2015 Price Disclosure Changes – Fact Sheet

Page last updated: 12 October 2018

The 2015 Access and Sustainability package of changes to the Pharmaceutical Benefits Scheme (PBS) includes amendments to the price disclosure arrangements that:

• provide for price disclosure reductions to component ingredient drugs to be applied to F2 combination items where this results in a lower price than direct application of price disclosure to the F2 combination item.  Flow-on reductions from component ingredient drugs are already applied to combination items that have a drug on the single brand Combination Drug List (CDL); and
• accelerate price disclosure arrangements through removal of originator brands as part of the calculation of the weighted average disclosed price (WADP) for medicines listed on the F2 formulary for 3 years or more where this results in a lower adjusted price.  Some exceptions to this timing and removal of originator brand data are discussed below.
• provide for certain pharmaceutical items not to take a price disclosure reduction despite other pharmaceutical items with the same drug and manner of administration taking the reduction.

These changes will be applied through amendments to the National Health Act 1953 (the Act) and the National Heath (Pharmaceutical Benefits) Regulations 1960 (the Regulations).

As at early August 2015 the Regulation amendments referred to in this Fact Sheet are only proposed and will commence only on making of amending Regulations.

‘Pharmaceutical item’ in this Fact Sheet means the legally determined pharmaceutical item.  That is, a drug in a particular form with a particular manner of administration.  For example, paracetamol, tablet 500 mg, oral.  It does not refer to listings under a particular Item Code, such as 1234X.

‘Drug/MoA’ in this Fact Sheet means a drug with a particular manner of administration.  For example, products containing paracetamol to be taken orally.

For general information about the price disclosure arrangements, please see the Price Disclosure Guidelines (PDF 614 KB) - (Word 394 KB), which will be updated to incorporate the changes mentioned in this Fact Sheet by the end of 2015.

Flow on Reductions for F2 Combination Items

After announcement of outcomes for each price disclosure cycle, flow-on reductions will be calculated from component drugs to any related F2 combination items.  The flow-on reduction will be applied where it would result in a lower adjusted price for the combination item than applying the direct price disclosure outcome for the F2 combination item.

Combination Flow On vs Direct Reduction – Example of Comparison

F2 component Drug X oral (form = 20mg tablet).  Price = $25

F2 combination item containing Drug X with Y oral (form = 20mg / 45mg tablet). Price = $75 ($25 Drug X + $50 Drug Y)

Drug X is on F2.  Drug Y is on F1.  

Pricing for Drug X with Y was based on the sum of prices for Drug X and Drug Y on the PBS.

Note: not all combination prices are a direct sum of components.  Combination item pricing is discussed with affected companies on listing and can be discussed further when flow-on reductions are calculated.  Combination items can be either a multi-ingredient formulation or a multi-component pack.

• Cycle Outcome 1a
  Drug X - price disclosure outcome = 15% reduction from $25 to $21.25
  
  Drug X with Y – direct price disclosure outcome = 11% reduction from $75 to $66.75
  
  Flow on of Drug X reduced price would result in price for Drug X with Y of $71.25 ($21.25 + $50).  In this case, the direct F2 reduction applies on reduction day because it results in a lower price of $66.75 rather than a flow-on price of $71.25.
   
• Cycle Outcome 1b
  Drug X - price disclosure outcome = 40% reduction from $25 to $15
  
  Drug X with Y – direct price disclosure outcome = 11% reduction from $75 to $66.75
  
  Flow on of Drug X reduced price would result in price for Drug X with Y of $65 ($15 + $50).  In this case, the flow-on reduction applies on reduction day because it results in a lower price of $65, rather than the direct reduction price of $66.75.

Process for application of F2 Combination Item Reductions

The process for applying these new combination item price disclosure reductions is similar to that already in operation for flowing on price disclosure reductions to single brand combination items on the CDL.

That is, the Act provides for prices of combination items that have component drugs taking a reduction to cease operation at the end of the day before reduction day.  So, for a 1 October reduction day, prices cease at the end of 30 September.  That is, there is no automatic price on which a subsidy could be calculated for payment for a combination item that has a component taking a price disclosure reduction.  However, new prices are approved (agreed with companies or determined) in advance of 1 October reduction day, to come into operation on 1 October, reflecting either the flow-on reductions or the direct F2 price disclosure reduction for the combination item. 

Exempt combination items do not take the reduction.  Combination items with s101(4AC) Pharmaceutical Benefits Advisory Committee advice (significant improvement advice for combination items) will still be considered under the discretion which allows the Minister or delegate to flow-on only part or none of the component drug reduction.

