20 July 2018

The Hon Catherine King MP
Shadow minister for Health
By email: Catherine.King.MP@aph.gov.au

Dear Ms King

Request for an ANAO audit into the circumstances surrounding the listing of afatinib (Giotrif®) on the Pharmaceutical Benefits Scheme (PBS) on 1 May 2018

Thank you for your letter of 31 May 2018 requesting the ANAO investigates the circumstances surrounding the listing of afatinib on the Pharmaceutical Benefits Scheme (PBS).

The ANAO met with Department of Health representatives on 18 June and 3 July in relation to this matter. Following the first meeting, the ANAO requested a copy of briefings related to the recommendation that afatinib be listed on the PBS and the use of a Special Pricing Arrangement as well as all related internal departmental analysis assessing the manufacturer’s application against the Special Pricing Arrangement criteria. We also asked the department how many deeds of agreement were entered into since 1 January 2018 that have included Special Pricing Arrangements.

In addition to reviewing the documents received from the department, the ANAO has also considered the functions of the Pharmaceutical Benefits Advisory Committee (PBAC), Guidelines for Deeds of Agreement and criteria for Special Pricing Arrangements. In summary, Section 85E of the National Health Act 1953 provides that ‘the Minister may, on behalf of the Commonwealth, enter into a deed with a person who is, or seeks to be, determined by the Minister under s84AF to be the responsible person for a brand of a pharmaceutical item’. Special Pricing Arrangement criteria indicate the circumstances in which the Minister might agree to enter into a deed and are not legislated. Disclaimers accompanying the Guidelines for Deeds of Agreement state that ‘…these guidelines may not apply in all circumstances. The Commonwealth may, at its sole discretion, choose not to adhere to these guidelines.’ The Minister’s legislative power to make deeds does not include any requirement to seek the advice of the PBAC. The PBAC does not have a legislated role in relation to Special Pricing Arrangements.

Our enquiries have identified that:

• On 3 October 2017 the manufacturer of afatinib wrote to the department seeking reconsideration of their 2013 request for a Special Pricing Arrangement.
• A departmental officer responded to the request from the manufacturer on 4 October noting that on 12 February 2015 the former Minister for Health (The Hon Sussan Ley MP) had communicated to the manufacturer that she had “decided not to agree to a request for a SPA for afatinib as it does not presently meet the criteria for such an arrangement because two other medicines of similar efficacy and toxicity are already listed on the PBS without such an arrangement.” The email of 4 October stated that, as there have been no new recommendations made from PBAC relating to afatinib, the department’s position in relation to the Special Pricing Arrangement had not changed and asked whether the manufacturer wanted the department to seek Minister’s discretion.
• The manufacturer wrote to the department on 9 October 2017 seeking Minister’s discretion.
• The Acting Deputy Secretary, Health Financing Group, advised the ANAO that following her review of the Special Pricing Arrangement criteria and the manufacturer’s application she was of the view that the manufacturer was eligible for a Special Pricing Arrangement. The department advised the manufacturer on 17 October 2017 that it would approach the Minister and seek his agreement to a Special Pricing Arrangement.
• Departmental records dated 30 January 2018 note that the Acting Deputy Secretary, Health Financing Group, had spoken with the Minister’s adviser.
• Correspondence sent to the manufacturer on 28 February 2018, providing an update on the status of their request, advised that a Deed with a Special Pricing Arrangement would proceed. The manufacturer was also advised that the department would progress the PBS listing for 1 May 2018 but that final listing decisions are a matter for Government.
• 8 April 2018 the revised listing of PBS items is approved by the Minister. This list includes afatinib. The department advised the ANAO that this was the only brief to the Minister in relation to this matter.
• 1 May 2018 the Deed of Agreement for the supply of afatinib is agreed and executed by the delegate (Assistant Secretary, Pricing and PBS policy). The briefing notes that the PBS Pricing and Managed Access Section was verbally advised in February 2018 by the then Director, that the First Assistant Secretary, Technology Access and Assessment Division, as Minister’s delegate, had agreed to a Special Pricing Arrangement for afatinib.
• The department advised the ANAO that between 1 January and 1 July 2018, 13 new special pricing arrangements have been given effect through Deeds of Agreement. All of these deeds contain a clause to allow termination or variation of the deed when PBS payment arrangements change. The department confirmed that agreement to participate in a payment administration trial has not been formalised for any medicines.

On the basis of our enquiries and the documentation available I consider that the value that a performance audit could bring at this time would be limited.

I have noted your concerns in relation to the Special Pricing Arrangement process and further note the Government announcement in the 2018–19 Budget that it will amend the payment administration arrangements for high cost medicines. I will consider including coverage of PBS and payment arrangements in the development of our next audit work program. In doing so I will take into account decisions regarding the payment administration trial which will come into effect on 1 July 2019 and the review of the PBS listing and Special Pricing Arrangement criteria which the department has stated will be undertaken.

I trust this information has been of assistance.

Yours sincerely

Grant Hehir
Auditor-General