Background

1. Established in 1948, the Pharmaceutical Benefits Scheme (PBS) is an Australian Government funded and administered program designed to give all Australian residents and eligible overseas visitors access to prescription medicines in an affordable, reliable and timely way.¹ This is achieved through the Government subsidising the cost of prescription medicines that have been listed on the PBS Schedule.

2. The Minister for Health and Ageing is responsible for determining which medicines are listed on the PBS Schedule. Before a medicine can be listed there must be an assessment by the Pharmaceutical Benefits Advisory Committee (PBAC), an independent expert body.² When recommending to the Minister that a medicine be listed on the PBS, PBAC takes into account the medical conditions for which the medicine has been approved for use in Australia, its clinical effectiveness, safety and cost-effectiveness compared with other treatments.³

3. Once a medicine has been listed on the PBS Schedule, an eligible patient who has presented a proper prescription to a pharmacist is entitled to receive a benefit. Generally, the patient will make a limited payment to the pharmacist known as a ‘co-payment'. From 1 January 2010, the general rate co-payment was $33.30 or $5.40 for those eligible at the concession rate. ⁴

4. In order to make these medicines more affordable, the Government will then pay the pharmacist the balance of the cost of the medicine as listed on the PBS Schedule. Medicines listed on the PBS can cost hundreds or thousands of dollars. It is through effectively capping the cost to the patient at the co-payment level that the supply of medicines by the pharmacist is made more affordable for the patient.

5. In 2008–09, some 182 million services were processed under the PBS, with $7.2 billion in benefits paid. During this period, the PBS Schedule provided patients with access to more than 700 medicines,⁵ with approximately 80 per cent of prescriptions dispensed in Australia attracting a PBS payment.⁶
 
Growth in cost and volume of the PBS

6. In recent years the cost of the PBS and the number of services provided have grown considerably, increasing the demands on Medicare Australia in administering the Scheme. Table S 1 shows that in the 10 year period between 1998–99 and 2008–09, the cost of the PBS grew by 157 per cent, with services growing by 42 per cent.

Table S 1 Pharmaceutical Benefits Scheme: total benefits paid and total number of services provided from 1998–99 to 2008–09

Source: Health Insurance Commission (HIC), 1998–99 HIC Annual Report; 2003–04 HIC Annual Report; Medicare Australia, 2008–09 Annual Report.

7. The cost of the PBS is a significant component of the Australian Government's health-related budget outlays, comprising approximately 18 per cent of total health costs. While, in the short term, PBS spending is not forecast to grow at the rates of recent years, it is estimated to maintain its relative contribution to total health spending. In that respect, the 2010 Inter-generational Report estimated that total spending on health is expected to remain relatively steady in the medium term⁷ but grow from 4 per cent of GDP in 2009–10 to 7.1 per cent of GDP by 2049–50.⁸

Legislative framework and governance arrangements

8. The PBS is established by the National Health Act 1953 with consequential administrative arrangements set out in a range of subsidiary instruments including the National Health (Pharmaceutical Benefits) Regulations 1960, ministerial rules and determinations.

9. The Department of Health and Ageing (DoHA) is responsible for PBS program policy development and is accountable for the overall management of the Scheme including the PBS Schedule. Medicare Australia is responsible for the day-to-day delivery of the PBS on behalf of DoHA.

10. Medicare Australia is a prescribed agency under the Financial Management and Accountability Act 1997; a statutory agency under the Public Service Act 1999, and is part of the Human Services portfolio. Medicare Australia has existed since 2005, after it evolved from the former Health Insurance Commission (HIC), a statutory authority under the Commonwealth Authorities and Companies Act 1997 that was within the Health and Ageing portfolio.

11. In practice, Medicare Australia is accountable to the Minister for Health and Ageing and the Secretary of DoHA for delivering the PBS, but is also accountable for the service delivery aspect of its operations to its portfolio minister, the Minister for Human Services.

12. In addition to administering the PBS, Medicare Australia delivers a broad range of payments and information in respect of health-related (such as the Medicare program) and other programs (such as the LPG Vehicle Scheme) on behalf of the Australian Government.

