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PBS saving options run short

Posted 12 November 2019

The number of PBS groups on which the health budget continues to make savings is at its lowest point in three years, signalling the government may struggle to continue placing downward pressure on the scheme via price cuts and utilisation changes.

On the basis of pre-rebate benefits and including generics, at the close of the September quarter in 2017, eight of the 14 ATC groups funded by the PBS cost less than they had in the previous 12 months.

Cardiovascular drugs were leading the way on savings, down 12.7 per cent on the the previous 12 months, costing the government $996 million compared to $1.1 billion.

Spending declines in other groups ranged from 0.9 per cent (Sensory Organs) to 15.9 per cent in the small Various category ($80 million).

The multiple falls underpinned a total PBS spending figure that, although it showed 1.8 per cent growth, failed to keep pace with inflation.

By the latest September, this picture had changed with overall growth standing at 2.1 per cent, slightly ahead of inflation, and only four groups showing continued savings.

In three of these four, Nervous System (down 2.2 per cent), Alimentary Tract and Metabolism (down 1.8 per cent) and Cardiovascular (down 1.7 per cent), declines were relatively small and can be expected to become even smaller as generic price cuts fade.

Only in the Anti-Infectives for Systemic Use category were big savings continuing. That group was down 33.9 per cent to a still hefty $1.15 billion. This high rate of saving was mainly driven by the declining use and cost of direct acting antivirals (DDAs) for hepatitis C.

The picture that emerges from the latest figures is one of a government almost solely dependent on continued falls in these DAAs to rein in PBS growth.

The risk is that fast growing categories will continue to push up spending as savings opportunities decline.

In particular, the Antineoplastic and Immunomodulating Agents group - already past $4.5 billion - continues to grow at an annual rate of 15.9 per cent. This group contains many new drugs including immuno-oncology medicines Keytruda and Opdivo.

Respiratory drugs are also growing fast, registering a 24.5 per cent annual increase, driven by Vertex's Orkambi, which despite only being PBS listed in October last year has already sucked up $130 million in pre-rebate benefits.

The current value of all those ATC groups in the black is $7.62 billion with an average growth rate of 8.2 per cent. The current value of all those ATC groups in the red is $4.32 billion with an average shrinkage rate of 9.9 per cent.

Under these circumstances, it won't take much for PBS growth to show a more marked pick-up than forecast, which may go some way to explaining the PBAC's ever-widening tactics for placing downward pressure on the prices of new medicines.

Nick Lush

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