About the Pharmaceutical Benefits Scheme

The purpose of the Pharmaceutical Benefits Scheme (PBS) is to provide Australians with timely, reliable and affordable access to necessary and cost-effective drugs. The PBS is administered by the Department of Health and Ageing (Health) according to the National Health Act 1953 and the National Health (Pharmaceutical Benefits) Regulations 1960. There were 600 drugs, listed as 1579 items, on the Schedule of Pharmaceutical Benefits for Approved Pharmacists and Medical Practitioners (the Schedule) in March 2006¹. An item is a form or strength of a particular drug.

Following approval by the Therapeutic Goods Administration (TGA) for use of a drug in Australia, the process for listing a drug on the PBS is complex and involves, inter alia, the drug's sponsor (usually a pharmaceutical company), Health, several expert committees, and the Minister for Health and Ageing. The expert committees are the Pharmaceutical Benefits Advisory Committee (PBAC), which makes recommendations to the Minister about the listing of drugs, and its two sub-committees—the Drug Utilisation Sub-Committee (DUSC) and the Economics Sub-Committee (ESC)—and the Pharmaceutical Benefits Pricing Authority (PBPA).

In 2006–07, the PBS budget is $6.8 billion, which will subsidise around 170 million prescriptions. The rate of growth in PBS expenditure is expected to be around 2.8 per cent in 2005–06 and 7.3 per cent in 2006–07, down from an average of 10.2 per cent per year over the past 10 years. Several government initiatives have been put in place to slow the PBS expenditure growth rate, including initiatives to address the risk that PBS subsidised drugs will be used outside their subsidy conditions. ²

As part of its risk management approach to administering the PBS, Health employs a number of measures to reduce that risk. These measures include:

• restrictions—limitations on the listing of drugs to prescribed therapeutic uses. For example, on the PBS, Olanzapine is restricted to use for schizophrenia and maintenance treatment of bipolar disorder;³
• authority required restrictions—similar to normal restrictions but prescribers must obtain approval from Medicare Australia prior to prescribing; and
• risk sharing agreements—the Commonwealth and the drug's sponsor agree to share the risk of a drug costing the PBS more than estimated. For example, the Commonwealth agrees to subsidise a drug providing the sponsor agrees to limit sales of the subsidised drug to a certain amount. In addition, the Commonwealth may require the sponsor to rebate a percentage of the sales of a drug in excess of an agreed amount.

Currently over half of the items listed on the PBS are subject to one or more of the above three measures.

Audit objective and methodology

The objective of the audit was to examine how effectively Health manages the risk of PBS drugs not being used according to PBS subsidy conditions. The audit examined two areas:

• during listing, how Health identified and implemented measures to decrease the risks of PBS drugs being used outside subsidy conditions; and
• following listing, how Health confirmed that usage and expenditure on PBS drugs was consistent with estimates.

The report examines selected approaches used by Health, which have evolved in recent years, to manage the risk of PBS drugs being used outside subsidy conditions. The report also acknowledges and describes the role of the expert committees.

The scope of the audit was limited to PBS drugs for which Health pays a subsidy. The audit did not examine Health's role in educating consumers, prescribers, and other health professionals, or the implications of the Australia–United States Free Trade Agreement for the PBS. Additionally, the ANAO did not form an opinion on the success of Medicare Australia's compliance role.

To form an opinion against the audit objective, the ANAO interviewed Health personnel, committee members and stakeholders, examined relevant documents and files, analysed drug usage and expenditure data, and attended a number of committee meetings. To assist the audit process, the ANAO selected a sample of eight drugs. The drugs were selected due to their high cost to the PBS and/or high usage, or because the drug has had a particularly interesting PBS history. The sample is not representative of all drugs on the PBS. In 2004–05, 15.3 million prescriptions were written for these eight drugs, with the Government subsidy totalling $1.05 billion.

Overall audit conclusion

The ANAO concluded that, while the Department of Health and Ageing's (Health's) management of the risk of Pharmaceutical Benefits Scheme (PBS) drugs being used outside subsidy conditions is reasonable, some improvements in Health's administration would strengthen its management of this risk.

Health has put in place measures to control PBS expenditure in recent years, and expects growth to decrease, by an average of three percentage points over the past 10 years, to 7.3 per cent in 2006–07.

