FAQ – EAPD for Pharmacies and Wholesalers

 

What is Price Disclosure?

The price disclosure program progressively reduces the price of some Pharmaceutical Benefits Scheme (PBS) medicines which are subject to competition, ensuring better value for money for those medicines. As part of the price disclosure provisions, pharmaceutical manufacturers submit sales information and, based on this information, the price the Australian Government pays is adjusted to more closely reflect the price at which the medicines are supplied.

In 2010, the Government expanded and accelerated the price disclosure program.  The program now applies to any non-exempt medicine in Formulary 2 (F2).  F2 generally consists of medicines where the patent has expired and two or more brands are listed on the PBS.

The first round of Expanded and Accelerated Price Disclosure (EAPD) price calculations (for 237 different medicines/manners of administration in Main Cycle 1, and Transitional Cycles 1 and 2) will result in price reductions for some of these medicines on 1 April 2012.    

How are the price reductions calculated?

Pharmaceutical manufacturers submit sales revenue, sales volume, and the value of incentives (such as discounts or bonus stock) for each of their brands of pharmaceutical items that are subject to price disclosure.  An external service provider conducts data collection and performs all calculations on the Department’s behalf.  The data collection period for the first round of EAPD will end on 30 September 2011. 

Using this data, a disclosed price is calculated for each brand of pharmaceutical item; this is the price at which the manufacturer is actually selling the medicine, net of incentives.  A weighted average disclosed price is then calculated based on the difference between the current ex?manufacturer price and the disclosed prices, weighted by volume across all brands of the medicine and manner of administration.

If there is more than a 10 per cent difference between the current ex-manufacturer price, and the weighted average disclosed price for a medicine, the ex-manufacturer price of all brands will be adjusted to be equal to the weighted average disclosed price.   

All price disclosure calculations undergo an independent third party quality assurance checking process.

Which medicines will be affected?

Price reductions will only affect non-exempt medicines in F2 where there is a greater than 10 per cent difference between the ex-manufacturer price and the weighted average disclosed price.  A list of medicines included in EAPD is available on the Drugs subject to Expanded and Accelerated Price Disclosure page.

For the purposes of price disclosure, medicines are grouped on the basis of ‘manner of administration’ – for example, reductions are calculated for tablets and capsules as a group (‘oral’), but an injection would be considered separately (‘injection’).  Therefore the same medicine with a different manner of administration may not be affected by a price reduction, or may incur a different level of reduction.

Medicines that have less than 10 per cent difference between the ex-manufacturer price and the weighted average disclosed price during a data collection cycle will not incur a price disclosure related price reduction in that cycle. For example, out of 47 medicines/manners of administration included in pre-EAPD price disclosure calculations, only 23 medicines/manners of administration were required to take price reductions. 

Medicines on patent (F1) are not subject to price disclosure.

What will the reductions be?

The ex?manufacturer price of a brand will be reduced to be equal to the weighted average disclosed price.

The magnitude of the reduction will depend on the level of incentives occurring in the market place. Previous rounds of price disclosure have resulted in price reductions ranging from 10?73 per cent. 

It is anticipated that price disclosure related price reductions will be published by the Department at least three months prior to the scheduled reduction day, allowing time for manufacturers, wholesalers and pharmacies to prepare for the reduction day.

For example, pricing information for medicines taking a price reduction on 1 April 2012 will be available to the public in mid-December 2011. 

What is the 23 per cent GAP calculation?

The GAP calculation is applied to the first main disclosure cycle only.  Price reductions as a result of this cycle apply only on 1 April 2012.

The GAP calculation guarantees an overall saving of at least 23 per cent on average across all F2 non­?exempt medicines involved in the first cycle of EAPD price reductions. 

If the average reduction across all medicines taking price reductions is less than 23 per cent, then the Guaranteed Adjustment Proportion (GAP) will be applied. The GAP will proportionally increase the price reduction for each medicine until an average saving of 23 per cent across the board is achieved. This does not mean that every medicine will take a 23 per cent reduction; some medicines will take a higher reduction and some medicines will take a lower reduction. 

Only medicines that would have already taken a price reduction will be affected by the GAP calculation. 

