NATIONAL HEALTH AMENDMENT (PHARMACEUTICAL BENEFITS SCHEME) BILL 2007 Explanatory Memorandum

Commonwealth of Australia Explanatory Memoranda

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NATIONAL HEALTH AMENDMENT (PHARMACEUTICAL BENEFITS SCHEME) BILL 2007

2004-2005-2006-2007 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES NATIONAL HEALTH AMENDMENT (PHARMACEUTICAL BENEFITS SCHEME) BILL 2007 EXPLANATORY MEMORANDUM (Circulated by authority of the Minister for Health and Ageing, the Hon Tony Abbott, MP)

NATIONAL HEALTH AMENDMENT (PHARMACEUTICAL BENEFITS SCHEME) BILL 2007 OUTLINE The purpose of the Bill is to amend the National Health Act 1953 (the Act) to position the Pharmaceutical Benefits Scheme (the PBS) for the future, by changing the way in which certain drugs are priced after they are listed on the PBS. New pricing arrangements contained in the Bill enable the government to capture the benefits of competition where drugs have multiple brands providing the foundation for a sustainable PBS. The Bill achieves this intent by making amendments to the Act, with effect from 1 August 2007, in the following main areas: · Formularies - At present, the prices of many drugs on the PBS are linked, with no distinction between drugs with single brands where there may be no suitable alternatives for patients and those with multiple brands that are operating in a competitive market. It has been difficult for the government to pay competitive prices for multiple brand drugs as these prices could flow on to other essential drugs resulting in their withdrawal. The Bill divides the Pharmaceutical Benefits Schedule into two parts (known as `formularies'), one part for single brand drugs, the other part for drugs that have multiple brands or that are interchangeable at the patient level with drugs with multiple brands. From 1 August 2007, these two parts will be known as F1 and F2 (with F2 being split into a further two parts, F2A and F2T, until 1 January 2011). · Pricing The proposed amendments specify the pricing rules for drugs in each formulary. In particular, the Bill sets out circumstances in which price reductions will occur. In summary, these are: - a minimum 12.5% price reduction in the price of any new bioequivalent brand of a drug that lists provided that drug has not previously been subject to a 12.5% reduction. This 12.5% reduction will flow on to existing brands of that drug and other drugs in the same therapeutic group which share the same manner of administration as the new brand. This reflects government policy that has existed since 2005. Any drugs that have already taken a 12.5% reduction under existing administrative arrangements will not be required to take a further 12.5% reduction; - a price reduction of 2% per year for three years, commencing on 1 August 2008, for drugs where price competition between brands is low (F2A drugs); and - a one-off price reduction of 25% on 1 August 2008 for drugs where price competition between brands is high (F2T drugs). · Price disclosure - Price disclosure provisions for drugs on the F2 formulary ensure that the price that the government pays for a multiple brand drug more closely reflects the actual price at which that drug is being supplied to pharmacies. This will be achieved 1

by requiring that (from 1 August 2007 for drugs on F2A and from 1 January 2011 for all drugs on F2), all new brands that list on F2 are subject to new price disclosure requirements. Related brands of that drug provided by the same supplier will also be subject to price disclosure requirements along with any brands for which other suppliers volunteer to price disclose. The Bill sets out the consequences of failing to comply with the price disclosure requirements. The Bill also sets out the circumstances in which the approved price to pharmacists will be reduced as a result of the price being adjusted based on pricing information collected through the new price disclosure requirements. · Guarantee of supply From 1 August 2007, suppliers listing a new bioequivalent brand of a drug on the PBS, and suppliers of existing brands of F2 drugs who offer price reductions, will be required to guarantee the supply of these brands. The guarantee of supply period will be 24 months, or until another new brand of that drug is listed, or until a further price reduction is offered in relation to the drug. Suppliers will be required to notify the Minister if they form the belief that they will fail to supply or will be unable to supply, or if they actually fail to supply. The guarantee of supply provisions will deter suppliers from supplying without a viable business model able to support their long term participation in the market. Interruptions to supply are disruptive for patients and other suppliers. The provisions also ensure that the government has as much notice as possible about supply failures so that their impact on patients, prescribers and pharmacists can be minimised. In addition, the Bill: · includes provisions for those drugs which may require special pricing arrangements (certain combination drugs, and unique formulations of certain drugs that are essential in meeting the needs of sub-populations such as children); · makes a number of minor, technical and consequential amendments to the Act to ensure that the changes are properly integrated into the existing legislation, to provide greater consistency in the language used in the Act and to generally improve clarity. FINANCIAL IMPACT STATEMENT The above measures are key components of a package of measures that comprise the reforms to the PBS. The financial impact of the total PBS Reform package is shown in the following table. Impact on 2006-07 2007-08 2008-09 2009-10 2010-11 Fiscal Balance $m $m $m $m $m Savings -7.1 -34.1 +154.3 +235.8 +231.5 REGULATION IMPACT STATEMENT The Office of Best Practice Regulation has advised that a Regulation Impact Statement is not required (RIS ID 9091). 2

NATIONAL HEALTH AMENDMENT (PHARMACEUTICAL BENEFITS SCHEME) BILL 2007 NOTES ON CLAUSES Clause 1 Short title This clause provides that the Act may be cited as the National Health Amendment (Pharmaceutical Benefits Scheme) Act 2007. Clause 2 Commencement This clause provides that the Act commences on 1 August 2007. Clause 3 Schedules This clause provides that each Act that is specified in a Schedule to this Act is amended or repealed as set out in the relevant Schedule. Any other item operates according to its terms. Schedule 1 Amendments to the Pharmaceutical Benefits Scheme Part 1-Amendments National Health Act 1953 Item 1 This item inserts a new explanatory subsection (2) in section 4 making it clear that a reference to a prescription for the supply of a pharmaceutical benefit is a reference to a prescription written in accordance with subsection 88(1) or (1A). Items 2 to 27 These items insert new terms and their definitions into subsection 84(1). Two existing definitions are also replaced. Item 5 replaces the definition of brand to reflect new terminology in the amended legislation and to provide that the brand is the trade name, unless there is no trade name, when it will be the name of the responsible person. Item 20 replaces the definition of pharmaceutical benefit to clarify its meaning by providing a self-contained definition to replace the existing definition which takes its meaning through the operation of a number of subsections of the legislation. There must be a declaration under subsection 85(2) in relation to a drug or medicinal preparation (the drug) for there to be a pharmaceutical benefit. If there are no other relevant determinations, the pharmaceutical benefit is the drug. However: · if there is also a determination under subsection 85(3) in relation to a form of the drug, the pharmaceutical benefit is the drug in that form; · if, in addition, there is also a determination under subsection 85(5) in relation to a manner of administration of that form of the drug, the pharmaceutical benefit is the drug in that form with that manner of administration; and 3