Sample timeline for price disclosure flow-on to combination items:
Mid to late December 2015 – price disclosure outcomes announced (direct component drug and direct F2 combination item calculations).

By mid January 2016 – Department sends letters to companies with F2 and CDL combination items with component drugs taking a reduction, setting out:

• the outcome for price disclosure flow-ons to CDL single brand combination items;
• the outcome for comparison of price disclosure flow-ons to F2 combination items vs direct price disclosure reduction; and 

confirming the new price to be requested by company submission of PB11a form.

10 business days after receipt of flow-on price letter – deadline for submission of PB11a form for combination items with components taking 1 April 2016 price disclosure reductions – so they can have approved prices to enable ongoing subsidy for brands of the affected combination items from reduction day 1 April 2016.

Commencement & Back-Capture

The flow on of F2 component drug price disclosure reductions to F2 combination items will commence for the 1 April 2016 reduction day and continue for each price disclosure cycle. 

There will be a back-capture reduction day for any outstanding F2 combination item medicines on 1 October 2016.  This means that any F2 combination item which does not have a component drug price reduction on 1 April 2016, or scheduled for 1 October 2016, will have a back-capture calculation done for the 1 October 2016 reduction day.  The back-capture calculation will work out whether flowing on the F2 component drug price from the most recent price disclosure reduction (if any reduction has occurred) would result in a lower price than the current price for the combination item.  If so, the flow-on reduction will be applied on 1 October 2016.

Example Back-Capture F2 Combination Item Reduction

Back-capture calculations in July 2016 for 1 October 2016 reduction day

F2 component Drug A oral (form = 10mg tablet).  Price = $11

Had no reduction 1 April 2016 and no reduction announced for 1 October 2016.  Last price disclosure reduction was 45% on 1 April 2015 (reduced the price from $20 to $11).

F2 combination item with Drug A with Z oral (form = 10mg / 50mg tablet).  Price = $80 ($20 Drug A + $60 Drug Z).

Drug A is on F2.  Drug Z is on F1.  Pricing for Drug A with Z was based on the sum of prices for Drug A and Drug Z on the PBS.  Drug A with Z was in F2 on 1 April 2015 but did not take a reduction when Drug A took its 45% reduction. 

• Back-capture Outcome
  Drug A – direct price disclosure outcome for April & October 2015 = no reduction from $11.
  
  Drug A with Z – direct price disclosure outcome for October 2015 = no reduction from $80
  
  Back-capture flow on of Drug A April 2015 reduced price of $11 would result in a price for Drug A with Z of $71 ($11 Drug A + $60 Drug Z).  In this case, the back-capture flow-on reduction applies on the 1 October 2016 reduction day because it results in a lower price of $71, rather than the continued price with no reduction of $80.

Removal of Originator Brand Data

Determination of Originator Brands

Section 99ADB of the Act provides that the Minister (or delegate) may determine by legislative instrument that a brand of a pharmaceutical item that has a drug on F2 is an ‘originator brand’.  Determination of an originator brand does not necessarily mean that the data for that brand will always be removed.  Details of the criteria for removal are discussed below.

When determining originator brands for drugs that move to F2 after 31 March 2016, the Minister must take into account whether the brand was PBS listed when the drug was on the F1 formulary or the CDL.  This provides assurance that the general approach will be to consider the brand(s) that move from F1 to F2 for determination as ‘originator brands’.  There are always exceptions, and at times it may be appropriate not to determine any originator brand, or to determine only one of multiple brands moving from F1 to F2, as an ‘originator brand’. 

It is expected that, after the first ‘originator brand’ determination is made (intended to occur by early September 2015), amendments will be considered for addition to the originator brand determination on movement of a drug from F1 to F2.

The policy for removal of originator brands from price disclosure calculations also includes all variants of the originator brand name.  Therefore, any variants to the originator brand name will also be considered for addition to the ‘originator brand’ determination when they are listed on F2.

For example, the brands:

• Zovirax 200 mg
• Zovirax 800 mg

are both proposed originator brands that contain the drug aciclovir.

And the brands:

• Amoxil
• Amoxil Forte

are both proposed originator brands that contain the drug amoxicillin.

To improve the readability of the legal instrument determining originator brands, in most instances the brands will be determined by reference only to the name of the drug they contain.  This means that a listing of the determined brand in any form and for any manner of administration is to be treated as an originator brand.  Where the determination of the brand as an originator may need to be confined to a particular form or manner of administration, then the determination can also be made by reference to a particular form or manner of administration.  This approach is reflected in the ‘originator brand’ table published for comment on the pbs.gov.au website on 20 July 2015.