Even if the GAP is applied, the price of a medicine will not be reduced beyond the lowest disclosed price.

When will price reductions take place?

The scheduled reduction days for price disclosure reductions are 1 April, 1 August and 1 December, depending when the medicine first became subject to price disclosure. Reductions scheduled for 2012 are as follows:   

Reduction Date	EAPD Cycle	Number of Medicines/ Manners of Administration*	Medicines	Data Collection Period (EAPD)
1 April 2012	Main Cycle 1	216	All medicines on F2 not already subject to price disclosure at 1 December 2010	1 December 2010-30 September 2011
	Transitional Cycle 1	12	Medicines previously disclosing for the data collection period 1 January to 31 December  from 2007-2010	1 January 2010-30 September 2011
	Transitional Cycle 2	9	Medicines previously disclosing for the data collection period 1 May to 30 April from 2007?2010	1 May 2010-30 September 2011
1 August 2012	Transitional Cycle 3	26	Medicines previously disclosing for the data collection period 1 September to 31 August from 2007?2010	1 September 2010-31 January 2012
1 December 2012	Interim Cycle	9	Any new F2 listing between 1 December 2010 and 1 July 2011	Multiple – refer to EAPD Cycles Fact Sheet.

*As of 1 November 2011

Why will the first reduction take place on 1 April 2012?

Under the National Health (Pharmaceutical Benefits) Regulations 1960, the first reduction day must occur on 1 April 2012. This is to allow time to collect sufficient data to capture true market prices and perform the price disclosure calculations without delaying the price reductions.  This reduction date is required by law and cannot be changed.

Will my stock lose value on 1 April 2012?

For the following products, there will be no impact on price or stock value on 1 April 2012:

• Medicines listed on F1;
• Exempt medicines;
• Medicines not included in EAPD Main Cycle 1 or Transitional Cycles 1 and 2;
• Medicines where there is less than 10 per cent difference between the ex?manufacturer price and the weighted average disclosed price.

Additionally, brands purchased at a price equal to or lower than the new price will not lose value.

This means that if a pharmacy or wholesaler purchases a brand of medicine that is priced at or less than the weighted average disclosed price, the stock value is unchanged.  If brands of stock are purchased from wholesalers or manufacturers at a higher price than the weighted average disclosed price, for example, some branded stock (“originator brand”) that isn’t discounted, then the value of that stock will be impacted.  

Pharmacies and wholesalers will be advised which medicines are taking reductions, and what that reduction will be, three and a half months prior to the reduction day.  This should allow sufficient time for stock levels and purchasing decisions to be managed prior to 1 April 2012.  Stock purchased at a price lower than the weighted average disclosed price will not lose value.

Will there be any disruptions to supply?

No. Wholesalers and pharmacies have an obligation to maintain adequate stocks of PBS listed medicines.  Under the 5^th Community Pharmacy Agreement, pharmacies keep in stock enough medicine to meet reasonable demand. Wholesalers participating in the Community Service Obligation also meet a range of stock requirements. All distribution arrangements will be closely monitored by the Government to ensure that patient access is maintained.

Who will be notified of the reductions, and when?

Scheduled reductions will be published by the Department on the Federal Register of Legislative Instruments and on the Department’s webpage.  For the reductions taking place on 1 April 2012, these will be available in mid-December 2011.  Under the 5^th Community Pharmacy Agreement, the Department will notify the Pharmacy Guild and other peak bodies directly with the list of affected medicines and applicable percentage reductions.  Manufacturers will be able to provide pharmacies with the new prices for affected products from this date.

What legislative changes are scheduled for 2012?

In September 2011 the Government agreed with peak bodies representing pharmaceutical manufacturers and consumers to make technical amendments to the legislation underpinning pharmaceutical pricing.  These changes are intended to correct anomalies in the pricing of some older medicines.  Pharmacies and wholesalers will not be impacted by the changes.

How can I receive updates?

Up-to-date information about EAPD arrangements is made available on the PBS website.

What if I have further questions?

If you have any further questions regarding the Expanded and Accelerated Price Disclosure arrangements please email the Department of Health at eapd@health.gov.au