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Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests |
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Purpose
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This bill seeks to amend the National Health Act 1953 to:
• making price variations for a number of drugs listed on the
PBS;
• introduce Ministerial discretion regarding the application of
statutory price reductions (SPR) in certain circumstances;
• provide new circumstances whereby a new presentation of a brand of
pharmaceutical item may be listed, without triggering first
new brand
SPRs;
• remove the cessation provisions for the Australian Community
Pharmacy Authority and the pharmacy location rules; and
• make minor amendments to price disclosure arrangements
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Portfolio
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Health
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Introduced
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House of Representatives on 18 October 2017
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Bill status
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Before House of Representatives
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Scrutiny principles
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Standing order 24(1)(a)(iv) and (v)
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2.211 The committee dealt with this bill in Scrutiny Digest No. 13 of 2017. The Minister responded to the committee's comments in a letter dated 5 December 2017. Set out below are extracts from the committee's initial scrutiny of the bill and the Minister's response followed by the committee's comments on the response. A copy of the letter is available on the committee's website.[83]
Initial scrutiny – extract
2.212 The bill seeks to make amendments to Part VII of the National Health Act 1953 (the Act), which regulates the Pharmaceutical Benefits Scheme (PBS). These amendments include a number of alterations to the size, timing and application of statutory price reductions currently contained in the Act. The bill contains a number of provisions that would give the Minister the power to determine not to apply, or to reduce, a statutory price reduction to brands of pharmaceuticals in certain circumstances.[85] The bill would also allow the Minister to determine how brands are to be categorised under the PBS, and therefore how statutory price reductions would apply to those brands, in certain circumstances.[86]
2.213 The explanatory memorandum states that the bill seeks to introduce ministerial discretion with respect to the application of statutory price reductions. This discretion would apply to medicines that have already been subject to price reductions since 1 January 2016; first new brand medicines and brands subject to a flow-on reduction; and medicines subject to anniversary price reductions.[87] However, the explanatory memorandum does not explain why there is a need to exempt medicines from statutory price reductions in certain circumstances, nor the need to leave the application of such exemptions to the discretion of the Minister rather than setting out the criteria for applying an exemption in the bill.
2.214 In granting this discretionary power to the Minister the bill provides that the Minister may make the determinations by 'written instrument' or in some cases, by 'notifiable instrument'. Neither of these categories of instrument are subject to disallowance and written instruments are not required to be registered on the Federal Register of Legislation. The explanatory memorandum does not provide a justification for allowing ministerial determinations to be made by written or notifiable instruments.
2.215 The committee's view is that a sound justification should be provided where a bill seeks to allow the Minister discretion to determine significant matters. The committee also considers that a sound justification should be provided when it is proposed to allow such ministerial discretion to be exercised by way of written or notifiable instruments, as such instruments, which are not disallowable, would be subject to no parliamentary oversight.
2.216 The committee requests the Minister's advice as to why the bill proposes to provide the Minister with a broad discretionary power to apply statutory price reductions and to do so by way of written or notifiable instrument (noting that such instruments are not subject to disallowance).
Minister's response
2.217 The Minister advised:
Agreement between the Government and Medicines Australia
The pricing amendments in the Bill are required to implement measures in agreements made between the Commonwealth and Medicines Australia, representing the originator medicines sector, and the Generic and Biosimilar Medicines Association, representing generic and biosimilar medicine suppliers. The agreements involved extensive consultation with industry and were announced by the Government in the 2017 Budget as part of the PBS Medicines Package. The pricing measures are expected to deliver savings of $1.3 billion over four years (around $1.8 billion over the five years of the agreements).
Details of the pricing measures are set out in the Strategic Agreement (the Agreement) entered into by the Commonwealth and Medicines Australia on 27 April 2017. This Agreement is publicly available on the Department of Health's website.
In return for savings, the Agreement provides greater certainty for the medicines industry regarding pricing policy, where funding for new listings is supported through price reductions that are predictable and applied primarily to medicines reaching the end of their patent life or becoming subject to competition. Savings from the pricing measures will help to support investment in new and extended PBS listings, and maintain the Government's commitment to list all drugs recommended by the Pharmaceutical Benefits Advisory Committee (PBAC).