Delivery of the PBS

13. In administering the PBS, Medicare Australia's stated objective is ‘to deliver a nationally consistent service with convenient access and timely and accurate payments through efficient service channels, particularly electronic'.⁹ Apart from processing and paying pharmacists' PBS claims, delivering the PBS requires Medicare Australia to undertake other activities such as approving pharmacists to supply PBS medicines and approving certain special prescriptions.¹⁰

14. The PBS has seen a number of challenges and changes in recent years, which have affected both how the Scheme is delivered and its composition. In addition to the challenges presented by the growth of the Scheme in recent years, the introduction of the Online Claiming for PBS system in 2005 was a major change in how Medicare Australia interacted with pharmacists, moving from a manual to a real time web-based process for the initial part of the claiming process. A suite of PBS reforms were also introduced between 2006 and 2008, which were designed to ‘give Australians continued access to new and expensive medicines while ensuring the PBS remains affordable into the future'.¹¹

Audit objective and scope

15. The objective of this audit was to examine the effectiveness of Medicare Australia's administration of the PBS. In assessing the objective, the audit considered three key areas:

• Medicare Australia's relationship with the PBS policy agency (DoHA) and service delivery policy agency (Department of Human Services (DHS));
• the management arrangements and processes underpinning Medicare Australia's delivery of the PBS (including the means by which Medicare Australia gains assurance over the integrity of the PBS); and
• how Medicare Australia undertakes its three main responsibilities relating to the delivery of the PBS, namely: approving pharmacies; approving authority prescriptions; and processing PBS claims.

16. The Repatriation PBS and the processes supporting the formulation of the PBS Schedule did not form part of the audit scope. Further, the integrity of individual payment transactions between Medicare Australia and pharmacists was not tested as part of this audit.

Overall conclusion

17. The PBS has been in place for over 60 years and is a fundamental part of the Australian health system which facilitates the provision of pharmaceuticals to all Australian residents and eligible overseas visitors in an affordable, timely and reliable way. Having grown rapidly in recent years, in 2009–10, the PBS is expected to cost approximately $8.2 billion, with Medicare Australia processing some 191 million services under the Scheme.

18. Given the size and forecast future growth of the PBS, it is important that Medicare Australia, as the agency responsible for the day-to-day administration of Scheme, implements effective and efficient delivery arrangements to respond to the increasing demand while maintaining the integrity of the claims processing arrangements.

19. Overall, the PBS program operates in an effective and efficient manner for patients and pharmacists, in that patients have affordable and timely access to drugs listed on the PBS Schedule and pharmacists' claims are processed in a timely manner. There remain, however, in relation to Medicare Australia's administration of the Scheme, areas of risk and opportunities for improvement. These include the governance arrangements among agencies involved in the PBS, the operational arrangements and processes supporting Medicare Australia's delivery of the Scheme, and the monitoring and reporting of delivery performance.

Governance arrangements

20. The introduction of Medicare Australia in 2005 and subsequent move to the Human Services portfolio from the Health and Ageing portfolio introduced some complexities in the relationships among the agencies. It was not, however, until after several years of consultations, that a Business Practice Agreement for the PBS between Medicare Australia and DoHA was formally put in place, in May 2009.

21. If implemented effectively and updated as required, this agreement presents an opportunity for the parties to build on the existing relationship that underpins the administration of the PBS and to ensure the respective roles and responsibilities are clarified to meet future demands.

Management and operational arrangements supporting Medicare Australia's delivery of the PBS

22. As with many of its program delivery responsibilities, Medicare Australia relies on a geographically dispersed network of state offices and supporting business functions (such as information technology) to deliver the PBS. Such a system presents challenges to the ability of an organisation to have sufficient oversight of the end-to-end management of a program and increases the risk of gaps or inconsistencies in processes and outcomes.

23. In July 2009, Medicare Australia announced a major operational change with the introduction of a new national program delivery model. This change is intended to provide a greater national focus and better assurance of consistency in the delivery of the PBS. If implemented successfully, the new model should help address identified issues, such as the lack of an accountability point for end-to-end program oversight, and provide improved management arrangements to support Medicare Australia's ongoing administration of the PBS.

24. The changes to the operational management arrangements that Medicare Australia has adopted to deliver the PBS on a day-to-day basis means that attention is also needed in improving guidance to staff and ensuring consistent procedures are used across states. To address inconsistencies both in processes and the understanding of officials about the nature of their role as decision-makers, Medicare Australia should consider including, as part of the current process to update procedural guidance, information clarifying the changed legal arrangements under which decisions are made and the subsequent implications for decision makers in performing their role.

