[Pharm-policy] PhRMA NTE submissions is for Australia

[James Love]

One of the longest PhRMA NTE submissions is for Australia.  Here
is the part of the PhRMA submission that concerns the Australia
cost containment policies, which PhRMA claims are a barrier to US
trade:


  Jamie


http://www.phrma.org/issues/intl/australia.html

 [snip]

Pricing and Cost Containment Policies' Impact on IPR and Market
Access

The Australian Government operates effectively as a monopsony
purchaser of prescription pharmaceuticals through its
operation of the Pharmaceutical Benefits Scheme (PBS). The PBS
system accounts for approximately 80% of total
prescription drug sales. The PBS aims to provide reliable and
affordable access to medicines for the Australian
community. Under the PBS, the cost of pharmaceuticals to
consumers is limited by capped co-payments and safety net
provisions, with the Government paying the remainder.

The Industry Commission Inquiry into the Pharmaceutical Industry
(May 1996) found that "the Government's use of
market power saves taxpayers up to $A860 million a year." In
effect, the industry thus subsidizes taxpayers to this
extent.

In recognition of this price suppression, in April 1997, the
Australian Government announced the Pharmaceutical
Industry Investment Program (PIIP), under which the Government
will allocate A$300 million over the next 5 years to
eligible companies in return for activity. One month later, in
May 1997, the Australian Government announced its
intention to introduce Therapeutic Group Premiums (reference
pricing) from February 1, 1998, for certain classes of
drugs which have "similar clinical activity." For each of these
classes, a base or benchmark price was established. The
Government reimburses drugs in the class to the level of the
base/benchmark price product. For other drugs in the class,
patients have to pay any additional premium.

Originally, six classes of drugs were proposed for the TGP;
however, strong opposition by industry and medical groups to
the inclusion of beta blockers and SSRIs resulted in their
exemption from the TGP. The four remaining classes affected
by the TGP include: ACE inhibitors and calcium channel blockers
used to treat high blood pressure and heart disease;
the HMG class of drugs for treating high cholesterol; and H2
receptor antagonists for the treatment of ulcers. 

The Government hopes to achieve PBS savings of A$460 million over
4 years, through the introduction of TGPs. The
TGP proposal is expected to return to Government revenue almost
double the average A$60 million per year
foreshadowed in the PIIP.

The TGP proposal should be considered in the context of
Australia's mandatory cost effectiveness criteria, under which
manufacturers must already justify the price of their drug
through economic and therapeutic evidence, in order to gain
reimbursement.

The research-based pharmaceutical industry maintains the position
that there are several reasons why TGPs are not
appropriate in the Australian reimbursement system. More
specifically, TGPs:

     contradict the principle of evidence-based medicine; 
     do not recognize that some products are not interchangeable, 
     and that individuals do not necessarily respond in an  
     average or predictable way; 
     shift costs to other arms of the healthcare system; 
     tend to create a two-tier system of drug access; 
     send a negative message to industry because prices in the  
     Australian market are already low; 
     discourage R&D and marketing of the latest products; 
     result in loss of investment and employment. 
     undermine the principles of patent protection 



Impact on intellectual property

The TGP system effectively negates the economic value of the
entire remaining patent life of a patented medicine in the
affected classes. This occurs through a combination of the way in
which the proposal operates and the culture of the
Australian health care system. The system involves the grouping
of newer patent-protected products with generic
versions of older molecules within a therapeutic class (e.g.
generic captopril is grouped with patented enalapril; generic
cimetidine is grouped with patented famotidine).

The benchmark product/price for each class is likely to be set by
a generic product - in effect, this generic product
becomes the 'de facto' generic for all other patented products in
the class, regardless of patent life. The Government will
reduce the level of reimbursement it currently provides to all
products in the class to that of the benchmark product. The
Government claims that the TGP system allows manufacturers to
charge whatever price they wish - a claim which is
theoretically correct.

However, the PBS, which has operated for over 50 years, has
created a climate in which free medicine (apart from
the co-payment to Government) is seen as the norm. Market
experience has shown that consumers are unwilling
to pay more than a A$2 premium for any medicine (in addition to
any co-payment).

Given this environment, manufacturers have the choice of
maintaining their current prices and losing substantial volume,
or reducing their price and revenue. In either case, the economic
return is substantially less than would otherwise have
occurred in the absence of TGPs. The reduced return is sustained
throughout the remaining life of any patent, devaluing
the value of the intellectual property.



Impact on market access

In the Australian context, market access effectively equates to
reimbursement. This is because the PBS system
accounts for approximately 80% of total prescription drug sales.

The 1996 Industry Commission inquiry found evidence that
community access to some drugs was adversely affected by
the PBS; and that while Australia has not suffered too much in
this area, the position is unlikely to be sustainable because
when low prices are taken into account, the overall impact of the
PBS has been to reduce sales revenues of some
companies, increasing the risk of non-supply.

The introduction to TGPs inevitably will lead to increased risk
of non-supply. As Paul Gross, a consultant to the
research-based industry, concludes in his report, "There is
serious concern amongst pharmaceutical manufacturers that
a second stage of TGP pricing in Australia might attempt to use
the price relativities established in prior economic
appraisals of different drugs (cost effectiveness analysis) to
readjust the first year relative prices between reference
priced and non reference priced drugs. Such an adjustment would
debase both future and past economic appraisals of
drugs on the PBS and places manufacturers in double jeopardy when
an arbitrary price control scheme (i.e., TGP) is
superimposed on the more objective world recognized economic
appraisal guidelines."

A concise example of Gross' conclusion is where a new proton pump
inhibitor would have to prove cost effectiveness
against generic cimetidine. Given the low price of cimetidine, it
will be hard to justify cost effectiveness to a level
sufficient to make it economically worthwhile for a manufacturer
to gain reimbursement of the PPI. The likely outcome is
that the PPI will not be reimbursed because the subsidy offered
by the Government is too low, and the product will not be
made widely available to the Australian community. Market access
is effectively denied.



-- 
James Love
http://www.cptech.org
mailto:love@cptech.org
voice 1.202.387.8030