When determining originator brands for drugs already on F2 up to and on 31 March 2016, the requirement for the Minister (or delegate) to take into account whether the brand was previously listed when the drug was on the F1 formulary or the CDL does not apply.  This is because many F2 drugs have been listed on the PBS for a very long time, and formularies F1 and F2 have only existed since 2007.  The approach to initial determination of originator brands is therefore the subject of public consultation, with proposed originator brands published on pbs.gov.au on 20 July 2015 (comments due by 14 August 2015).

The response to consultation comments on price disclosure originator brand removal are attached:

Questions and Answers - Price Disclosure Originator Brand Removal

Removal of Originator Brand Data from WADP Calculations

Not removed before 1 October 2016 reduction day
Removal of originator brand data during calculation of weighted average disclosed prices will first apply to the price disclosure cycle commencing 1 October 2015, with a 1 October 2016 reduction day.  It will then apply in each subsequent cycle.

Not removed if calculation does not result in a lower price
The ‘originator brand removed’ calculation will be considered for determination as the ‘weighted average disclosed price’ (potential reduced price) if it results in a lower new price than including the originator brand data.  This means that originator brand data is collected and used for all calculations, and the lower outcome is applied through the legal determination of the weighted average disclosed price.

Not removed if originator is ‘single brand of pharmaceutical item’
Where the originator brand is the only brand of a pharmaceutical item its data will not be removed even if the drug/MoA meets the F2/multi-branded criteria mentioned below for removal of originator brand data.  Originator brand data will not be removed unless there is a non-originator brand also listed for each of the months the originator brand is listed for the cycle.  The attached Examples - Treatment as Single Originator Brand Pharmaceutical Item demonstrates the approach.

Not removed unless F2/multi-branded at least three years at time of calculation
In general, originator removal calculations will apply to price disclosure data submitted for the data collection period commencing when a drug has been on F2 at least 2.5 years, with:

• the first calculations for originator removal therefore being at least three years after the drug has been on F2; and
• the first reduction day for originator removed calculations being at least 3.5 years after movement to F2.

However, there are some cases where the period of 2.5 years (prior to first affected data collection period) does not start when the drug moves to F2.  In addition to being on F2 for at least 2.5 years, there must have been, on a day at least 2.5 years ago:

(i) two or more brands of a pharmaceutical item that contain the same drug/MoA (brands with the same drug/MoA are called related brands in the Act & Regulations);  OR
(ii) two or more bioequivalent or biosimilar brands that contain the same drug/MoA.
The criteria above is referred to as the ‘F2/multi-branded criteria’.

The F2/multi-branded criteria means that any single branded drug moving to F2 due to being in a therapeutic group with a multi-branded drug will not start the clock for the period before originator brand removal on its entry to F2.  The same applies for single branded manners of administration that enter F2 as a result of another manner of administration that has the same drug becoming multi-branded. The clock starts when the drug/MoA first meets all the F2/multi-branded criteria.

The running of the 2.5 year clock to identify the first cycle for originator removal is not stopped if a drug/MoA becomes single branded again at a point after the clock had started.

The attached Price Disclosure Originator Removal 30 Month Clock document demonstrates the F2/multi-branded criteria.

Timeline for first affected Cycle

Date	Action
1 April 2013	Brands of a drug/MoA where the 2.5 year clock started on this day will be assessed as part of the first ‘originator removal’ cycle for the 1 October 2016 reduction day
20 July to 7 August 2015	Consultation on initial originator brand determination
By early September 2015	Initial originator brand determination
1 October 2015 to 31 March 2016	Data collection period for first ‘originator removal’ cycle
1 April to 12 May 2016	Period for submission of data for first ‘originator removal’ cycle
Mid to late June 2016	Calculation outcomes for first ‘originator removal’ cycle published
1 October 2016	Reduction day for first ‘originator removal’ cycle

 

