EXPLANATORY STATEMENT
INSTRUMENT NUMBER PB 85 OF 2010
NATIONAL HEALTH ACT 1953
DETERMINATION PURSUANT TO SUBSECTIONS 99ADB (4) and 99ADB (5)
WEIGHTED AVERAGE DISCLOSED PRICE
Purpose and operation
This legislative instrument is made pursuant to subsections 99ADB (4) and 99ADB(5) of the National Health Act 1953 (“the Act”) and determines the weighted average disclosed price for certain brands of pharmaceutical items.
Part VII of the Act is the legislative basis for the Pharmaceutical Benefits Scheme (PBS) by which the Commonwealth provides reliable, timely, and affordable access to a wide range of medicines for all Australians.
Subsection 85(1) provides that benefits are to be provided by the Commonwealth in accordance with Part VII in respect of pharmaceutical benefits.
Drugs and medicinal preparations to which Part VII applies are declared by the Minister by legislative instrument to be so under subsection 85(2) of the Act. These are listed drugs as defined in subsection 84(1).
The Minister may also determine, by legislative instrument, the form or forms of a listed drug by reference to strength, type of unit, size of unit or otherwise (subsection 85(3)); the manner of administration of the form of the listed drug so determined (subsection 85(5)); and a brand of the pharmaceutical item (subsection 85(6)). A pharmaceutical item is a listed drug in a form determined under subsection 85(3) of the Act and with a manner of administration for that form of the drug determined under subsection 85(5) of the Act. A brand of a pharmaceutical item is a pharmaceutical benefit under Part VII of the Act.
Amendments to the Act made by the National Health Amendment (Pharmaceutical Benefits Scheme) Act 2007 (the Amending Act), which commenced on 1 August 2007, included provisions in relation to statutory price reductions, price disclosure, and guarantee of supply. The purpose of the Amending Act was to position the PBS for the future by changing, or placing in the legislation, the way in which certain drugs are priced at the time of listing, or after they are listed on the PBS. New pricing arrangements contained in the Amending Act have enabled the Government to capture the benefits of competition where drugs have multiple brands, providing the foundation for a sustainable PBS.
Subsections 99ADB (4) and (5) are located in Division 3B of the Act, which relates to price disclosure. Division 3B requires the responsible persons for certain brands of pharmaceutical items to comply with price disclosure requirements for each supply of a relevant brand of a pharmaceutical item. In some circumstances price disclosure is mandatory, and in others it is voluntary. In addition, Division 3B provides for reduction to the approved price to pharmacists of the brand of the pharmaceutical item in specified circumstances.
Subsection 99ADB (1) defines various terms used in Division 3B. One of these terms is the “weighted average disclosed price”. The weighted average disclosed price (“WADP”) of a brand of a pharmaceutical item is the price determined by the Minister pursuant to subsection 99ADB (4) or 99ADB (5).
Subsection 99ADB(4) provides that the Minister may, by legislative instrument, determine the WADP of a brand of a pharmaceutical item in accordance with the method set out in the National Health (Pharmaceutical Benefits) Regulations 1960 (“the Regulations”). The Minister uses information disclosed under the price disclosure requirements related to a particular period, as set out in the Regulations, to arrive at the WADP.
Subsection 99ADB (5) provides that if the Minister determines the WADP for one brand of a pharmaceutical item under subsection 99ADB (4) (“the first item”), then the Minister must, by legislative instrument, determine the WADP for every brand of every pharmaceutical item with the same drug and the same manner of administration as the first item. The WADP for these brands of pharmaceutical items is also calculated in accordance with the method set out in the Regulations.
Section 99ADH sets out when a price reduction, based on price disclosure, will occur, and how the new price will be set. Price disclosure related price reductions may only occur on 1 April or 1 August, being the reduction days prescribed by the Regulations.
In summary, section 99ADH will apply to a brand of pharmaceutical item if the following requirements are met:
- the Minister determines the WADP of a brand of a pharmaceutical item under subsection 99ADB(4) or 99ADB (5);
- a price agreement or price determination is in force in relation to that brand of a pharmaceutical item;
- the WADP of the brand of pharmaceutical item is at least 10% less than its approved ex-manufacturer price; and
- the responsible person was issued a notice pursuant to paragraph 99ADH(1)(d) within the required timeframe that sets out the following information:
- the adjusted approved ex-manufacturer price (this is equivalent to the WADP);
- the adjusted approved price to pharmacists (this is calculated in accordance with the method set out in the Regulations and is based on the adjusted approved ex-manufacturer price) ; and
- the reduction day.
This instrument determines, pursuant to subsection 99ADB(4), the WADP of a number of brands of pharmaceutical items (“the first items”). This instrument also determines, pursuant to subsection 99ADB(5), the WADP of every brand of every pharmaceutical item that has the same drug and manner of administration as the first items. This instrument relates, in accordance with the Regulations, to the annual reporting period (data collection period) of
1 May 2009 to 30 April 2010. The proposed reduction day for the brands of pharmaceutical items contained in this instrument is 1 April 2011.
The instrument is expressed to commence on the later of the following:
(a) immediately after the commencement of PB 43 of 2010;
(b) the day after it is registered on the Federal Register of Legislative Instruments.
This is because PB 43 of 2010 (amongst other things) revokes the determination made under section 99ADB of the Act on 30 June 2009 (as amended) (“PB 74 of 2009”). PB 74 of 2009 determined the previous WADP for some of the brands of pharmaceutical items that are contained in this instrument. The reduction day for brands of pharmaceutical items that had a WADP determined in PB 74 of 2009 was 1 April 2010.
Consultation
This instrument affects pharmaceutical companies with medicines listed on the PBS. Pharmaceutical companies have been consulted in relation to the introduction of price disclosure requirements during both the policy development and implementation phases. This has occurred through meetings with both peak body organisations and individual companies. Information on this measure has been disseminated through peak industry bodies and during regular meetings with a Stakeholder Reference Group. Peak bodies were provided with the opportunity to comment on the Guide to the PBS Reform legislation and the Exposure Draft of the National Health Amendment (Pharmaceutical Benefits Scheme) Bill 2007.
Pharmaceutical companies with a brand of a pharmaceutical item subject to the price disclosure requirements have been provided further information on the requirements by letter and have disclosed information relevant to this determination directly to the Department of Health and Ageing (the Department). The Department has also provided to the responsible persons that disclosed information to the Department an opportunity to check that the information disclosed to the Department has been translated correctly to Departmental data files. This was done prior to that data being used to undertake the calculations set out in the Regulations required to arrive at the weighted average disclosed price.
The Determination is a legislative instrument for the purposes of the Legislative Instruments Act 2003