25. Medicare Australia has an organisational risk management policy in place, though this has not been adhered to consistently in producing timely risk management plans for organisational units or projects relating to the PBS. One important risk to the PBS program is the integrity of claim payments. Medicare Australia's routine monitoring of claims processing involves its well-established Quality Assurance Intervention (QAI) and Quality Control Intervention (QCI) processes. Each of these is a management tool that can be used to locate, correct and control errors; however, neither QAI nor QCI—which monitors QAI checking—provides a robust basis for assessing and reporting the accuracy of PBS claims processing. Medicare Australia has introduced a new Payment Accuracy Review process that examines the PBS process from end-to-end, involving prescribers, pharmacists and patients, and which is designed to help better assess the overall accuracy of payments.

26. To address the identified risk management and quality assurance issues, Medicare Australia has advised that it is updating its 2008 PBS Program Integrity Assurance report to better identify and manage PBS risks, end-to-end.

27. In recent times, Medicare Australia has also made a number of changes to improve the processes and infrastructure supporting the delivery of the PBS, particularly through new technology. For instance, the Online Claiming for PBS system, which was introduced in 2005 and replaced the previous manual system, is now used by approximately 97 per cent of pharmacists, making the payment system more efficient and prompt.

28. While the Online Claiming for PBS system has been successfully implemented, there remain risks, such as the capacity of pharmacists to override process warnings, which require attention and are currently under review by both Medicare Australia and DoHA. The Online Claiming for PBS system also presents opportunities to further improve service delivery such as providing advice to patients regarding qualification for the PBS Safety Net, rather than relying on existing processes, where the patient is responsible for keeping a record of their expenditure and applying for the Safety Net.

Performance monitoring and reporting

29. In administering the PBS, Medicare Australia's existing key performance indicators do not provide adequate assurance of the achievement of its stated objective. This results in stakeholders being unable to ascertain performance in areas such as consistency of service, convenience of access and timeliness and accuracy of payments.

Future delivery of the PBS

30. Notwithstanding the changes that have been made in recent times, there remain areas for improvement. The ANAO has made five recommendations aimed at improving Medicare Australia's existing business practices and its future administration of the PBS. These recommendations focus on guidance to its staff, procedural consistency and assurance, enhanced customer service and improved assessment and reporting of performance.

Key findings by chapter

Arrangements for PBS delivery (Chapter 2)

31. With the successful delivery of the PBS relying on the cooperation and communication of three agencies; Medicare Australia, DoHA, and DHS, a clear and common understanding of the respective roles and responsibilities of each agency is important. After several years of consultations, a Business Practice Agreement between DoHA and Medicare Australia for the delivery of the PBS was signed in May 2009. The Agreement largely contains the elements ident-ified by the ANAO as desirable for such agreements, with the exception of an explicit obligation on Medicare Australia to report its delivery performance to DoHA. Sensitivities about the boundaries between policy and service delivery responsibilities of the agencies contributed to the delay. These sensitivities remain, as exemplified by DHS's continuing desire to be consulted earlier on health policy proposals to bring to bear its service delivery policy perspective.

32. The authority to administer the PBS is now conferred on Medicare Australia staff by (i) a ministerial direction from the Minister for Human Services to the Medicare Australia CEO to perform the function of exercising powers on behalf of the DoHA Secretary and the Minister for Health and Ageing; and (ii) the Medicare Australia CEO then delegating those powers to her staff. This is a different mechanism from that in place when the HIC administered the PBS in the Health and Ageing portfolio in that DHS has provided advice that shows that staff now act, in effect, as agents rather than delegates of the Minister and/or Secretary for Health and Ageing.

33. During audit fieldwork the ANAO observed inconsistencies in Medicare Australia officials' understanding of how the new arrangements affect their role as decision-makers. Given the importance of decisions made by Medicare Australia staff, such as applications from pharmacists to become approved suppliers, PBS administration would benefit from Medicare Australia staff having a clearer understanding of the new arrangements. This could be achieved through the current process of updating procedural guidance to include information on the authority to administer the PBS and how that affects decision making.

Managing PBS delivery (Chapter 3)

34. Since the commencement of the audit, Medicare Australia has introduced a new national program delivery model for managing delivery of the PBS. If successfully implemented, this should provide a better focus on management of the program as a whole and provide better co-ordination and consistency across the functional and geographic units involved in its delivery.

35. Along with this management change, Medicare Australia has also substantially upgraded its procedural guidance. This should help to address the previous lack of national documentation and dependence on locally-produced (and hence, potentially diverse) guidance observed during the audit. To complement this, Medicare Australia has also taken steps to begin addressing the need for nationally consistent training for PBS processing staff.

