Background
Page last updated: 15 November 2017
What are Deeds of Agreement?
Deeds of agreement are commercial agreements between the Australian Government on behalf of the Commonwealth of Australia and Responsible Persons (pharmaceutical companies, or sponsors), and are designed to help maintain the appropriateness and cost-effectiveness of listed medicines. They may also reduce the Government’s exposure to the risks associated when listing particular medicines on the PBS, following a positive Pharmaceutical Benefits Advisory Committee (PBAC) recommendation.
These agreements are negotiated between officers of the Department of Health (the Department), representing the Australian Government, and the sponsor of a medicine, and are formalised in a legal document called a ‘deed of agreement’.
Note – While the PBAC may recommend that the Government negotiate a deed, they do not decide on its final content.
History/Context
The first agreement between the Commonwealth and a sponsor occurred in 1998, to minimise the Government’s exposure to risks associated with the listing of a new medicine on the PBS. Prior to 2003, agreements were formalised via an exchange of letters. Deeds of agreement were introduced by the Department in 2003 to record the negotiated terms of these risk sharing arrangements in clearer detail.
The deed format has evolved since 2003. The deed records the context and terms of the agreement and is intended to be relatively consistent across agreements. It is possible for a standard clause to be amended, where the sponsor’s requested change is supported by specific evidence of potential detriment to the company if the standard clause is applied. The amendments must not change the intent of the deed or the arrangements contained within.
Example Deed of Agreement
A de-identified example of a deed of agreement is attached to these guidelines. This attachment contains an example of the standard clauses that are found in a deed. Deeds will generally demonstrate consistency with the attached example.
Why do we have them?
There are two broad types of arrangements which are covered by a deed; Special Pricing Arrangement (SPA) and Risk Sharing Arrangement (RSA).
SPA
The Commonwealth may enter into confidential Special Pricing Arrangements with a sponsor for the supply of a medicinal product formalising a ‘published’ versus ‘effective’ pricing component. The difference between the published price in the Schedule of Pharmaceutical Benefits and the price actually paid by the Commonwealth (the ‘effective’ price), is managed through a rebate arrangement.
The main reason for the Commonwealth to enter into a SPA for the supply of a medicine is so that Australia is able to have access to medicines at a lower cost-effective price without affecting the price for the product in other markets.
Sponsors seeking a SPA for a product should refer to the SPA criteria attached to these guidelines for further information.
RSA
RSA deeds have been developed to address multiple types of risk. The most common types of risk are outlined below.
- Uncertainty in estimating the overall cost to the PBS — for example this could be the result of uncertainties in the number of patients,
daily dose and/or duration of therapy of the medicine.
Any medicine deemed to be of a high cost nature may be accompanied by a deed. This is to provide the Australian Government with the security that the agreed estimated expenditure for this medicine will not be exceeded, and if it is, any fiscal impact that results from this risk will be shared by the sponsor and not carried entirely by the Government.
- Cost-effectiveness - this is affected by the volume of use beyond the restriction(s), and by the volumes
of use of categories within the restriction(s) where cost-effectiveness is known to
vary across categories.
If a medicine has a high risk of leakage outside the restriction then this means patients may be receiving the medicine for a purpose that is not approved, and therefore it may not be cost-effective. A deed of agreement is required in this case to ensure that if Government expenditure exceeds the estimated costs of a medicine for a particular restriction (an indicator that the medicine may have been prescribed outside of its restriction); the additional costs are shared between the Government and the sponsor and implicitly reflect a lower price to address any concerns that such additional use will be less cost-effective than in the intended population.
- The extent of overall gain in health outcomes - data monitoring requirements — these deeds usually call for the collection and provision of data in relation to
a specific listing.
These may include: a request by the PBAC to provide further data; the need for some coverage for a possible future event such as a booster dose of a vaccine at a reduced price; or other pricing arrangement at the request of the Government.
- Estimating usage - Usage uncertainty can arise because, despite the best efforts in the construction
of the restriction, the restriction may be difficult to enforce. For example, the
number of patients expected to receive the therapy might be so large that an authority
required listing to reinforce adherence to the restriction would be impractical.
These are not the only risks addressed under a deed, however, they provide a good indication of the preparation requirements for a deed.
For these risks, deeds may be recommended by the PBAC (usually in relation to cost-effectiveness and/or health outcomes), or by the Department (usually in relation to overall costs). Alternatively deeds may be proposed by the sponsor to the PBAC to help address areas of uncertainty which, if not addressed, may result in a rejection by the PBAC. Given that deeds typically rely on utilisation data, there are advantages to all parties if a sponsor puts any proposal for such an arrangement forward early in the process of application for a drug listing (e.g. in its submission to PBAC), rather than introducing the proposal later.
The intent of the financial arrangements in a deed is not to derive income for the Government. Rather, the intent is to provide incentives to pharmaceutical companies to ensure that usage of the medicine is contained within the agreed PBS restriction, that accurate information is being provided to clinicians, and to encourage the company to bring a new submission to the PBAC if new or extended uses in practice emerge.
NOTE - For further information regarding the risk-management approach, including assistance in the decision-making process, please refer to Section 4 of the PBAC Guidelines (v5.0).
