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Pharmaceuticals in Australia: priorities in a teaching hospital.

The Australian government established the Pharmaceutical Benefits Scheme (PBS) to provide the Australian community with access to necessary therapeutic substances at the most reasonable cost to government and consumers, consistent with reliable supply. PBS was developed in 1950 to provide "life-saving and disease-preventing drugs" to the community at no cost. The list was originally quite small but now comprises some 1,100 items, including different strengths and dosage forms. Copayment for general patients was introduced in 1960, and these consumers currently pay up to $15.90 per PBS prescription. (All monetary figures in this article are in Australian dollars. The conversion rate on July 27, 1993, was AS1 = US$1.47) A smaller copayment also applied to concessional patients (those, other than pensioners, who qualify because of low income or unemployment). Copayments for pensioners were introduced for the first time on Nov. 1, 1990. The copayment for concessional patients is currently $2.60 per prescription.

There is also a "safety net" limit on payments for PBS medicines. It is especially designed for people who are chronically ill and for families that have a lot of unexpected sickness in a particular year. The limits for general patients and their families is $312.30, at which stage the copayment decreases to $2.60 per prescription, with a second tier at $364.30, after which prescriptions are free for the remainder of the year. For concessional patients, the limit is $135.20, after which prescriptions are free.

The objectives of the PBS are to:

* Provide timely and reliable access of the Australian community to necessary medicinal products of appropriate quality, safety, and efficacy.

* Promote rational and cost-effective use of medicines.

* Assist in measures to develop a viable Australian drug manufacturing industry.

* Contain the costs of the scheme.

Government, through PBS and the Repatriation Pharmaceutical Benefits Scheme (RBPS), is a monopsony purchaser of drugs in Australia. Commonwealth expenditure on medications subsidized under PBS and RPBS amounted to $1.3 billion in 1991/92, accounting for approximately 80 percent of the market and directly influencing the prices of drugs in the hospital market. PBS is approximately 8 percent of all federal government health expenditures.

Drug companies can market a drug after it receives general marketing approval from the Therapeutics Goods Administration (TGA). For new drugs and prescription drugs, this is usually based on a recommendation of the Australian Drug Evaluation Committee (ADEC). In most cases, market penetration is only obtained if the drug attains PBS listing.

After marketing approval is granted by TGA, companies can lodge applications with the Pharmaceutical Benefits Advisory Committee (PBAC) for the product to be considered for listing with PBS. Since January 1993, all new drugs must be supported by evidence of their cost effectiveness. If PBAC recommends the drug for listing, it informs the Pharmaceutical Benefits Pricing Authority (PBPA). PBPA is then responsible for negotiating with the supplier the price to be paid for the drug by the government.

PBS prices are determined taking into account eight factors:

* The prices of alternative brands of the same drug.

* Comparative prices of the drugs in the same therapeutic group.

* Cost information supplied by the manufacturer.

* Prescription volumes, economies of scale, and other factors, such as expiration date, storage requirements, product stability, and special manufacturing requirements.

* Prices of the drug in other, reasonably comparable, countries.

* The level of activity being undertaken by the drug company in Australia, including new investment, production, and research and development.

* Other relevant factors that the applicant company wishes PBPA to consider.

* Other directions as advised by the Minister of Health.

PBPA determines prices, taking into account the advice of PBAC on the therapeutic benefits of the drugs in comparison with other drugs. In general, prices are established against a reference or benchmark product within a pharmacological group. Often, a margin of 30 percent over manufacturing cost is applied to the benchmark product, although this percentage is varied on the basis of factors such as PBAC's advice on the therapeutic importance of the product and its volume of use.

Although some pharmaceutical manufacturers have claimed that PBS prices are low compared to those in other developed western countries, very few have been willing to delist products. Under existing arrangements, the private prescription market will continue to remain small. Another government program provides price increases for certain products when the company demonstrates a commitment to increased competitive activity in Australia. In addition, an increasing number of drugs listed with PBS have restrictions on use. This is done by an authority system where drugs are rationed by making it difficult for patients to fill prescriptions and by building delays between prescriptions. Restricted listings include products for which prescribing is permitted only after the doctor attests that all cheaper alternatives have been tried. These include cancer drugs and human growth hormone. The list of restricted access drugs is likely to grow because of the increasing numbers of effective but very expensive drugs.

The National Health Strategy, in its fourth issues paper, reported on three studies that have looked at different issues relating to pharmaceutical drug use: a literature review focusing on problems and strategies to improve drug use in Australia and overseas; a research study examining the use of prescription drugs among older Social Security beneficiaries in nursing homes, hostels, and the general community; and a survey of selected private hospitals examining supply arrangements, patterns of use, and cost of pharmaceuticals.

Improving drug use outcomes requires a systems approach. The issue of drug use could be seen in the context of a total quality management approach. A package of measures needs to be directed at the different stages of drug use--e.g., evaluation of efficacy, supply and cost arrangements, prescribing and dispensing patterns, patient compliance, and patient outcomes--and at the multiple organizations and individuals involved in making decisions about drug use--doctors, pharmacists, and other health professionals; consumer associations; health care institutions; and governments.

The measures proposed to reduce the adverse consequences of drug use and to improve the outcomes from drug use proposed by the National

Health Strategy are:

* Development of risk profiles to assist health professionals, caregivers, and patients themselves to recognize people who are at high risk of adverse drug outcomes.