36. Medicare Australia has an organisational risk management policy in place, though this has not been adhered to consistently in producing timely risk management plans for organisational units or projects relating to the PBS. Nevertheless, the 2008 PBS Program Integrity Assurance report was a positive step towards identifying and managing PBS risks, end-to-end. Medicare Australia's current plan to update this report and ensure that it provides adequate coverage of the program should assist in identifying any gaps and help provide greater assurance over PBS program integrity.

37. One important risk to the PBS program is the integrity of claim payments. Medicare Australia's routine monitoring of claims processing involves its well-established Quality Assurance Intervention (QAI) and Quality Control Intervention (QCI) processes. Each of these is a management tool that is used to locate, correct and control errors; however, they do not provide a basis for reporting the overall accuracy of PBS claims processing and payments. Medicare Australia has advised that it will review the PBS key performance indicator measures to ensure consistency and appropriateness. In that respect, Medicare Australia's new Payment Accuracy Review process, which examines the PBS process from end-to-end, involving prescribers, pharmacists and patients, is an example of a positive approach to helping gauge the overall accuracy of payments.

38. Medicare Australia's stated objective in delivering the PBS is ‘to deliver a nationally consistent service with convenient access and timely and accurate payments through efficient service channels, particularly electronic'.¹² In delivering the PBS, Medicare Australia has three distinct operational responsibilities: approving suppliers of medicines; approving authority prescriptions and processing pharmacists' claims for payment.

39. The key performance indicators identified by Medicare Australia in its Portfolio Budget Statement and reported in its annual report do not provide sufficient information with which to assess performance against the program objective nor do the indicators encompass the organisation's three major operational responsibilities in delivering the PBS.¹³ This means stakeholders are not able to ascertain performance in areas such as timeliness and accuracy of payments, consistency of service, and convenience of access. Accordingly, there are opportunities for Medicare Australia to improve its performance information and performance reporting on its delivery of the PBS both at the program and operational levels.

40. At the program level, performance reporting would be more effective if it provided information, to the Parliament and the public, which allowed them to understand how well Medicare Australia is meeting its objective. This involves setting out a small number of indicators, with targets that relate clearly to those objectives, and including all the three operational aspects of Medicare Australia's delivery of the PBS. In this respect, Medicare Australia does have some of these in place for PBS claims processing but they are limited in their effectiveness by the reliance on the QAI and QCI processes.

41. Transparency in performance reporting could also be improved if Medicare Australia were to report consistently in its annual reports against the measures set out in its budget statements and, when it changes a measure, explains what it has done and why. The reader would also benefit from the reporting of any significant assumptions that have been made in calculating the performance indicators.

PBS delivery operations (Chapter 4)

42. The process of approving pharmacies to supply medicines is governed by legislative criteria. However, only limited operational guidance exists to support Medicare Australia staff in their decision making role, which increases the risk of inconsistent processes and decisions. The process of approving and monitoring the ongoing compliance of suppliers of PBS medicines could be improved through enhancing the guidance material for decision-makers. In that respect, the process should benefit from Medicare Australia's recent adoption of a national program delivery model and the consideration it is giving to nationalising this particular function.

43. In observing Medicare Australia quality assuring dispensed authority prescriptions, the ANAO noted a practice of adjusting Medicare Australia's authority approval records to accord with the medicines actually dispensed in cases where there was a mismatch. This has the risks of failing to react to, or manage, evidence of incorrect dispensing of medicines. Medicare Australia advised that it intends to address this issue through its nationally consistent quality control action plan, which it has recently endorsed.

44. The method for processing claims has changed in recent years with the introduction of the Online Claiming for PBS system. The very high take-up of the system (approximately 97 per cent of pharmacists are using the system) has allowed Medicare Australia to streamline its capture of claims data. This improves efficiency through, for example, providing a facility to verify patient entitlement to claim a concession.

45. In examining the processing that supports the Online Claiming for PBS system, the ANAO also identified risks associated with pharmacists' capacity to override a range of prescription processing warnings. Medicare Australia advised that, jointly with DoHA, it has recently completed a review and implemented changes.

46. There is a widely-established practice among dispensing pharmacists of storing patient data on their pharmacy computer system. The use of these systems is also a necessary practice in accessing the Online Claiming for PBS system.¹⁴ IT security, in general, continues to be an area of growing threats. The recording and retention of patient data on pharmacists' systems is a pharmacist's responsibility, however, if the data were to be compromised this could present a reputation risk to the Commonwealth. In this respect, Medicare Australia advised that its responsibilities extend only to the security of transmission of data from the pharmacy to its own system (transmissions are encrypted). DoHA advised that it is satisfied that security at the pharmacy is maintained by professional pharmacy practice management and the requirements of privacy legislation. Nonetheless, taking account of the risks to reputation and public confidence in key processes, it would be prudent for the agencies to explicitly address this issue, for example, through clarifying the arrangements and respective responsibilities during pharmacy approval processes.

