The Deed of Agreement Process
Page last updated: 15 November 2017
The following section is intended to guide the reader through the significant milestones of the deed of agreement process. This begins with an application to the PBAC, followed by the recommendation and subsequent pricing, through to the negotiation, execution and expiry phase of the deed of agreement.
The key message is the importance of initiating discussion and negotiation as early as possible. The negotiation phase can take some time, so it is very important for all stakeholders to be proactive to ensure the earliest possible listing date is reached.
Sponsors are encouraged to approach the Department to discuss the potential requirement for a deed of agreement as early in this process as possible.
1. PBAC Recommendation
The listing process begins with a positive PBAC recommendation.
If the PBAC identifies that one or more of the above risks exist, it will also recommend that the sponsor enter into a deed of agreement with the Government to ensure that the potential impact of these risks can be minimised. In this event, listing cannot occur until the deed has been signed and executed.
Alternatively, a sponsor can include in its PBAC submission an offer to enter into a deed of agreement. This approach has become more common as industry has become aware of risk sharing arrangements and of the advantages of beginning these discussions as early as possible.
Following a positive PBAC recommendation, the sponsor is encouraged to contact the PBS Pricing and Managed Access Section to learn more about the deed process and the standard deed of agreement. Discussions at this stage are necessarily general as the type of deed is usually not finalised and the prices have not been agreed in principle. All correspondence in relation to deeds should be addressed to the PBS Pricing and Managed Access Section, Pricing and Policy Branch (see ‘Who do you contact?’).
2. Negotiation of the deed of agreement
Negotiations first focus on the type of arrangement that is required for each specific listing. The different types of arrangements are discussed in more detail in the next section of these guidelines.
All listings require the agreement of costing estimates. Following agreement of the estimates of utilisation and financial impact between the Department and the sponsor, the other affected Divisions of Health and portfolio agencies are approached to review the costs. A finalised cost to Government is considered by the Department of Finance.
Negotiations of financial-based agreements are based on the finalised financial estimates.
At the same time, a deed is drafted by the Australian Government Solicitor (AGS) and submitted to the sponsor for consideration.
At this stage, the sponsor is welcome to propose amendments to the deed, but only where these are supported by specific evidence of potential detriment to the company if the existing deed is applied.
3. Signing of the deed of agreement
Once in-principle agreement is reached, the deed will be prepared for the sponsor for signature by the appropriate Responsible Person and returned to the Department. Deeds cannot be executed until Government has agreed to the listing.
4. Government Consideration
All PBS recommendations are subject to Government consideration prior to listing.
5. Execution
Once the listing has been approved, the Minister (or Delegate) will execute the deed. A copy of the executed deed will be returned to the sponsor for its records.
If a drug has been recommended by the PBAC to have a deed of agreement, then the drug will not be listed until this deed has been executed.
6. Variations to a deed of agreement
A variation to an existing deed of agreement at the request of the sponsor is possible. However, it is preferred that the sponsor provide an evidenced based submission to the PBAC, outlining and justifying the reasons for the proposed amendment. PBAC agreement is one trigger required by the Department to enter into a re-negotiation of any existing deed.
This is not the only way for a variation to occur. Where agreed in writing by both parties, a variation to the deed can be made. This would generally be for administrative arrangements.
7. Expiry or Termination of a deed of agreement
Deeds are required to cover the period of the forward estimates, generally a period of five years. Towards the end of this period the ongoing need for a deed will be reviewed by the Department. If the financial risks associated with the requirement for the deed are not realised during the term of the agreement, the Department may recommend the deed lapse on expiry.
If it is deemed necessary to continue an agreement, renegotiations will commence between the sponsor and the Department on behalf of the Government. Through this process the sponsor is encouraged to provide any evidence that it considers may have a bearing on the content or expectations of the renewed agreement. If an agreement cannot be reached prior to the expiry of a Deed, the terms of the existing deed remain in force until such time agreement can be reached. This is necessary to ensure the risks associated with the listing can continue to be managed.
