs (although less clear on discovery).

New MedicinesNew Medicines

There are plenty of diseases and conditions There are plenty of diseases and conditions where new medicines are needed or need to where new medicines are needed or need to be improvedbe improved– Some are not likely to be commercially Some are not likely to be commercially

interesting or viable eg too small a population or interesting or viable eg too small a population or diseases of poor populationsdiseases of poor populations

– Commercial interest is greatest for diseases Commercial interest is greatest for diseases that are common in wealthy nations eg CVD, that are common in wealthy nations eg CVD, cancercancer

New MedicinesNew Medicines

Must be prepared to pay for real innovationMust be prepared to pay for real innovation– Clinically meaningful improvements in survival Clinically meaningful improvements in survival

or quality of lifeor quality of life– Demonstrable resource saving that is realizableDemonstrable resource saving that is realizable

Many so called innovations are minor Many so called innovations are minor improvementsimprovements– May give significant marketing advantage but May give significant marketing advantage but

little improvement in cost-effectivenesslittle improvement in cost-effectiveness

Consequences of the FTAConsequences of the FTA

Impact of US-Australian Impact of US-Australian Free Trade AgreementFree Trade Agreement

Additional opportunity for companies to Additional opportunity for companies to comment on advice to PBACcomment on advice to PBAC

Opportunity to present to PBAC at time Opportunity to present to PBAC at time decision is being considered.decision is being considered.

Fuller reporting of decisions.Fuller reporting of decisions. Review (not appeal) mechanism for decision Review (not appeal) mechanism for decision

Post US-Australia FTAPost US-Australia FTAReview ProcessReview Process

Independent of current processIndependent of current process Limited to rejections by PBACLimited to rejections by PBAC Any aspect of rejectionAny aspect of rejection Review of technical aspects of decisionsReview of technical aspects of decisions One or more experts relevant to the area of One or more experts relevant to the area of

technical dispute.technical dispute.

TRANSPARENCYTRANSPARENCY

PBAC decision making criticized for being PBAC decision making criticized for being non-transparentnon-transparent

BUTBUTIndustry maintains information that informs Industry maintains information that informs

decision can not be released because decision can not be released because commercial-in-confidencecommercial-in-confidence

US-Australia FTAUS-Australia FTATransparencyTransparency

US-PHARMA interpretation – that the US-PHARMA interpretation – that the processes and decisions of the PBAC-processes and decisions of the PBAC-PBPA processes are more open to applicantPBPA processes are more open to applicant

Australian govt – PBAC interpretation – all Australian govt – PBAC interpretation – all processes and decisions are more open to processes and decisions are more open to clinical and general community. clinical and general community.

Post US-Australia FTAPost US-Australia FTATransparencyTransparency

Public Disclosure Document on all Public Disclosure Document on all approvals and on 2approvals and on 2ndnd rejections rejections

Summary of the PBAC deliberations Summary of the PBAC deliberations including considerations on the including considerations on the evidence presented by company.evidence presented by company.

Some details will not be disclosed Some details will not be disclosed where it is commercially sensitive (exact where it is commercially sensitive (exact price, market share etc)price, market share etc)

Is the FTA a threat to the PBS?Is the FTA a threat to the PBS?

Political will to defend the Australian benefitsPolitical will to defend the Australian benefits Slow death by legal strangulationSlow death by legal strangulation

Bigger threatsBigger threats– Loss of community and professional confidenceLoss of community and professional confidence– Providing escape clauses when PBAC advise Providing escape clauses when PBAC advise

is unpalatableis unpalatable– Paper Overload Paper Overload

Implications for Private Health Implications for Private Health InsuranceInsurance

Why??Why??

If a drug is not cost-effective for public If a drug is not cost-effective for public subsidy through the PBS, how can it be subsidy through the PBS, how can it be cost-effective through publicly subsidized cost-effective through publicly subsidized private health insurance?private health insurance?

ConclusionsConclusions

Do we get value for money for Do we get value for money for pharmaceuticals? pharmaceuticals? – Yes if they selected for their cost-effectiveness Yes if they selected for their cost-effectiveness

and used according to those criteria.and used according to those criteria.

Is the growth in cost of pharmaceuticals Is the growth in cost of pharmaceuticals sustainable? sustainable? – It depends on what the benefits are.It depends on what the benefits are.

ConclusionsConclusions

Are the PBAC processes adequate to slow Are the PBAC processes adequate to slow PBS growth?PBS growth?– This is not the sole function of the processes This is not the sole function of the processes

and while demand grows it will not cape and while demand grows it will not cape expenditure alone.expenditure alone.

Does Australia pay its fair share through its Does Australia pay its fair share through its pricing of pharmaceuticals to support new pricing of pharmaceuticals to support new medicine development?medicine development?– Yes noting that more is spent on marketing Yes noting that more is spent on marketing

medicines then development. medicines then development.