· if, in addition, there is also a brand determination under subsection 85(6), the pharmaceutical benefit is that brand of the drug in that form with that manner of administration. For ready prepared drugs and medicinal preparations, determinations will be made under subsections 85(3), (5) and (6). Because these drugs and medicinal preparations are typically available on the PBS in several forms and brands, there will typically be numerous pharmaceutical benefits relating to the one drug or medicinal preparation. Item 28 This item inserts a new subsection in section 84. New subsection (1B) provides that where a brand is specified in a prescription, and another brand is supplied on a repeated supply, that supply is taken to be a repeated supply of the prescribed pharmaceutical benefit. Items 29 to 33 These items make a number of amendments to section 84AAA to ensure consistency with new terminology introduced in the amended legislation. Item 34 This item inserts eight new sections at the end of Division 1 of Part VII. Section 84AB: Pharmaceutical items This section defines pharmaceutical item. This is a new concept which is used extensively in the amended legislation. In essence, a pharmaceutical item is a particular drug in a particular form with a particular manner of administration, that is available under the PBS. For there to be a pharmaceutical item, there must be a declaration under subsection 85(2) in relation to a drug or medicinal preparation, a determination under subsection 85(3) in relation to a form, and a determination under proposed new subsection 85(5) in relation to a manner of administration. Price agreements and determinations may only be made for a listed brand of a pharmaceutical item, ie, for a listed brand of a listed drug in a particular determined form with a particular determined manner of administration. Section 84AC: When listed drug is on F1 or F2; and Section 84AD: When listed drug is in Part A or Part T of F2 These sections provide the mechanism for placing drugs on the two formularies, F1 and F2, and for placing F2 drugs in Part A or Part T of F2. The drugs on each formulary, and in each Part of F2, at the commencement of the legislation will be prescribed by the regulations. Subsequently, drugs will be allocated to F1, F2A and F2T by Ministerial determination, by legislative instrument. The grandfathering of existing drugs listed on the PBS to formularies through the regulations will provide certainty for industry. The placement of these drugs was largely based on factors applying in late 2006 and has been subject to extensive consultation with industry. Because drugs may move from F1 to F2A (and will be moved when they no longer satisfy the criteria for F1), it is possible that a drug initially placed on F1 by the regulations will subsequently be placed on F2A by Ministerial determination, by legislative instrument. In this case the Ministerial determination will take precedence (paragraph 84AC(2)(b)). 4

Section 84AE: Co-marketed brands This section provides for the new concept of co-marketed brands. Co-marketed brands of a pharmaceutical item are to be treated as a single brand of the item for the purposes of the criteria for allocating drugs to formularies. These criteria are set out in proposed section 85AB. Multiple brand drugs are not eligible for F1 under the criteria. However, as co- marketed brands are treated as a single brand, co-marketed brands do not disqualify a drug from being on F1. Co-marketed brands that will be included on F1 at the commencement of the legislation will be prescribed in the Regulations. Subsequent additions will be made by Ministerial determination, by legislative instrument, based on the following criteria: · within 4 months of the first brand being included on the Australian Register of Therapeutic Goods, application(s) are made to register the other co-marketed brand(s); · the co-marketed brands are listed on the PBS at the same time; and · there are no other brands of that item, and no other bioequivalent brands, listed on the PBS. The note to this section confirms that in the application of the latter criterion, the brand of the bioequivalent item may be the same as one of the co-marketed brands. Existing co-marketed brands will be grandfathered by being prescribed in the regulations, while future brands will be determined to be co-marketed on the basis of the specified criteria. It is necessary for the existing brands to be grandfathered in this way because of the difficulty in applying the criteria retrospectively to these brands. Section 84AF: Responsible person for a brand of a pharmaceutical item This section provides that the Minister may, by legislative instrument, determine the responsible person for a brand of a pharmaceutical item. The responsible person is to be the person who has notified the Minister they are, or will be, the person who is, or will be, the supplier of a particular brand of a pharmaceutical item to wholesalers, or in cases where no wholesalers are involved, to approved pharmacists directly. The same person must be the responsible person for all pharmaceutical items that have that brand. Subsection (2) enables a notification given by a person prior to the commencement of the section to form the basis of the Minister's determination of a responsible person. This is necessary to ensure that the Minister may determine responsible persons for all brands of all pharmaceutical items on the day the legislation commences. The amended legislation imposes obligations on the responsible person in relation to price disclosure and guarantee of supply, and it will be the responsible person with whom price negotiations will occur. It is anticipated that the responsible person will be a corporate entity. Section 84AG: Therapeutic groups This section provides for therapeutic groups. These are groups of drugs which are interchangeable on an individual patient basis. They are grouped together for pricing purposes because the drugs provide the same health outcome, they are priced similarly. 5

Under current administrative pricing arrangements, when the price of a drug in a therapeutic group reduces, the prices of the other drugs in the group are also required to reduce. This principle will continue to apply in relation to ad hoc price reductions. The amended legislation will provide for such price linkages to occur in relation to the statutory price reductions (see proposed section 99ACH, particularly paragraph 99ACH(2)(c)). The Minister may, by legislative instrument, determine therapeutic groups and the drugs that are to be in those groups. The Minister may have regard to advice from the Pharmaceutical Benefits Advisory Committee (PBAC) in relation to the drugs that should be in a therapeutic group, but is not required to follow that advice. Where a price reduction has occurred to a brand of a pharmaceutical item as a result of disclosure, the drug will be removed from the therapeutic group (subsection (4)). A therapeutic group will be considered to be a group while there is at least one drug in the group (subsection (5)). Section 84AH: Exempt items This section provides that the Minister may, by legislative instrument, determine a pharmaceutical item to be an exempt item. Other provisions of the amended legislation provide that exempt items are excluded from the statutory price reductions (12.5% flow-ons, 2% and 25% price cuts) and from price disclosure. The criteria for exempt items are that there is only one listed brand of the relevant item, there are no bioequivalent items and there is at least one other form of the drug listed on the PBS. In addition, the Minister must be satisfied, having regard to PBAC advice (if any) that the form of the drug and/or its manner of administration makes it suitable for use in a subgroup of the patient population for whom the drug represents appropriate therapy and there are no other suitable forms/manners of administration of that drug for that subgroup. The intention of this provision is to provide exemptions for particular formulations of drugs (eg, an oral solution) used by a demographic subgroup (eg, children or geriatric persons) for whom other formulations of that drug are not appropriate (eg, because they cannot swallow tablets). The patient subgroups will be demographically based, not disease based. Thus, highly specialised drugs with a small patient population will not qualify for an exemption; rather, exemptions may apply only to particular formulations of drugs that are otherwise more generally available. When a second brand of an exempt item is listed, the item will no longer qualify for an exemption and the Minister will revoke the determination in respect of that item. The determination will also be revoked if the first brand is delisted from the PBS immediately before the second brand lists. Normal pricing rules will then apply to the item, including the 12.5% price reduction in proposed section 99ACB. Section 84AI: Rounding amounts This section provides that monetary amounts calculated under Part VII are to be rounded to the nearest cent, with 0.5 cents being rounded upwards. 6

Items 35 to 46 These items make a number of amendments to section 84C, primarily to clarify its meaning and bring the terminology into line with that used elsewhere in the amended legislation. Only items 36 and 38 involve a substantive change. The amendments made by these items mean that the special patient contribution will not count towards eligibility for concession and entitlement cards if the special patient contribution was paid by the Commonwealth rather than the patient. This relates to proposed new subsection 85B(5). Items 47 to 60 A number of amendments to the existing section 85 are being made primarily to update terminology and to require the various instruments to be `legislative instruments'. In addition, subsection (2A) is being amended, two subsections are being replaced and a new subsection is being added. The amendments to subsection (2A) mean that one previous instrument is to be split into two instruments. Previously, the Minister was required to include the matters set out in subsection (2A) in the subsection 85(2) declaration. Subsection (2A) is being amended to provide for these matters to be determined by the Minister in another legislative instrument. The subsection concerns restricted benefits and authority prescriptions, ie, pharmaceutical benefits that may be prescribed only in specified circumstances. Because the appropriate circumstances may differ for different forms (and particularly different strengths) of a drug, they need to be specified at the pharmaceutical item level, rather than the drug level. It is therefore more appropriate that they be the subject of a separate instrument, rather than be included in the subsection 85(2) instrument which relates to drugs and not pharmaceutical items. Subsections 85(2AA) and (2AB) are being replaced to require the relevant instrument to be a legislative instrument and to amend the wording to align with new terminology. In addition, new subsection (2AB) makes it clear that PBAC advice is required only when the effect of the instrument will be to delist a drug or medicinal preparation from the PBS on and after that day. From time to time various instruments are revoked and remade, and new subsection (2AB) makes it clear that PBAC advice is not required in these circumstances for the drugs in respect of which the revocation or variation is immediately followed by a fresh declaration. A new subsection 85(5) will enable the Minister to determine the manner of administration of a form of a listed drug. Items 61 to 62 These items make some minor amendments to the terminology used in section 85A to include references to the new concept of a pharmaceutical item. Item 63 This item inserts three new sections after section 85A. Two sections concern the placing of drugs on formularies and the third concerns the setting of prices for brands of pharmaceutical items. 7