The Agreement includes specific provisions that reduce statutory price reductions in direct response to previous price reductions. It also provides that the Minister will have the discretion not to apply, or to reduce, a statutory price reduction. Under the Agreement, the Minister's discretion is not limited or subject to additional criteria.
However, Section 11 of the Agreement provides for oversight of implementation of the Agreement via the establishment by the Commonwealth (represented by the Department of Health) and Medicines Australia of a new Joint Oversight Committee. One of the main functions of the Joint Oversight Committee is to oversee the extent of reductions to statutory price reductions.
An exposure draft of the pricing components of the Bill was provided for review to Medicines Australia, the Generic and Biosimilar Medicines Association, several innovator and generic pharmaceutical companies, the Pharmacy Guild of Australia, the Pharmaceutical Society of Australia, the National Pharmaceutical Services Association, the Consumers' Health Forum, and the Medical Software Industry Association.
As a result of that consultation, some provisions were revised to ensure consistency with the Agreement. However, there was no expectation that the Bill would contain set criteria for exercising the Minister's discretionary power to apply statutory price reductions and no requests have been received from stakeholders for additional detail in the explanatory memorandum.
The pricing changes in the Bill are extensions to, or adjustments of, existing processes. PBS pricing reforms and various PBS policies that can affect pricing have been in place for more than ten years. This means that many PBS medicines will have been subject to previous price reductions. The Agreement recognises that the increased frequency and magnitude of the new price reductions need to be balanced by allowing at least some previous price reductions to be taken into account and by allowing ministerial discretion to reduce the amount of a price reduction in some circumstances. To do otherwise may have meant that it would not have been possible to achieve the price reduction percentages set in the Agreement and that it would be unreasonable or unworkable to apply the maximum reduction in some cases.
Current requirements for statutory price reductions and price disclosure reductions mean that price reductions are required regardless of the nature of a medicine, the supply history, or supply volume for a product. If mandatory reductions (especially flow-on reductions) make products unviable to supply, it can be difficult for companies to maintain supply which threatens continuity of therapy for patients. In some cases, it has been necessary for companies to apply for price increases immediately following a statutory price reduction in order to continue to supports the supply of affected products in Australia. The Agreement acknowledges that it would be preferable for relevant information to be considered before applying the new statutory price reductions.
First new brand price reductions
Schedule 1 of the Bill provides for the price reduction that applies on listing the first additional new brand to be increased from 16 per cent to 25 per cent. However, this is subject to item 8 of Schedule 1 which provides that no reduction applies where the price of the brand has already been reduced by 40 per cent or more since 1 January 2016, and item 12 of Schedule 1 which provides that the reduction is capped at 40 per cent of the price of the brand on 1 January 2016 if there have been reductions since then of more than 15 per cent. This means that the full 25 per cent reduction applies only when price reductions since 1 January 2016 have been 15 per cent or less.
Item 14 of Schedule 1 provides for ministerial discretion to determine by written instrument to apply a lesser or no first new brand price reduction. The Bill includes, and the explanatory memorandum explains, that the Minister must take into account what the price of the new brand would otherwise be if the statutory reduction were applied. This makes it clear that previous reductions for the listed brand must be identified and the statutory price reduction calculated in the usual way before ministerial discretion can be applied. In exercising the discretional power, there is provision for the Minister to take any other relevant matter into account.
The provisions protect brands already subject to price reductions of more than 40 per cent and other reductions are capped so that the total reduction, including previous reductions since 1 January 2016, ranges between 25 and 40 per cent.
Anniversary price reductions
Schedule 2 provides for new anniversary price reductions to apply for brands of pharmaceutical items on F1 on the 5, 10, and 15 year anniversary of the drug being listed on the PBS.
Item 11 of Schedule 2 provides for ministerial discretion to determine by written instrument to apply a lesser or no anniversary price reduction. The Bill includes, and the explanatory memorandum explains, that the Minister must take into account what the price of the new brand would otherwise be if the statutory reduction were applied. This makes it clear that previous reductions for the listed brand must be identified and the statutory price reduction calculated in the usual way before ministerial discretion can be applied. In exercising the discretional power, there is provision for the Minister to take any other relevant matter into account.
The Agreement requires that in applying ministerial discretion for anniversary price reductions the total of previous reductions since 1 January 2016 must be considered. Because the current five year anniversary price reduction has applied since April 2016, most F1 drugs to which the new anniversary reductions apply would have had a five year anniversary five per cent reduction.