* Creation of a pharmaco-epidemiological database to improve scientific understanding of drug use and outcomes, to monitor adverse drug reaction reports, and to evaluate alternative methods of providing drug services.

* Establishment of a National Pharmaceutical Drug Education Program to educate health professionals, patients, and caregivers on improved drug delivery and to improve reporting of adverse drug outcomes.

* Creation of community networks and processes to improve medication management for high-risk people.

* Development of drug use review processes for patients in hospitals, nursing homes, hostels, and other health care or residential institutions to improve drug use outcomes.

* Development of widespread use of quality assurance and audit processes, including establishment of outcome standards for drug use, to inform and support health professionals' decision making about drug use.

* Changes in the pharmaceutical drug supply arrangements for private hospitals.

The commonwealth government provides bulk grants to the states for the costs of pharmaceuticals supplied to inpatients and outpatients serviced by public hospitals. PBS covers patients in the community and in private hospitals. PBS does not cover all the needs of private hospitals, and other drugs are often covered by private insurance. PBS does not provide for all drugs that might be needed for a patient in a private hospital or needing certain types of care for a major illness, e.g. cancer. Thus, anesthetic and neuromuscular blocking drugs, analgesics, preparations for eye surgery, specialized antibiotics, immunosuppressant, and some chemotherapeutic and highly specialized drugs are not provided through PBS.

In recent times, expensive specialized drugs used within public hospitals have been putting increasing pressure on hospital budgets. The Commonwealth is now funding the use of certain drugs used for outpatients, such as erythropoietin, cyclosporin, and anti-AIDS drugs. Public hospitals are also controlling much more carefully their use of new drugs. Nonetheless, public hospital drug budgets have been under stress for a decade. The release of new drugs to treat disorders not previously available, and newer versions of antibiotics, antihypertension etc. generally pressure budgets because the increased cost is often out of proportion to the therapeutic gain.

One Hospital's Approach

The Royal Adelaide Hospital is a 1,000-bed adult general teaching hospital complex. Its drug budget has doubled over the past decade from $4.2 million to $8.7 million. The Drug Committee has contained this increase by use of a formulary, often with restrictions exceeding those of PBS; improved stock control; and drug utilization reviews. Although these measures have been extremely successful, concern remained over continuing pressure on the drug budget and growing requests to use new drugs in the hospital. By mid-1992, 19 new drugs that had been assessed as clinically effective were waiting to be released for use in the hospital. The Drug Committee decided to develop a priority list for outstanding drug requests. It was important that the prioritization method be:

* Simple to use (i.e., use data that are readily available through the published literature).

* Objective where possible.

* Reproducible and reliable.

* Discriminative.

After many meetings, considerable discussion, and several draft models, the Drug Committee developed a model. Specific guidelines for each drug are developed by relevant experts to establish the protocol for drug use at the hospital. Only requests that have received approval from the Drug Committee on clinical/scientific grounds are considered for priority ranking. A ranking system based on supply and cost is used to minimize subjectivity and enhance consistency in the decision making process. The goal was to provide a ranking of drug requests on the basis of the greatest benefit for the most patients for each dollar spent.

For each drug request, scores are allocated for quality (figure 1, above) and cost (figure 2, above). Scores are obtained from the information provided with the submission. The guidelines established by relevant experts and a further review of the scientific literature are necessary. The ratio of total quality score and total cost score is used to rank requests (i.e., the higher the ratio the greater the priority).

Using this method, the Drug Committee was able to deal with 14 new drug requests for 19 indications during the 1991/92 financial year. If all of these drugs had been approved for use, the total cost would have been $750,000 per annum. The hospital decided that it only had $300,000 to apply to new drug use in this period. As a result, of the 19 drugs forwarded for funding, only the first 11 were released for use in patient care. This process was described in full not only at the Drug Committee but at several clinical staff meetings and gained acceptance as a fair and appropriate method to rank drugs in priority for use in patient care.

Because the system has been in use for only a few months, it is not possible to assess the long-term effectiveness of this program. There is no doubt that, in the short term, it has been a very satisfactory method that has gained acceptance without an apparent detrimental effect on patient care. There is no doubt that, with time and experience, further improvements in the preciseness of the method will occur. For example, at the moment, the outcome of drug treatments is assessed at the end of a one-year period. It is now known that several of the new expensive types of drugs have a limited response rate in the first year of use. After that period, patients can be selected on the basis of that response and gain almost 100 percent effectiveness from use of the drug. At this stage, such long-term effects have not been incorporated into the methodology.


There is no doubt that PBS is a most effective scheme for both the taxpayer and the consumer. It provides access to a comprehensive range of safe and efficacious medicines at the lowest possible cost. The government will continue to promote the efficient use of drugs with a range of education initiatives, effective monitoring of usage, and feedback to prescribers. In doing so, it will address the concerns of inappropriate drug use in Australia, aiming to reduce the incidence of adverse health outcomes, hospitalizations, and morbidity. Such initiatives will reduce the additional costs caused by increased use of health services and adverse health outcomes.

Brandon J. Kearney, MB, BS, FRACP, FRACMA, is CEO, Royal Adelaide Hospital, Adelaide, South Australia. This article is based on a presentation at the International Forum, Perspectives in Medical Management, in New Orleans, La., May 1993.
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Article Details
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Author:Kearney, Brendon J.
Publication:Physician Executive
Date:Sep 1, 1993
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