Section 85AB: Minister may determine that a listed drug is on F1 or F2 This section provides that the Minister may, by legislative instrument, determine whether a listed drug, other than a combination drug that has no listed bioequivalent brands, is on either F1 or F2. It also sets out the criteria for F1 and F2. A drug is included on F1 if there are no bioequivalent listed brands of pharmaceutical items that contain that drug and the drug is not in a therapeutic group with another drug that has brands of pharmaceutical items that are bioequivalent. A drug that does not meet the above criteria is included on F2. The effect of proposed paragraph (4)(c) is that a drug that was previously included on F2 cannot subsequently be included on F1. However, there is one exception provided for in proposed section 99AEJ, which applies in particular circumstances following a failure to supply by a brand whose listing triggered the drug to move from F1 to F2. Section 85AC: Minister may determine that a listed drug is in Part A or Part T of F2 This section provides for the Minister to determine, by legislative instrument, that a drug is in Part A or Part T of F2. A drug is included on F2T if it is in the same therapeutic group as another drug that is on F2T, or if the drug was included on F2T at the commencement of the legislation. A drug is included on F2A if it does not meet the criteria for inclusion on F2T. F2T and F2A will cease to exist on 1 January 2011, with the two parts merging into a single F2 (subsection (5)). Section 85AD: Price agreements This section explains the concept of a price agreement. Although this is a new term, it does not involve any substantive change to the existing legislation. The term has been defined for ease of cross reference in other sections. Proposed subsection 85AD(2) enables a price agreement to be made prior to the coming into effect of the relevant determinations listing the item on the PBS and determining the responsible person. However, these determinations must be in force at the time the agreed price comes into force. Item 64 This item replaces the previous section 85B. Section 85B: Price determinations and special patient contributions This section replaces the existing section 85B and, except for proposed subsection 85B(5), does not involve any substantive changes in meaning. It has been redrafted using the terms used elsewhere in the new legislation to ensure consistency of meaning. Where the Minister and the responsible person have been unable to reach a price agreement, the Minister may determine a price. The difference between the price claimed by the responsible person and the price determined by the Minister forms the basis for a special patient contribution. A patient is required to pay the special patient contribution, in addition to the normal co-payment, to obtain that brand of the pharmaceutical item. However, there 8

will generally be a brand of the pharmaceutical item, or another pharmaceutical item, that is able to be used by the patient without having to pay a special patient contribution, ie, there will generally be a brand available at the `benchmark' or agreed price. Proposed subsection 85B(5) provides for the Minister, by legislative instrument, to determine the circumstances in which a special patient contribution may be paid by the Commonwealth, rather than the patient. This will ensure that in the very special circumstances where other brands of that item, or other items, are not suitable for a particular patient, the patient may obtain the particular brand of the item without having to pay the additional special patient contribution. Items 65 to 66 These items make several amendments to section 87. The amendment to subsection (2AA) is a minor change in terminology to avoid ambiguity with the new concept of agreed price which has been introduced by the amended legislation. The amendment to subsection (2A) relates to proposed new subsection 85B(5). It ensures patients cannot be charged the special patient contribution where it will be paid by the Commonwealth. Items 67 to 71 These items make several amendments to section 88 which deals with the prescribing of pharmaceutical benefits. New subsections (1AA) and (1B) provide that prescriptions for pharmaceutical benefits need not specify a brand or a manner of administration. The amendments to paragraph (5)(a) and subsection (6) bring the terminology into line with that used elsewhere in the amended legislation. New subsection (8) ensures that a prescriber is not able to circumvent the restrictions on repeated supply by prescribing different brands of the same item or different bioequivalent items in the one prescription. Items 72 to 73 These items make several minor amendments to section 88A as a consequence of amendments to subsection 85(2A) creating a new subsection 85(2A) legislative instrument. Items 74 to 77 Amendments are being made by these items to paragraph 98B(2)(a) and subsection 98B(3) to pick up new terms used in the new legislation. No substantive changes in meaning are involved. Items 78 to 80 These items make several amendments to section 99 which deals with payments to approved suppliers for the supply of pharmaceutical benefits. Items 78 and 80 make changes to wording to ensure consistency with the remainder of the amended legislation. Item 79 inserts new subsection (2AA) which provides for the approved pharmacist or medical practitioner to be paid an amount equal to the special patient contribution where new subsection 85B(6) applies and the Commonwealth, rather than the patient, is to pay this amount. Item 81 This item inserts new Divisions 3A, 3B and 3C at the end of Division 3 of Part VII. 9

DIVISION 3A - PRICE REDUCTIONS Subdivision A - Preliminary Section 99AC: What this Division is about This section explains each of the Subdivisions of the new Division. The Division provides for a number of price reductions: · once-only 12.5% reductions for new bioequivalent brands of pharmaceutical items, with modified provisions for new bioequivalent brands of combination items; · price reductions for single brand combination items based on price reductions for their component drugs; · 2% price reductions for pharmaceutical items that have drugs listed on F2A on 1 August 2008, 2009 and 2010; and · A 25% price reduction for pharmaceutical items that have drugs listed on F2T on 1 August 2008, with the reductions being phased in for certain prescribed items. Section 99ACA: Definitions etc This section defines new terms relating to combination items and provides for a new legislative instrument relating to 12.5% price reductions. Subsection 99ACA(3) provides for the Minister to determine by legislative instrument the classes of pharmaceutical items that have been subject to an administrative 12.5% price reduction. This is for all items, not just combination items. The new 12.5% statutory price reductions will not apply where they have previously applied or where reductions have occurred administratively. The 12.5% pricing policy has been applied administratively since August 2005 and it is therefore important to be able to determine with certainty which items have had administrative 12.5% reductions. Administrative 12.5% reductions have been applied to-date in the same manner as the statutory 12.5% reductions will be applied under the amended legislation. When a new brand has been listed and has triggered the 12.5% policy, the reductions have been applied to the new brand, to existing brands of that item, and to all items having the same drug and manner of administration as the trigger brand. The reductions have also been flowed on through administrative reference pricing to items having other drugs in therapeutic groups and reference pricing groups with the same manner of administration. (Note that the amended legislation does not make provision for flow-ons in reference pricing groups. This is because these groups only contain drugs on F1 and the 12.5% policy cannot apply in relation to a drug while it is on F1.) Where an administrative 12.5% reduction has applied to items containing a drug, new items containing that drug being listed in the PBS after that date will be required to list at a comparable price, which will be at least 12.5% less that it would otherwise have been. Although these new items were not directly subjected to the 12.5% reduction, they have been indirectly subjected to it, and they will be included in the class of items which have had a 12.5% price reduction. It is intended that the Minister will be able to specify classes of 1 0