Table for Price Disclosure ‘Originator Removal’ Cycle Dates

If 2.5 year period starts for drug/MoA	START of first data collection period for originator removal	END of first data collection period for originator removal	Processing period for first originator removal cycle	First price disclosure reduction day with originator removal
On or before 1 Apr 2013	1 Oct 2015	31 Mar 2016	1 Apr 2016 –30 Sep 2016 Jun 2016 WADP determination	1 Oct 2016 [first originator removal reduction day]
2 Apr 2013 to 1 Oct 2013	1 Apr 2016	30 Sep 2016	1 Oct 2016 – 31 Mar 2017 Dec 2016 WADP determination	1 Apr 2017
2 Oct 2013 to 1 April 2014	1 Oct 2016	31 Mar 2017	1 April 2017 – 30 Sep 2017 Jun 2017 WADP determination	1 Oct 2017
2 Apr 2014 to 1 Oct 2014	1 Apr 2017	30 Sep 2017	1 Oct 2017 –31 Mar 2018 Dec 2017 WADP determination	1 Apr 2018
2 Oct 2014 to 1 Apr 2015	1 Oct 2017	31 Mar 2018	1 April 2018 – 30 Sep 2018 Jun 2018 WADP determination	1 Oct 2018
2 Apr 2015 to 1 Oct 2015	1 Apr 2018	30 Sep 2018	1 Oct 2018 – 31 Mar 2019 Dec 2018 WADP determination	1 Apr 2019
2 Oct 2015 to 1 Apr 2016	1 Oct 2018	31 Mar 2019	1 Apr 2019 – 30 Sep 2019 Jun 2019 WADP determination	1 Oct 2019
2 Apr 2016 to 1 Oct 2016	1 Apr 2019	30 Sep 2019	1 Oct 2019 – 31 Mar 2020 Dec 2019 WADP determination	1 Apr 2020
Continues with the same date patterns

No Reduction Items – Low Volume / Low Discount

Under the current price disclosure method all brands of pharmaceutical items with the same drug and manner of administration take the reduction based on discounting across the drug and manner of administration.

It is considered appropriate to maintain the relationship between products with the same drug / MoA by continuing the price disclosure grouping by drug / MoA.

However, a new Regulation allows for no reduction for certain pharmaceutical items with low volume and low discounting, even where other items with the same drug / MoA take a reduction.  Originator brand data is not removed for assessing whether pharmaceutical items meet this ‘no reduction’ criteria. The ‘No Reduction Items’ criteria will first apply for the 1 April 2016 reduction day.  All criteria must be met.

The criteria for brands of a pharmaceutical item not to take a reduction, despite others with the same drug/MoA taking a reduction, are:

a) there is some volume of sales for the pharmaceutical item.  That is, not ‘0’ total volume across all brands of the pharmaceutical item;

b) the ‘total adjusted volume’ for the particular pharmaceutical item is not more than 10% of the aggregated total adjusted volumes for all pharmaceutical item for the drug/MoA.  The total adjusted volume for a pharmaceutical item includes the volume for all brands of the pharmaceutical item (including originator).  Volume of a pharmaceutical item is adjusted to the pricing quantity.  For example, if there are brands of the same pharmaceutical item with pack size 25 and pack size 50, the volume for the pharmaceutical item is adjusted to the quantity of 25;

c) the percentage discount calculated across all brands of the pharmaceutical item is no more than 3%.  That is, the pharmaceutical item level discount is considered, not the brand level or drug/MoA level percentage discount.

d) there are no brands of the pharmaceutical item that are bioequivalent or biosimilar to brands of another pharmaceutical item that does not meet a), b) and c) above.

e) There is no advice from the PBAC that the pharmaceutical item ‘does not provide a significant improvement in efficacy or a reduction in toxicity over alternative therapies’.  ‘Alternative therapies’ is not confined to other products with the same drug, or to therapies on the PBS.  The PBAC advice will be sought, where considered necessary, under the section 101(3) general advice provision of the Act.  

The PBAC advice may not be received until after the first time a pharmaceutical item avoids a reduction due to meeting the other criteria. If ‘no significant improvement’ advice is provided by the PBAC, brands of the pharmaceutical item may take a reduction thereafter even if they meet criteria a) to d) above.  This simply applies the same outcome as occurred before commencement of the new Regulation.

The attached Example – No Reduction Low Volume / Low Discount Item document demonstrates application of the criteria.

Mechanism for 'no reduction’

For brands of a pharmaceutical item that meet the ‘no reduction’ criteria, their weighted average disclosed price is taken to be their applicable PBS price, rather than the reduced price that would normally be determined along with other brands of a drug/MoA taking a reduction.  This means the ‘no reduction’ brands do not meet the 10% test, so no reduction is applied under the Act.

 

For further information regarding the flow on of price disclosure reductions, removal of originator brands, or ‘low volume/low discount no reduction’ pharmaceutical items email the Price Disclosure Team.