Ministerial discretion in relation to first new brand and anniversary price reductions
The provisions in the Bill and the Agreement provide some criteria that should be taken into account in considering whether a statutory price reduction should be reduced or not applied. The Bill specifies that the Minister must take into account what the price would otherwise be, and may take into account any other matter the Minister considers relevant.
It would be counterproductive for a detailed list of criteria for ministerial discretion to be included in the Bill. Ministerial discretion is intended to be exercised only where genuinely justified based on pricing or other history. Including further criteria may result in applications prioritising those criteria when others could be more important for a particular medicine, and create the perception or expectation that applications would be judged according to the response to the criteria. Setting criteria may also inadvertently fetter the Minister from considering unusual circumstances which would warrant adjustment of a price reduction. Either way, including criteria in the legislation is unlikely to be of assistance.
In practice, the Department of Health will be able to source the necessary information and provide advice to the Minister in most cases where ministerial discretion is required for statutory price reductions. The Department of Health has access to information regarding the listing, pricing and use of PBS medicines, including the timing and quantum of previous price changes, recommendations from the PBAC regarding pricing, and other matters that may be relevant for a particular medicine. The Bill does not contain specific provisions regarding applications from companies as no application is required for ministerial discretion to be applied and a price reduction adjusted. However, a pharmaceutical company (referred to in the National Health Act 1953 as a 'responsible person') could submit an application for ministerial discretion using any justification considered relevant or provide additional information for consideration by the Minister. In addition, information regarding price reductions is made available to companies prior to the reduction taking place. In situations where there were particular considerations for a medicine, consultation would occur between the Department of Health and the company.
Determination of new brands as new presentations
Schedule 4 provides for a new brand which is a variation of an existing brand to be listed as a 'new presentation' without a first new brand price reduction. If the applications for the new presentation and the listed brand have been made by the same responsible person and the new presentation is listed on or before the fifth anniversary of the drug being listed on the PBS, it is automatic that the price reduction does not apply. Items 4 and 7 of Schedule 4 provide that the Minister may determine by notifiable instrument that a new brand is a new presentation of a listed brand if satisfied that the new brand will be listed on the PBS after the fifth, but before the tenth, anniversary of the drug being listed on the PBS.
In making the determination, the Minister may take into account any advice given by the PBAC, any information provided by the responsible person for the new brand, and any other matter the Minister considers relevant.
Ministerial discretion in relation to determining new presentations
There would be no merit in setting specific criteria for determining whether a new brand is a new presentation at this stage, as the Minister would not want to limit the PBAC's consideration or advice nor limit the other matters that could be considered relevant in a particular case.
The Bill already provides that the responsible person can submit information and that the Minister may take that information into account. It is intended that the information be submitted by the applicant (in the case of determinations it does not need to be the same responsible person), as part of the usual listing and pricing process. There would be no merit in requiring that the information submitted by an applicant responds to set criteria as this could unnecessarily limit the information provided.
In addition, information on determinations for new presentations involving ministerial discretion will be subject to monitoring by the Joint Oversight Committee (as referred to above).
Use of written instruments for price reduction determinations made by the Minister
The Bill provides that the Minister may determine by written instrument that a first new brand or anniversary statutory price reduction should be reduced or not applied.
Information about determinations made for this purpose will be made available publicly on the PBS website (www.pbs.gov.au) along with other pricing determinations and information on price reductions for PBS medicines. The PBS website is the primary source of information for pharmaceutical companies and other PBS users regarding pricing and price reductions. Notification of updates to pricing information is sent to stakeholders via the PBS Subscription distribution list.
It is unlikely that price reductions included in the instrument would need to be revisited as any company affected by a decision would have been consulted or received information regarding the outcome prior to the instrument being finalised.
The highly technical nature of the subject matter, as evidenced by the role of the PBAC in advising the Minister on matters relating to PBS medicines, means that if expert advice is required the matter should be referred before the decision is made. The Joint Oversight Committee, which will include members with particular expertise regarding the PBS, will monitor the manner in which ministerial discretion is exercised.
In view of these factors, it was not considered necessary for a determination which serves to reduce or not apply a price reduction to be subject to Parliamentary scrutiny.