pharmaceutical items in the legislative instrument in such a way that particular new items that are not listed on the PBS at the time of the making of the instrument may, once they are listed, be in a class specified in the instrument. For instance, the instrument may specify a class of items by referring to a class of items that have a particular drug and a particular manner of administration. Items listed on the PBS after the making of the instrument that have that drug and that manner of administration would fall within the class specified. The 12.5% policy will continue to apply administratively in one particular circumstance, that is when two new brands of a new item are listed on the one day (and the policy has not previously applied), the price at which they will be listed will be 12.5% less than it otherwise would have been. It is not possible to apply the statutory 12.5% reduction in this case because there is no existing price to reduce. Thus the policy will be applied administratively, and the Minister's determination under subsection 99ACA(3) will be amended to include the new class of items. Subdivision B - 12.5% price reductions for new brands of pharmaceutical items that are not combination items Section 99ACB: 12.5% price reductions for new brands of pharmaceutical items that are not combination items This section provides for the setting of a price for a new brand of a pharmaceutical item in the particular circumstances. When a new brand of an item is listed on the PBS, and that brand is bioequivalent to another listed brand of the same item or a brand of another item and has the same manner of administration as the already listed brand, the price of the new brand must be at least 12.5% lower than the price of the existing brand on the day before the new brand lists. (Flow-on reductions apply to the existing brand and certain other brands under proposed section 99ACH.) A 12.5% price reduction does not apply if a 12.5% reduction has already applied to the existing item, or to another item that has the same drug and manner of administration, or, if the drug is in a therapeutic group, to another item having another drug in that group with the same manner of administration. The 12.5% reduction may have been a statutory reduction or an administrative reduction. No price determination may be made for the new brand at the time of listing. This means that a price must be agreed for the new brand to be listed, and there may not be a special patient contribution (subsection (3)). However, new determinations (which involve a special patient contribution) or new agreements may be made at a later date (subsection (6)). A 12.5% reduction will be required to list the new brand even if on the day the listing takes effect, the existing brand has been delisted from the PBS (paragraph (1)(c)). The 12.5% reduction occurs provided the existing brand was listed on the PBS on the day before the new brand is listed. However, because the requirement to trigger a 12.5% reduction is that the existing brand be listed on the day before the new brand lists, dual listing of two new brands of a new item on the one day will not trigger the 12.5% reduction under this section. In such cases the 12.5% policy will be applied administratively (see subsection 99ACA(3)). 1 1

Subsection (5) provides for prices to be adjusted proportionally if the quantity or number of units of the existing brand and the new brand differ. Subdivision C - Price reductions for combination items Section 99ACC: Price reductions for single brands of combination items This section provides for price reductions for single brands of combination items in particular circumstances. A combination item is defined in proposed subsection 84(1) to mean a pharmaceutical item that has a drug that contains at least 2 other drugs or medicinal preparations, at least one of which is a listed drug. It is not necessary that the listed drug be available as a pharmaceutical benefit in the same form as the form it has as a component drug in the combination item. This section applies only if subsection 85AB(5) applies to the drug in the combination item (ie, to the combination drug that is the subject of the subsection 85(2) declaration relating to the combination item, not the individual component drugs). Subsection 85AB(5) applies if there are no bioequivalent brands of any combination item containing that combination drug. While subsection 85AB(5) applies to the drug, it is not listed on any formulary. It is subject to the special pricing provisions set out in this section and proposed section 99ACD. This section provides for the prices of single brand combination items to be adjusted whenever any statutory price reductions apply to the individually listed components drugs. Thus any 12.5%, 2% and 25% reductions applying to the component drugs will flow on to the price of the combination item. The price of the combination item must be adjusted to reflect the reduced price of each component drug and the quantity of each of those component drugs in the combination item. No price determinations may be made for single brand combination items. This means that a price must be agreed for the brand to be listed and to remain listed, and there may not be a special patient contribution. However, this section does not limit the Minister's powers to make new agreements at a later date. Section 99ACD: 12.5% price reduction for new brands of combination items This section provides for the modified application of the 12.5% pricing policy to combination items. Because the price of single brand combination items may be affected by the price of their component drugs, 12.5% price reductions applying to component drugs may already have flowed on to the price of the single brand combination items. A new bioequivalent brand of a combination item that has the same manner of administration as an existing brand must be listed with an agreed price that is 12.5% lower than the agreed price of the existing brand, except to the extent that its component drugs have already been subject to a 12.5% reduction. This requirement applies unless a 12.5% price reduction has already applied to the existing brand under the statutory provisions for this reduction or by the direct or indirect application of the administrative 12.5% price reduction policy (subsection (2)). 1 2

No price determination may be made for the new brand at the time of listing. This means that a price must be agreed for the new brand to be listed, and there may not be a special patient contribution (subsection (4)). However, new determinations (which involve a special patient contribution) or new agreements may be made at a later date (subsection (8)). A 12.5% reduction will be required to list the new brand even if on the day listing takes effect, the existing brand has been delisted from the PBS (paragraph (1)(c)). The 12.5% reduction occurs provided the existing brand was listed on the PBS on the day before the new brand is listed. However, because the requirement is that the existing brand be listed on the day before the new brand lists, dual listing of two new brands of a new item on the one day will not trigger the 12.5% reduction under this section. In such cases the 12.5% policy will be applied administratively (see subsection 99ACA(3)). Subsection (7) provides for prices to be adjusted proportionally if the quantity or number of units of the existing brand and the new brand differ. Section 99ACE: Flow-on of 12.5% price reduction to related brands of combination items Where a 12.5% reduction has been triggered under section 99ACD on a particular day (the reduction day) by the listing of a new brand of a combination item, the price reduction will also flow on to other brands of that item and to other items containing the same combination drug with the same manner of administration. Price agreements and price determinations (including determinations in respect of claimed prices) cease to be in force at the end of the day before the reduction day (subsection (2)). New agreements and determinations may be made with prices that are at least 12.5% less than they were on the previous day (subsections (3) and (4)), except to the extent that one of the component drugs in the combination item has already been subject to a 12.5% reduction (subsection(5)). Subsection (6) makes it clear that the Minister may make further agreements and determinations under section 85B in respect of these combination items at a later date. Subdivision D Other statutory price reductions Section 99ACF: Statutory price reductions This section provides the mechanism for implementing statutory price reductions for existing listed brands (ie, the 12.5% flow-on reductions, the 2% reductions and the 25% reductions, including the phased-in 25% reductions). Subsequent sections set out when each of these reductions apply. · Reductions equal to required percentage or amount (subsection (1)) Reductions equivalent to the statutory percentage are deemed, ie, they apply automatically on the specified day. The reductions will be based on the approved price to pharmacists (ie, the agreed or determined price), and the claimed price, where a claimed price is in place. Each of these prices will be reduced by the statutory percentage or amount. 1 3