Types of Arrangements
There is a basic deed template (as attached to these guidelines) which is then tailored for each specific listing to contain special pricing arrangements and risk sharing arrangements. The following is a non-exhaustive list of some of the general types of arrangements employed:
Special Pricing Arrangement (SPA)
The deeds that cover SPAs are put in place so that Australia is able to have access to medicines at prices recommended by the PBAC as cost-effective, whereby due to international reference pricing or various other commercial reasons, sponsors are not able to supply the medicine at a particular publically available price. The deeds for SPAs involve the Department recovering a percentage of expenditure (through a rebate) at the listed price to reflect the outcome of the cost-effective recommendation by the PBAC.
The existence of SPAs are made publicly known, however the content of these individual arrangements is confidential and commercially privileged information.
Subsidisation cap and reimbursement arrangements
These arrangements generally involve the Department recovering a percentage of expenditure once an agreed amount or subsidisation cap (‘cap’) has been exceeded. They are designed to address risks relating to overall expenditure uncertainty and cost-effectiveness and are based upon the agreed estimates. The cap is usually expressed as a dollar amount and the reimbursement percentage will vary depending on the level of risk. These types of agreements may also be ‘tiered’, that is, they may have more than one cap with different reimbursement payable over each cap. In these cases the reimbursement payable increases once each tier has been exceeded.
In many cases these thresholds are designed to encompass the extent of use estimated for the PBS restriction and the deed will include clauses that allow for the possibility of new medicines entering the market. This ensures fairness and encourages competition.
“Shared” deeds of agreement
The need for shared agreements arises when the PBAC recommends a new medicine for listing, or an extension to an existing listing on the PBS, for the same intended population as an existing medicine that already has a deed in place. In this case, the new medicine becomes a ‘New Drug’ for the purposes of the original deed and in most cases will join the deed and be subject to the same arrangements that apply in the existing deed.
The definition of a ‘New Drug’ as contained in the de-identified deed example (see definitions and clause 3.3 in the attached) is designed to assist in the management of multiple deeds, promote fairness and to facilitate the process of listing competing medicines.
When a medicine is to join an existing deed, both sponsors (for the new and existing medicines) are required to agree to the release of certain information that enables the finalisation of the shared deed.
The typical shared deed process commences upon receipt of a positive PBAC recommendation. The Department then sends a letter to the sponsor/s of the current listing, advising them of the release of any necessary confidential information contained in their ‘deed’ with the Government, for provision to the new sponsor. Once released this detail is used to establish a deed with the new sponsor, ensuring equity and fairness between listings.
If a new listing is required to ‘join’ or ‘share’ an existing arrangement, it will be subject to the timeframes contained in the existing deed.
The new sponsor can choose not to proceed with listing on the basis that it does not wish to join an existing arrangement. However, if a sponsor wishes to list without entering the existing arrangement it may need to return to the PBAC with evidence to support this approach.
Example: A medicine is recommended by the PBAC that will share the market with a currently listed medicine and therefore must join the existing subsidisation cap and reimbursement arrangement. After 12 months, expenditure has exceeded the agreed subsidisation cap. The sponsors of both medicines pay a share of the total reimbursement amount payable, calculated on the basis of each medicine’s share of the overall market under the deed.
Data provision arrangements
These agreements are most often employed to provide the PBAC additional evidence regarding the cost-effectiveness of a listing. These can vary in their requirements and can range from the utilisation and provision of existing data, to the establishment of an entirely new process.
Example: A sponsor agrees to the creation of a registry designed specifically to capture data in relation to a particular listing, which would better inform future decision making. This data is then compared with the Department’s data to confirm appropriate utilisation.
Certain types of deeds may require amendments or additions to the standard clauses depending on the particular risk they are intended to mitigate. Negotiations and the resulting arrangement required to mitigate risk around the cost of a medicine will contain a different focus to an arrangement requested by PBAC to provide data, or assurances against leakage outside PBS restrictions.