While Health is increasingly using restrictions, authority required restrictions and risk sharing agreements to control expenditure and decrease the risk of PBS drugs being used outside subsidy conditions, it does not use specific criteria to guide its selection of these measures. Also, Health has not reviewed the effectiveness of these measures. Such a review would enable Health to be better informed on the impact of each type of measure on the use of drugs outside subsidy conditions, and the contribution the measures have made to containing Commonwealth expenditure or slowing the PBS expenditure growth rate.

Health has reasonable processes to examine and confirm the relevance and accuracy of estimates of intended use and cost when drugs are first listed. Nevertheless, two factors impair the effectiveness of these processes. Firstly, incomplete and inaccurate data available to Health during the listing process may result in actual usage and cost differing from estimates. Secondly, the absence of a complete and accurate PBS dataset on the usage of PBS subsidised drugs hampers Health's monitoring and investigation role following listing.

Health's monitoring of PBS drugs with risk sharing agreements is satisfactory. However, for PBS drugs without a risk sharing agreement, Health's investigation and ongoing monitoring of usage and expenditure is limited. In this context, the ANAO acknowledges the constraints on Health in altering a drug's listing after inclusion on the PBS.

The ANAO made two recommendations to improve Health's management of the risk of PBS drugs being used outside their subsidy conditions.

Key Findings

PBS Expenditure

From 1998–99 to 2003–04 actual expenditure on the Pharmaceutical Benefits Scheme (PBS) was greater than budgeted. In 2004–05, this trend reversed and expenditure was 3.7 per cent less than estimated. The Department of Health and Ageing (Health) expects this shift to continue for 2005–06. The rate of growth in Commonwealth expenditure on the PBS is down from an average of 10.2 per cent over the past 10 years, to an estimated 2.8 per cent in 2005–06 and 7.3 per cent in 2006–07. Initiatives such as the use of risk sharing agreements, closer scrutiny of drug costs and usage estimates, and the increased role of DUSC in investigating differences in estimated and actual usage have been put in place to control the PBS's growth rate.

Restrictions and Risk Sharing Agreements

The use of PBS subsidised drugs outside their subsidised conditions increases Commonwealth expenditure on the PBS. There are a number of factors that increase the risk of subsidised drugs being used outside subsidy conditions. These factors include when there is a gap between therapeutic uses approved by the Therapeutic Goods Administration (TGA) and the drug's listing, promotion by the drug's sponsor, and consumer demand. Health uses several measures to address this risk, including restrictions, authority required restrictions, and risk sharing agreements. While Health's practice may indicate, for some drugs or classes of drugs, the use of a particular approach, such as a risk sharing agreement for very high cost drugs, Health does not have specific criteria to guide its selection of particular measure(s).

Restrictions

Of the 1 579 items on the PBS, 59 per cent (924 items) are restricted. The complexity of restrictions, including the number of words required to define conditions, is increasing, as is the proportion of restricted and authority required items on the PBS.

Complex or contentious restrictions are considered by the Restrictions Working Group (RWG) and with relevant specialist groups. Generally, over time, restrictions are relaxed or conditions are added. Often when a restriction is relaxed or discontinued, Health negotiates a price reduction with the drug's sponsor. The ANAO found that the effectiveness of restrictions is reduced by several factors including ambiguity of their wording and prescriber intent. Research commissioned by Medicare Australia found that prescribing outside restrictions was not uncommon.

Authority required restrictions

Authority required restrictions apply to 426 (27 per cent) of PBS items, an increase of seven percentage points in the past five years. Prescribers know what questions they will be asked when applying for approval to prescribe authority restricted drugs. The ANAO has been advised that prescribers are, therefore, in a position to influence the approval. Other prescribers may consider the system too time-consuming or complex, and therefore they prescribe other drugs which do not require Medicare Australia's approval. This may result in patients receiving sub-optimal medication or the patients most in need of the drugs not receiving them. Nevertheless, authority required restrictions are considered to be more effective than general restrictions.

Risk sharing agreements

Health is also increasingly using risk sharing agreements, with 14 in place to November 2005 and a further nine being negotiated with sponsors. The ANAO found that Health's approach to negotiating risk sharing agreements has improved over time, and they are now negotiated on the basis of likely expected usage of each subsidised drug. Nevertheless, Health does not expect the prescription volume and dollar caps of the majority of risk sharing agreements to be reached in the current year. This indicates that there is potential for Health to propose more realistic caps when negotiating with sponsors.