The note to this subsection confirms that the statutory price reductions do not apply to a brand of a pharmaceutical item where that brand has been delisted from the PBS. Where a brand of a pharmaceutical item would be subject to a statutory price reduction on a particular reduction day, the responsible person has the option of requesting that the brand be delisted rather than be subject to the reduction. · Reductions greater than required percentage or amount (subsection (2)) However, where a reduction that is greater than the statutory percentage or amount has been offered for a brand of a listed item, new prices will be negotiated, and will be agreed or determined rather than deemed. The new price will be based on the previously approved price to pharmacists reduced by the percentage reduction offered. If, prior to the reduction day, the price was determined, both the determined and the claimed prices must reduce by more than the statutory percentage or amount. Statutory price reductions will be applied in the particular sequence set out in the table in subsection (1). The section does not limit the Minister's power to make new determinations (which involve a special patient contribution) or new agreements at a later date (subsection (4)). Section 99ACG: Other price reductions do not apply if 12.5% statutory price reduction or price disclosure reduction applies This section provides that where a 12.5% price reduction has applied to a brand of a pharmaceutical item on 1 April or 1 August of a year, a 2% reduction does not apply to that brand of that item on 1 August of that year. Where a price reduction as a result of disclosure has occurred for a brand of an item, no further statutory reductions apply to any items that have the same drug and manner of administration as that item. Section 99ACH: 12.5% statutory price reduction flow-on to related brands This section flows on a 12.5% reduction to: · all brands of the item that triggered the 12.5% reduction; · all other items that have the same drug and manner of administration as the trigger item; and · if the drug in the trigger item is in a therapeutic group, all items that have another drug in that group and the same manner of administration as the trigger item. The brands of items to which flow-ons occur are termed `related brands' of `related items'. The note to this section confirms that the new brand may be the same as the related brand and the new item may be the same as the related item. This note differs from the notes in a number of other subsections in the amended legislation, including that in subsection 99ACB(1). The latter note makes it clear that if the two brands referred to are the same brand, the two items must be different items and vice versa. This is because the same brand of the same item could not satisfy the criteria for the subsection, ie, it could not be both listed on the day before the determination day, and not listed on that day. In contrast, section 99ACH deals with flow-ons to multiple brands of multiple items. The note in this section 1 4

makes it clear that the flow-ons may occur to both the new brand of any related item and to any related brand of the new item. Flow-ons do not apply to exempt items, nor under this section to combination items. Section 99ACI: 2% statutory price reduction A 2% price reduction will apply on each of 1 August 2008, 2009 and 2010 to all listed brands of pharmaceutical items which have drugs listed on F2A on those dates. The reductions do not apply to `exempt' items. Section 99ACJ: 25% statutory price reduction on single day A 25% price reduction will apply on 1 August 2008 to all listed brands of pharmaceutical items which have drugs listed on F2T on that date. The reduction does not apply to `exempt' items. A reduction under this section will also not apply to brands of items prescribed in the regulations; reductions under proposed section 99ACK will instead apply to those brands. Section 99ACK: 25% statutory price reduction phased over 2 or more days This section provides for a 25% price reduction to be phased in for brands of items prescribed in the regulations for this purpose. It is intended that five patented brands of items on F2T will be prescribed in the regulations. Subsection (3) provides for the regulations to prescribe the days on which the prices of these items will be reduced and the percentage reductions that will apply on each of those days. The percentages prescribed must total 25%. It is intended that the regulations will prescribe annual reduction days over the remaining life of the patent for each of these items. The reduction to apply to the determined or agreed price on a particular reduction day is calculated by applying the prescribed percentage for that day to the determined or agreed price for the item in place on 31 July 2008. Where there is a determined price and a claimed price (ie, a special patient contribution applies to the brand of the item) on the day before the reduction day, the percentage reduction will also apply to the claimed price in place immediately before the reduction day specified in the regulations. DIVISION 3B - PRICE DISCLOSURE Subdivision A - Preliminary Section 99AD: What this Division is about This section summarises the Division on price disclosure requirements, and provides a summary of each of the five Subdivisions A to E. Section 99ADA: Application of this Division The effect of this section is that the price disclosure requirements commence on 1 August 2007 for brands of pharmaceutical items that have drugs in Part A of F2, and on 1 January 2011 for brands of pharmaceutical items that have drugs on F2. The section itself does not expressly refer to drugs on F2T because from 1 January 2011, F2A and F2T will merge. 1 5

The section also provides that the price disclosure requirements (and any price reductions that result from price disclosure) will not apply to brands of pharmaceutical items that are `exempt items'. `Exempt item' is defined in subsection 84(1) to mean a pharmaceutical item determined by the Minister under section 84AH to be an exempt item. Section 99ADB: Definitions etc. This section sets out the definitions used in this Division. The terms defined are as follows: · `adjusted approved ex-manufacturer price' in summary, this is the weighted average disclosed price (as described below); · `adjusted approved price to pharmacists' this is the price worked out in accordance with the regulations. The regulations may set out a formula or method for working out the adjusted approved price to pharmacists and this may be by reference to the adjusted approved ex-manufacturer price; · `approved ex-manufacturer price' this amount is also worked out in accordance with the regulations. The approved ex-manufacturer price of a brand of a pharmaceutical item may be based on the approved price to pharmacists, with the actual method or formula set out in regulations; · `price disclosure requirements' this term has the meaning given by section 99ADC. In summary, section 99ADC provides that the price disclosure requirements for a supply of a brand of a pharmaceutical item are: - to provide information prescribed by the regulations in relation to the supply of the brand of the pharmaceutical item by the responsible person to a person or entity prescribed by the regulations; and - to provide that information in the manner and form prescribed by the regulations; and - to provide that information at the times prescribed by the regulations; and · `weighted average disclosed price' in summary, the weighted average disclosed price is the price determined by the Minister, by legislative instrument. The method or formula by which the Minister will determine this will be set out in regulations. If the Minister determines a weighted average disclosed price for one brand of a pharmaceutical item then the Minister must do so for all brands of all pharmaceutical items with the same drug and the same manner of administration. The section also makes it clear that the formula for working out the weighted average disclosed price can rely on information that has been provided as part of the price disclosure requirements, as well as other information that the Department may hold on any, or all, of the brands of the pharmaceutical items (for example, volumes of PBS sales). Subdivision B - Price disclosure requirements Section 99ADC: The price disclosure requirements Subsection (1) provides that the price disclosure requirements will be set out in regulations. These requirements include the type of information that should be submitted by the 1 6

responsible person, to whom it should be submitted, and how and when it should be submitted. Subsection (2) specifies some of the information that may be required under the regulations. With regard to the supply of a brand of pharmaceutical item, this may include price, volume and timing. It may also include the type and value of any benefit provided by the responsible person in relation to the supply. If the benefit also relates to the supply of another product, information may also be required in relation to this product (eg, price, volume). Subdivision C - When the price disclosure requirements apply Section 99ADD: Mandatory compliance with the price disclosure requirements This section sets out when the mandatory price disclosure requirements apply. Subsection (1) provides that a responsible person will be subject to price disclosure for every new brand of a pharmaceutical item that is bioequivalent to a brand that was a listed brand on the day before (or the day of) the listing of the new brand, provided that both brands have the same drug and manner of administration. In the legislation, the new brand is referred to as the `mandatory brand'. It should be noted that the new brand will be subject to the price disclosure requirements even if the existing brand that was bioequivalent to the new brand delists on the day that the new brand lists. As long as a bioequivalent brand (with the same drug and manner of administration) was listed on the day before the new brand lists, the price disclosure requirements will apply to the new brand. Similarly, if two new bioequivalent brands (each with the same drug and manner of administration) list on the same day, they will both be subject to the mandatory price disclosure requirements. A note included in the section clarifies that the new brand (the mandatory brand) and the existing brand may be the same brand (for example, where one responsible person has two different products that are bioequivalent and also share the same brand). Similarly the existing item and the new item may also be the same pharmaceutical item, for example, if there are two different brands (the existing brand and the new brand) with the same pharmaceutical item. Furthermore, under subsection (2), if a responsible person has to comply with the price disclosure requirements for a `mandatory brand' (as described above), they will also have to comply with the price disclosure requirements for all other brands for which they are the responsible person that have the same drug and manner of administration as the new brand. These other brands are referred to as `related brands'. A note in the section clarifies that related brands may include the mandatory brand and the related items may include the mandatory item. A responsible person must comply with the price disclosure requirements for both the mandatory brand and the related brands from the day that the mandatory brand is listed on the PBS. This day is referred to as the `determination day' which is the day that the determination under subsection 85(6) came into force (that is, the brand determination for the mandatory brand). 1 7