In response to the concern raised by the Committee, the Department of Health will investigate voluntary inclusion of the written instrument on the Federal Register of Legislation and will seek the advice of the Office of Parliamentary Counsel for this to occur. If agreed, the explanatory memorandum will be updated to this effect.
Use of notifiable instruments for new presentation determinations made by the Minister
A determination by the Minister that a new brand is a new presentation will be made by notifiable instrument for registration on the Federal Register of Legislation. It was not considered necessary for a determination of this kind to be subject to Parliamentary scrutiny as the Minister would be able to access expert advice from the PBAC in making the decision.
Oversight of implementation of the Agreement and ministerial discretion
The terms of reference for the Joint Oversight Committee, as outlined in the Agreement, include that it will consider the effectiveness of measures relating to the application of statutory price reductions; consider and agree details intended to guide companies in making applications regarding statutory price reductions; and identify unintended consequences arising from the measures in the Agreement, including in relation to the extent of exemptions from statutory price reductions agreed by the Commonwealth.
It would be premature to include in the Bill criteria for applying for ministerial discretion regarding price reductions as considering the effectiveness of the provisions and providing advice on applications is part of the role of the Joint Oversight Committee.
Limited duration of pricing amendments
The Agreement and the pricing amendments in the Bill are effective until 30 June 2022, after which time the current pricing arrangements are reinstated. Limiting the duration of the changes means that experience from the implementation of the Agreement and advice from the Joint Oversight Committee will be able to inform any future pricing arrangements.
Committee comment
2.218 The committee thanks the Minister for this response. The committee notes the Minister's advice that the pricing amendments in the bill are required to implement measures in agreements made between the Commonwealth and Medicines Australia and the Strategic Agreement provides that the Minister should have the discretion not to apply, or to reduce, a statutory price reduction. The committee also notes the detailed advice as to the circumstances in which the Minister is likely to exercise this power, the importance of adjusting mandatory price reductions in certain circumstances and the advice that it would be counterproductive for a detailed list of criteria for ministerial discretion to be included in the bill.
2.219 In relation to the use of written instruments for price reductions (rather than notifiable or legislative instruments), the committee notes the Minister's advice that information will be made publicly available on the PBS website, that this involves highly technical subject matter and a Joint Oversight Committee, with relevant expertise, will monitor the manner in which ministerial discretion is exercised, and as such it was not considered necessary for a determination which serves to reduce or not apply a price reduction to be subject to parliamentary scrutiny. The committee also similarly notes the Minister's advice in relation to the use of notifiable instruments (rather than legislative instruments) that it was not considered necessary for a determination of this kind to be subject to parliamentary scrutiny as the Minister would be able to access expert advice from the Pharmaceutical Benefits Advisory Committee in making the decision.
2.220 The committee notes that a written instrument is not subject to any of the requirements of the Legislation Act 2003 (including that it be registered on the Federal Register of Legislation and subject to disallowance) and a notifiable instrument is not subject to disallowance. As such, any determination by the Minister to reduce or not apply a price reduction on certain medicines (which presumably would have the effect of ensuring the price of such medicines for consumers remains higher) would not be subject to any form of parliamentary scrutiny.
2.221 The committee requests that the key information provided by the Minister be included in the explanatory memorandum, noting the importance of this document as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).
2.222 In light of the detailed information provided as to why it is necessary to give the Minister a broad discretionary power in relation to statutory price reductions, the committee makes no further comment on this matter.
2.223 The committee otherwise draws its scrutiny concerns to the attention of Senators and leaves to the Senate as a whole the appropriateness of providing that the Minister's determinations relating to statutory price reductions are to be made by written or notifiable instruments, which are not subject to the usual parliamentary disallowance processes.
[83] See correspondence relating to Scrutiny Digest No. 15 of 2017 available at: www.aph.gov.au/senate_scrutiny_digest
[84] Schedule 1, items 14, 24, 34 and 38; Schedule 2, item 11; Schedule 4, items 4 and 7; and Schedule 6, item 1. The committee draws Senators’ attention to these provisions pursuant to principle 1(a)(iv) and (v) of the committee’s terms of reference.
[85] Schedule 1, items 14, 24, 34 and 38; and Schedule 2, item 11.
[86] Schedule 4, items 4 and 7; and Schedule 6, item 1.
[87] Explanatory memorandum, p. 3.
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