47. The PBS Safety Net helps patients who require a large number of medicines by reducing the co-payment after they reach a threshold of personal (or family) expenditure on PBS medicines in a calendar year. Medicare Australia has the capacity to identify patients who have become eligible for the Safety Net but who have not sought to register, potentially through a lack of information. In the 2007 calendar year, these patients paid between $6.1 million and $10.8 million more than they would have, if they had been registered for the Safety Net. It would improve customer service and help achieve the outcomes of the program if Medicare Australia were to advise patients in these circumstances, even if, for practical reasons, this advice can only be given later than might ideally be desired due to some expenditure being on medicines that do not attract a PBS subsidy. Recognising that to implement such a change would require policy consideration and involve some cost, Medicare Australia and DoHA would first need to examine options and provide advice to government.

Summary of agency responses

Medicare Australia

Medicare Australia welcomes the assurance provided by the ANAO's report that overall, the PBS program operates in an effective and efficient manner for patients and pharmacists, in that patients have affordable and timely access to drugs listed on the PBS Schedule and pharmacists' claims are processed in a timely manner.

Medicare Australia agrees with Recommendations one through four. Regarding Recommendation 5, Medicare Australia has previously advised the ANAO that changes to the administration of the PBS Safety Net would be a policy matter for the Department of Health and Ageing to consider. Medicare Australia is in a position to provide advice to the Department of Health and Ageing should it be called upon to do so.

Medicare Australia has used the audit process to pursue opportunities for improvement and has already implemented Recommendation one. We are actively taking steps to implement Recommendations two through four. Medicare Australia is committed to continually seeking to improve our business processes, including the operational arrangements and processes supporting Medicare Australia's delivery of the PBS, and the monitoring and reporting of our performance.

Department of Health and Ageing

The Department notes the audit report's findings and the extensive consultations that have occurred between the Department and the ANAO since 2008 in relation to this audit.

The Department does not agree with Recommendation 5. As previously advised in Departmental responses to the ANAO dated 22 September 2009 and 15 January 2010, the matter of an automated safety net is a policy issue with significant program design and cost implications and is a matter for Government to consider. Medicare Australia is not required to collect the data necessary to enable automated safety net calculations and consequently it is not currently relevant to Medicare Australia's administration of the PBS.¹⁵

Footnotes

¹ Medicare Australia, Annual Report 2008–09, p. 40.

² PBAC's membership includes doctors, other health professionals and a consumer representative.

³ <http://www.health.gov.au/internet/main/publishing.nsf/Content/health-pbs-general-pbs-whopays.htm> [accessed 14 December 2009].

⁴ These rates are adjusted annually according to movements in the Consumer Price Index.

⁵ Medicare Australia, Annual Report 2008–09, p. 64.

⁶ <http://www.health.gov.au/internet/main/publishing.nsf/Content/health-pbs-general-aboutus.htm-copy2> [accessed 15 December 2009].

⁷ 4.1 per cent of GDP in 2019-20.

⁸ Intergenerational Report 2010, Appendix A, Table A.3, p. 118.

⁹ Medicare Australia Portfolio Budget Statements 2009–10, p. 95.

¹⁰ Referred to as ‘Authority' prescriptions.

¹¹ <http://www.health.gov.au/internet/main/publishing.nsf/Content/pbs_reform_02feb07.htm> [accessed 14 December 2009]

¹² Medicare Australia, Portfolio Budget Statements 2009–10, p. 95.

¹³ The three key performance indicators outlined in the Portfolio Budget Statement are:

• percentage online prescription processing (≥ 98 per cent);
• average revenue per PBS service ($0.72); and
• pharmacist satisfaction (≥ 90 per cent).

¹⁴ In relation to Online Claiming for PBS, the Commonwealth has provided both software vendors and pharmacists with various incentives to: amend software packages (Software Vendor Assistance Payments—up to $2000 lump sum payment for software installation at each pharmacy and up to $200 per month for 24 months to provide maintenance support); adopt PBS Online (Online Claiming Incentive—40 cents per script processed by a pharmacist) and maintain business grade broadband Internet connections (Pharmacy Connectivity Incentive).

¹⁵ ANAO comment on Recommendation No.5 is provided at paragraphs 4.73 – 4.74.