Reviewing the measures

Health has not reviewed the effectiveness of risk sharing agreements, restrictions or authority required restrictions in decreasing inappropriate Commonwealth expenditure on the PBS.

Estimating Usage and Cost

During listing, Health and its expert committees examine estimates of a drug's usage and cost. This process is complex and involves a number of different stages and participants, including Health's committees and their secretariats. The Drug Utilisation Sub-Committee (DUSC), which has primary responsibility for evaluating usage estimates, does not review every major submission, using criteria to determine which submissions to examine. The Economics Sub-Committee (ESC) reviews every submission.

The ANAO found that Health's iterative process for finalising drug usage estimates was satisfactory. Health assured itself that the information in the submissions of drug sponsors was relevant and appropriate and committee discussions appeared to be full and robust.

However, estimates of a drug's cost and usage can only be as accurate as the data used to calculate the estimates. There are a number of difficulties in obtaining accurate and reliable data prior to listing a drug. These difficulties include the lack of epidemiological data for previously untreated or rare conditions, small clinical trials, measuring unmet clinical need and determining market share.

In the absence of definitive data, Health and the PBAC take a risk management approach that involves finding the balance between recommending listing on the basis of incomplete data so prescribers can meet their patient's clinical need, and delaying listing until more conclusive data is available.

Monitoring Usage and Cost

Health's monitoring of PBS drug usage and cost is generally limited to monitoring those drugs with risk sharing agreements. The ANAO found that the monitoring of risk sharing agreements has improved recently and is satisfactory.

Health's only systematic investigation of drug usage is through DUSC's Predicted Versus Actual Systematic Analysis (PvA). Health's procedures state that it conducts PvAs on all new drugs and on drugs that exhibit major changes within a defined time period. However, the ANAO found that, of the 19 new drugs listed in 2003–04, seven (37 per cent) had not been the subject of a PvA at the time of the audit fieldwork. In not completing PvAs as specified, Health is not conducting timely analysis on the use of all new drugs listed on the PBS.

Of the eight drugs in the ANAO's sample, six were the subject of a PvA since 2003. In examining these PvAs the ANAO found little examination or analysis of differences between estimated and actual drug use. The ANAO observed that the majority of PvAs did not make a valid comparison between predicted and actual drug usage and expenditure and that there was no significant examination of reasons for differences between estimated and actual data. For example, the PvA for one drug in the ANAO's sample found a 500 per cent difference between predicted and actual cost, but with no documented action to address this finding. The ANAO noted that the PvAs completed 24 months after listing were more detailed.

Furthermore, the ANAO found that Health's response to PvA results was limited. Results are discussed at DUSC meetings and further action may be taken, such as informing the National Prescribing Service or inviting industry comment. The ANAO found that, for the PvAs examined, no changes were subsequently made to the drug's listing. That is, action was not taken in response to the findings of the PvA.

Health's efforts to monitor and investigate drug usage and cost is hindered by the lack of a complete PBS dataset on the usage of PBS subsidised drugs. Issues around obtaining and using a complete dataset include the limited availability of data on drugs prescribed in public hospitals, the lack of data on drugs retailing for an amount below the PBS co-payment amount, and legal limitations on Health and Medicare Australia linking diagnostic and prescribing data.

Department of Health and Ageing's Response

The Department welcomes the ANAO report as a useful assessment of its management of a very complex scheme, and as providing helpful recommendations for further improvement.

The Department notes the report's overall conclusion that ‘…Health's management of the risk of Pharmaceutical Benefits Scheme (PBS) drugs being used outside subsidy conditions is reasonable…'.

The Department is supportive of the two recommendations.

Footnotes

1 Excludes section 100 drugs. Section 100 of the National Health Act 1953 applies to drugs that are distributed under alternative arrangements, such as highly specialised drugs and drugs distributed though the Human Growth Hormone Program.

2 A drug can be prescribed for any medical condition approved by the TGA. A drug is generally listed on the PBS for specific conditions, which may be a sub-set of the conditions approved by the TGA. The PBS only subsidises prescriptions that comply with the drug's PBS listing conditions. Therefore, use outside subsidy condition occurs when a Commonwealth subsidy is claimed for a prescription that does not comply with the drug's PBS listing.

3 Department of Health and Ageing, December 2005, Schedule of Pharmaceutical Benefits for Approved Pharmacists and Medical Practitioners, Health, p.270.