Section 99ADE: Voluntary compliance with the price disclosure requirements This section provides that if a responsible person is mandatorily required to comply with the price disclosure requirements for a particular brand of a pharmaceutical item, then other responsible persons, who are responsible for brands with the same drug and manner of administration, may volunteer to comply with the price disclosure requirements. If a responsible person elects to comply with the voluntary price disclosure requirements for a brand of a pharmaceutical item, then they must also elect to comply for all brands for which they are the responsible person that have the drug and manner of administration. The responsible person must give a copy of the election to the Minister within seven days after the day the election is made (if they do not do so then the election is taken never to have been made). Furthermore, the responsible person cannot revoke this election (noting that section 99AEL does however describe one circumstance in which an election will be taken to be revoked). Subdivision D - Consequences for failing to comply with the price disclosure requirements Section 99ADF: Offence for failing to comply with the price disclosure requirements Subsection (1) provides that if a person is required to comply with the price disclosure requirements for a supply of a brand of a pharmaceutical item and they fail to do so, they commit a criminal offence. As responsible persons are the only entities required to comply with the price disclosure requirements, this offence applies only to such entities. If a Court finds a responsible person guilty, then the responsible person is liable for a penalty of up to $33,000 (60 penalty units) if the entity is a corporation and up to $6,600 if the entity is an individual. Subsection (2) ensures that subsection 4K(2) of the Crimes Act 1914, which creates daily or continuing offences, does not apply to such an offence. Section 99ADG: Other consequences for failing to comply with the price disclosure requirements In addition to the criminal offence, this section provides that if a responsible person who is required to comply with the price disclosure requirements for a particular brand fails to do so, the Minister may: · delist that particular brand of that particular pharmaceutical item; · delist any brand of any pharmaceutical item for which the responsible person is responsible (be it another brand or the same brand as the disclosure brand); and · refuse to list any new brand of any pharmaceutical item for which the responsible person is responsible (be it another brand or the same brand as the disclosure brand). If the only listed brand of a pharmaceutical item would be that of the responsible person, then the Minister may refuse to list the new drug, or new drug in a particular form or manner of administration. Subsection (4) of this section clarifies that such refusals are not legislative instruments for the purposes of the Legislative Instruments Act 2003, and is included to assist readers. 1 8

In deciding whether to take one or more of these actions, the Minister may take into account: · the number of times that the responsible person did not comply with the price disclosure requirements for the particular brand, or for any brand that was subject to the price disclosure requirements and for which the responsible person has also failed, in the past, to comply with the price disclosure requirements; · the period of time over which the various failures to comply with the price disclosure requirements have occurred; · the duration of each non-compliance; · the reasons for the non-compliance; · whether the reasons are, in the opinion of the Minister, reasonable; and · any other matter that the Minister thinks is relevant. Subdivision E - Price reduction Section 99ADH: Price reduction based on information provided under the price disclosure requirements This section sets out when a price reduction, based on price disclosure, will occur, and how the new price will be set. In summary, a price reduction will occur if the weighted average disclosed price is at least 10% less than the approved ex-manufacturer price. Price reductions that result from price disclosure will apply to all brands and forms of the drug with the same manner of administration. This will be the case irrespective of whether the brands themselves were subject to the price disclosure requirements. If this is the case, then the responsible person will be notified of the new adjusted approved ex-manufacturer price (ie, the weighted average disclosed price) and the adjusted approved price to pharmacists. The adjusted approved price to pharmacists will be based on the adjusted approved ex-manufacturer price using the formula set out in the regulations. Any price reduction that results from price disclosure, will not take effect until: · at least 6 months after the affected responsible person has been notified that the price reduction will occur (to assist readers, the section clarifies that the notice is not a legislative instrument for the purposes of Legislative Instruments Act 2003); and · not before 1 August 2009 for F2A and 1 August 2012 for F2T. The price disclosure related price reductions will only take effect on days set out in regulations (this is referred to in the Bill as a `prescribed day'). It is proposed that the regulations will prescribe 1 August or 1 April of any year as the `prescribed days' on which a price reduction (that results from disclosure) can occur. Where an approved price to pharmacists has been determined under subsection 85B(2) (rather than agreed), the difference between the price claimed by the responsible person and the price determined by the Minister forms the basis for a special patient contribution. The claimed price will also be reduced as a result of price disclosure. 1 9

Subsection (5) clarifies that nothing in this section limits the Minister's powers to make other price agreements or to make further determinations under section 85B, after the day on which the reduction occurs as the result of price disclosure. DIVISION 3C - GUARANTEE OF SUPPLY Subdivision A - Preliminary Section 99AE: What this Division is about This section explains the purpose of the Division and summarises the requirements detailed in each of the Subdivisions A to G. Section 99AEA: Definitions This section sets out the key definitions relied on in Division 3C. The key terms that are defined are: · `fails to supply' this has the meaning given by section 99AEE. In summary, section 99AEE provides that a responsible person for a brand that is subject to the guarantee of supply requirements, fails to supply the guaranteed brand if a wholesaler or an approved pharmacist requests the responsible person to supply an amount of the guaranteed brand and the responsible person fails to do so within a reasonable period (or such other period prescribed in regulations). · `guaranteed brand of a guaranteed item' - this has the meaning given by sections 99AEC and 99AED. These sections set out those brands of pharmaceutical items that must comply with the guarantee of supply requirements. · `guaranteed period' This is the period during which a responsible person must comply with the guarantee of supply requirements for a particular brand and is described in more detail in subsections 99AEC(3) and subsection 99AED(3). · `unable to supply' This term has the meaning set out in section 99AEF. In summary, a responsible person is unable to supply a guaranteed brand if the responsible person would be unable to supply any amount of the guaranteed brand of the guaranteed item within a reasonable period of being requested to do so by a wholesaler or an approved pharmacist. Subdivision B - Guarantee of supply Section 99AEB: Guarantee of supply This section provides that a responsible person for a guaranteed brand must supply that guaranteed brand for the period of the guarantee. The concepts of guaranteed brands and guaranteed period are described in sections 99AEC and 99AED. Sections 99AEE and 99AEF describe the circumstances in which a responsible person fails to supply, or is unable to supply, and Subdivision F describes the possible consequences of failing to supply or being unable to supply. 2 0

Subdivision C - Brands that are guaranteed brands Section 99AEC: Guaranteed brand: new brand This section provides that the guarantee of supply requirements apply to newly listed brands where the newly listed brand is bioequivalent to an existing brand (with the same drug and manner of administration). This brand is referred to as the guaranteed brand. As was the case in relation to price disclosure, the new brand will be subject to the guarantee of supply requirements even if the existing brand that was bioequivalent to the new brand delists on the day that the new brand lists. As long as a bioequivalent brand (with the same drug and manner of administration) was listed on the day before the new brand lists, the guarantee of supply requirements will apply to the new brand. Similarly, if two new bioequivalent brands (each with the same drug and manner of administration) list on the same day, they will both be subject to the guarantee of supply requirements. The guarantee of supply requirements will apply to a new brand even if the new brand and the existing brand share the same brand or the same pharmaceutical item. The section also provides that the guarantee of supply period for guaranteed brands is 24 months starting on the day the guaranteed brand is listed (this day is referred to as the day on which the determination under subsection 85(6) comes into force in relation to the guaranteed brand of the guaranteed item). However, this period is shortened if: · another new bioequivalent brand is listed. That is, if at a point in time after the commencement of the 24 months, the Minister makes a determination under subsection 85(6) in relation to a new brand that is bioequivalent to the guaranteed brand (with the same drug and manner of administration); or · one of the existing bioequivalent brands offers a lower price and this is agreed by the Minister. This circumstance is described in section 99AED. In either of these cases the brand that was originally subject to the guarantee of supply requirements (the guaranteed brand) will stop being subject to the guarantee of supply requirements and the requirement will instead apply to the next new bioequivalent brand (the later brand) or the brand that first offered the voluntary price reduction that was subsequently accepted by the Minister. As is highlighted in a note within the section, the later brand and the guaranteed brand may be the same brand or the later item and the guaranteed item may be the same pharmaceutical item. Similarly the guaranteed brand may be the same brand as the brand for which a voluntary price reduction was offered. Section 99AED: Guaranteed brand: first brand to offer a lower price In addition to applying to newly listed brands, the guarantee of supply requirements also apply to existing brands: · for which the responsible person is the first to offer a price reduction that is accepted by the Minister and subsequently becomes the approved price to pharmacists; and · that are brands of a pharmaceutical item that have a drug that is on F2. This ensures that the guarantee of supply requirements do not apply to drugs on F1. 2 1

This recognises that one of the motivations for implementing guarantee of supply arrangements is to minimise the risk of companies offering large and unsustainable price reductions and subsequently failing to supply. Such price reductions may occur either at the time of listing or at a subsequent time, if the responsible person elects to volunteer a price reduction. The proposed guarantee of supply provisions are therefore proposed to apply in these two different situations. Again, the guarantee of supply period for such brands is 24 months or until another new bioequivalent brand lists or one of the existing bioequivalent brands offers a lower price and this is agreed by the Minister. Subdivision D - Meaning of fails to supply and unable to supply Section 99AEE: Meaning of fails to supply This section sets out what is meant by `failure to supply'. In summary, a responsible person for a guaranteed brand fails to supply the guaranteed brand if they are requested to supply (by a wholesaler or a pharmacist) and they do not do so within a reasonable period after receiving the request (or within a period prescribed in regulations). Section 99AEF: Meaning of unable to supply This section sets out what is meant by `unable to supply'. A responsible person for a guaranteed brand is unable to supply the guaranteed brand if the responsible person would be unable to supply any amount of the guaranteed brand within a reasonable period of being requested, on that day, by a wholesaler or an approved pharmacist to supply the guaranteed brand. This concept is for use in the case where, for example, a brand has not actually been requested for supply by wholesalers and pharmacists (possibly because it has just been listed and the brand is not well known to wholesalers or pharmacists). If, however, the responsible person would not be able to supply if they had been requested, then they will be considered to be `unable to supply' and in breach of the guarantee of supply requirements. Subdivision E - Requirement to notify Minister of failure or inability to supply etc. Section 99AEG: Requirement to notify Minister of failure to supply etc. This section provides that if during the guarantee of supply period for a guaranteed brand, the responsible person for the guaranteed brand: · forms the belief that they will fail to supply, or will be unable to supply the guaranteed brand, then, as soon as practicable, they must notify the Minister, in writing, of that belief; or · does fail to supply, or is unable to supply, the guaranteed brand, then, as soon as practicable, they must notify the Minister, in writing, of that failure or inability (unless the person has already notified the Minister as above). These two requirements are underpinned by a criminal penalty for non-compliance. The maximum penalty that may be applied by a Court to a responsible person, who has been found guilty of failing to comply with either of these requirements to notify the Minister, is $33,000 for a corporation (60 penalty units) and $6,600 for an individual. Subsection 4K(2) 2 2

of the Crimes Act 1914, which creates daily or continuing offences, does not apply to the offence. The legislation does not create an offence for failure to supply per se because there may be a range of circumstances in which failure to supply is beyond the control of the responsible person or may be reasonable in the circumstances. Subdivision F - Consequences for guaranteed brands of failure or inability to supply Section 99AEH: Minister's powers if responsible person fails to supply, or is unable to supply, guaranteed brand This section enables the Minister to take the following actions in the event of a failure to supply or inability to supply: · delisting of the brand that was subject to the guarantee of supply requirements; · delisting any other brand for which the responsible person was responsible; and · refuse to list any new brand of any pharmaceutical item for which the responsible person is responsible. If the only listed brand of a pharmaceutical item would be that of the responsible person, then the Minister may refuse to list the new drug, or new drug in a particular form or manner of administration. Subsection (4) of this section clarifies that such refusals are not legislative instruments for the purposes of the Legislative Instruments Act 2003, and is included to assist readers. The Minister will have the discretion whether or not to take any of the actions detailed above, taking into account the particular circumstances. In determining whether to take one or more of the actions detailed above, the Minister may take into account: · the number of times the responsible person failed to supply, or was unable to supply, the guaranteed brand or any other guaranteed brand of the responsible person; and · the period in which those failures or inabilities occurred; and · the duration of those failures or inabilities; and · the reasons for those failures or inabilities; and · whether those reasons are, in the Minister's opinion, reasonable; and · any other matter the Minister thinks is relevant. Subdivision G - Consequences for other brands Section 99AEI: Minister may increase approved price to pharmacists etc. if brand delisted As other brands may have been adversely affected by the initial listing of the brand that failed to supply (because, for example, the other brands were subject to a 12.5% price reduction or because the delisted brand offered a voluntary price reduction), this section provides that the Minister has a discretionary power to increase the price of any brands that suffered a price reduction because of the original listing of the brand that the Minister has subsequently decided to delist in accordance with section 99AEH. Although the Minister always has had the general power to agree increased prices, this provision has been included to make this explicit in these circumstances and confirm, for the avoidance of doubt, that the prices will not be altered retrospectively. 2 3

The Minister adjusts the price of these other brands by either making or varying: · a price agreement to increase the agreed price (under section 85AD); or · a determination to increase the determined price and the claimed price (under section 85B). If the Minister decides to exercise his/her power to increase the prices of other brands as a result of the delisting of the brand that failed to supply, then if a mandatory 12.5% price reduction occurred at the time the delisted brand was listed (that is, if section 99ACB(1) or 99ACD(1) applied), then the Minister may also (by legislative instrument) determine that either of these subsections is determined to have not applied for the purposes of deciding whether the 12.5% reduction should apply to any subsequent listings. This means that if another new brand subsequently lists (that is, a determination is made under section 85(6) in relation to a new brand), then the 12.5% reduction will be re-triggered. Section 99AEJ: Minister may determine drug is on F1 if guaranteed brand delisted This section provides that where the original listing of the brand (that has been delisted as a consequence of failure to supply) triggered a move of a drug from F1 to F2, the Minister may, at his/her discretion, move the drug back from F2 to F1. This will only occur if: · the drug would otherwise have remained on F1 but for the listing of the brand that has subsequently been de-listed as the result of the Minister exercising his/her discretion to de-list under section 99AEH; · after the delisting of a brand by the Minister (as the result of a failure to supply) there is only one listed brand of a pharmaceutical item that is bioequivalent to the de-listed brand; and · the drug satisfies the criteria for F1 (other than the criteria described in paragraph 85AB(4)(c)). Section 99AEK: Minister may revoke or vary formulary determination if guaranteed brand delisted This section provides that where the delisted brand triggered the listing of a combination drug on F2, the Minister may, at his/her discretion, remove the drug from F2 and restore it to the separate list of combination drugs. The Minister achieves this by revoking or varying a determination under section 85AB. Without limiting the Minister's powers to revoke or vary such a determination, the section provides that the Minister may do this if: · the Minister delisted a brand in accordance with section 99AEH and the brand that was delisted was subject to guarantee of supply requirements under subsection 99AEC(2); · after the revocation or variation comes into force, there is only one listed brand of a pharmaceutical item (the remaining item) that is bioequivalent to the delisted brand of the existing item and this remaining item is a combination item; and · the drug in the remaining item was not on F1 or F2 on the day before subsection 99AEC(2) began to apply to the delisted brand of the existing item. 2 4

Section 99AEL: Minister may determine price disclosure election is revoked if guaranteed brand delisted This section provides that, if, as a result of the delisted brand's initial listing, another responsible person elected to be subject to the price disclosure requirements, that responsible person may request the Minister to revoke that election and the Minister may determine that the election is revoked. For the purposes of clarity and to assist readers, the section makes it clear that this decision is not a legislative instrument. The Minister may only make such a determination at the request of the responsible person and where there has been no intervening event such as the listing of another brand that may also have caused the responsible person to elect to be subject to the price disclosure requirements. The effect of the Minister making such a determination is that the responsible person will no longer be subject to the price disclosure requirements set out in section 99ADC. Item 82 and 83 These items amend section 101 to confer additional functions on the PBAC. Proposed subsection 101(3BA) requires PBAC to specify whether a drug or medicinal preparation it is recommending should be available as a pharmaceutical benefit should be treated as interchangeable on an individual patient basis with another drug or medicinal preparation. This advice may be taken into account by the Minister is deciding whether to place the drugs or medicinal preparations in a therapeutic group. (see proposed section 84AG). Proposed subsection 101(4AB) requires PBAC to provide advice to the Minister about pharmaceutical items that it considers satisfy some of the criteria for exempt items. The Minister may take account of this advice in making a decision to determine that an item is an exempt item (see proposed section 84AH). Items 84 to 93 These items make a number of amendments to section 103 to ensure consistency with new terminology introduced by the amended legislation. Part 2--Application, saving and transitional provisions Item 94 Transitional provision--determination under subsection 84C(7) of the National Health Act 1953 Subsection 84C(7) provides that the Minister may determine the manner in which the agreed price for all, or any, pharmaceutical benefits and repatriation pharmaceutical benefits is to be ascertained. This item provides that if a determination under subsection 84C(7) is in force immediately before the commencement of the amendments to the Act (that is, 1 August 2007) then the determination is taken to have been made under that subsection as in force immediately after 1 August 2007. This ensures that despite the section being amended, this will not affect the validity of determinations made under that section - they will continue in force after 1 August 2007. 2 5

Item 95 Application of amendments to section 85 of the National Health Act 1953 Section 85 of the Act enables the Minister to make declarations and determinations in relation to the drugs and brands to which the legislation applies. This section is being significantly amended from 1 August 2007. This item provides that the amendments made to section 85 of the Act apply only to declarations or determinations under that section that come into force on and after 1 August 2007. Item 96 Transitional provision--determinations under subsection 85(6) of the National Health Act 1953 In summary, subsection 85(6) of the Act enables the Minister to determine brands of drugs to which the Part of the Act relating to pharmaceutical benefits applies. This item provides that if, on the day before the amendments in this Bill take effect (ie, on 31 July 2007), a brand determination was in force under subsection 85(6) in relation to a drug in a particular form, then that brand determination is taken to have been in force on that day for the purposes of the following new provisions: · subsections 99ACB(1), (5) and (6) these subsections relate to the 12.5% price reduction for new brands of pharmaceutical items that are not combination items; · subsection 99ACC(1) this relates to price reductions for single brands of combination items; · subsections 99ACD(1), (5) and (7) - these subsections relate to the 12.5% price reduction for new brands of combination items; · subsections 99ACE(2), (3) and (4) these subsections relate to flow on of 12.5% price reductions to related brands of combination items; · subsections 99ACF(1) and (2) these subsections relate to statutory price reductions; · subsection 99ADD(1) this relates to mandatory compliance with price disclosure requirements; and · subsection 99AEC(2) this subsection relates to the new guarantee of supply requirements. The item also provides that if the determination day or reduction day referred to in subsections 99ACB(1), 99ACC(1), 99ACD(1), 99ADD(1) or 99AEC(2) is 1 August 2007 (ie, the day the amendments in Schedule 1 of the Bill commence), then: · subparagraphs 99ACC(1)(e)(ii) and 99ACD(1)(c)(iv) are to be disregarded these subparagraphs need to be disregarded (if the determination or reduction day is 1 August 2007) because they refer to the manner of administration of a drug. However, the capacity for the Minister to make determinations in relation to the manner of administration will only exist from 1 August 2008; and · subparagraphs 99ACB(1)(c)(iii), 99ADD(1)(d)(iii) and 99AEC(2)(c)(iii) are to be disregarded to the extent that they refer to the manner of administration of a pharmaceutical item. Item 97 Application of amendments relating to prescriptions As a result of changes to terminology used in the Act (surrounding the concepts of pharmaceutical benefits and pharmaceutical items) a number of minor consequential changes 2 6

have been made to provisions relating to prescriptions (including to subsections 4(2), 84(1B), 88(1AA), 88(1B) and 88(8)). These changes are consequential only and are not intended to have any impact on the practices of doctors or pharmacists in relation to prescriptions. The purpose of this item is to provide that the amendments made to these sections apply only to prescriptions written on, and after, 1 August 2007. Item 98 Application of amendments to section 84AAA of the National Health Act 1953 Section 84AAA relates to the early supply of a specified pharmaceutical benefit. While there are no policy changes in relation to early supply of such pharmaceutical benefits, some consequential changes are required to the terminology used in this section. This item clarifies that the amendments made to this section apply in relation to supplies made on, or after, 1 August 2007 of pharmaceutical benefits that have pharmaceutical items that are specified in a legislative instrument made under section 84AAA on or after 1 August 2007. Item 99 Transitional provision--approved price to pharmacists, agreed price, determined price and claimed price The amendments to the Act make changes to the definitions of (or create new definitions for) the terms, approved price to pharmacists, agreed price, determined price and claimed price. A number of the new sections that use these terms, refer to the approved price to pharmacists, agreed price, determined price or claimed price as at the day before the determination day or reduction day. If the determination day or reduction day is 1 August 2007 (ie, the date the new definitions take effect) and the new section refers to approved price to pharmacists, agreed price, determined price or claimed price as at 31 July 2007(before the new definitions take effect) then it may not be entirely clear what is being referred to. This item makes this clear by providing that if, in a particular case, the determination day or the reduction day is 1 August 2007 and the relevant section refers to the approved price to pharmacists, agreed price, determined price or claimed price on the day before the determination or reduction day (ie, 31 July 2007) then the definition of those terms will be the definition that existed as at 31 July 2008 under the current law (prior to it being amended). Item 100 Transitional provision--agreements under section 98B This item provides that a price agreement that is made between the Minister and manufacturer prior to 1 August 2007, continues in force from 1 August 2007. Further, it is treated as if the agreement had been made under the new section 85AD which is the new provision dealing with price agreements. 2 7

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