1 The Pharmaceutical Benefits Scheme and the Australian Guidelines; Implications for the United States Deborah A. Freund, Ph.D., MPH Vice Chancellor and Provost Office of Academic Affairs Professor of Public Administration Syracuse University June 10, 2003

2 Plan The Australian Health Care System and Coverage of Pharmaceuticals in Australia. The Regulatory Structure for Pharmaceuticals in Australia and the use of Pharmacoeconomics. What is the Pharmaceutical Benefits Scheme? The Australian Guidelines. Implications of Pharmacoeconomics for the U.S.

3 The Australian Health Care System in Brief Medicare: Natural Health Insurance Universal Coverage. Comprehensive Benefit Package. General Practitioners refer to Specialists. Public Hospitals financed by State; access to Private Hospitals is through purchase of Private Insurance.

4 Financed through income taxes and state general revenues. Covers all drugs listed on PBS:  outpatient drugs on PBS;  inpatient drugs are reimbursed by states;  $20 per prescription for workers until threshold is reached, then free;  pensioners, unemployed, social security beneficiaries pay $2.60 per prescription until threshold is reached, then free. Medicare: Continued

5 Regulatory Environment 5 Steps for Licensing Drugs and Listing Them: TGA ADEC PBS PBAC PBPA

6 Pharmaceutical Benefits Scheme (PBS) A comprehensive, publicly funded insurance program that reimburses pharmacists for the costs of a selected range of prescription drugs. There is a system of co-payments, and drugs are placed in different categories of access, based on evidence of their comparative effective and cost-effectiveness in defined patient groups. Decisions to place new drugs in the PBS are made by the federal health minister on the advice of a statutory committee, the PBAC. Hill, Suzanne R., Mitchell, Andrew S., Henry, David A. “Problems With the Interpretation of Pharmacoeconomic Analyses: A Review of Submissions to the Australian Pharmaceutical Benefits Scheme.” JAMA : pp

7 Pharmaceutical Benefits Advisory Committee (PBAC) Makes independent judgement on what drugs to include on PBS. Comprised of clinicians, pharmacologists and pharmacists. Reviews company application and ADEC recommendation. Application to PBAC must include price suggested to Pharmaceutical Benefit Pricing Authority (PBPA).

8 The PBAC receives advice from a technical economics subcommittee comprising individuals with expertise in the fields of health economics, decision analysis, clinical epidemiology, and biostatistics. The economics subcommittee reviews applications of the “Australian” Guidelines. The methodology underlying the Australian Guidelines is Pharmacoeconomics. Hill, Suzanne R., Mitchell, Andrew S., Henry, David A. “Problems With the Interpretation of Pharmacoeconomic Analyses: A Review of Submissions to the Australian Pharmaceutical Benefits Scheme.” JAMA : pp Pharmaceutical Benefits Advisory Committee (cont’d)

9 The Australian Guidelines The requirement that in addition to companies providing that drugs are safe and efficacious, they also prove the drugs are cost-effective at the suggested reimbursement price [nicknamed the Fourth Hurdle]. Thus, all drugs that are licensed are not listed with the PBS. Non-listing means drugs are not prescribed.

10 The Australian Guidelines: Purpose Rationalize use. Contain cost (not at first). Provide a vehicle for arguing for higher prices:  focus on benefits and not just on “launch price”;  results in greater Health Outcomes.

11 Australian Guidelines: Criteria Adequate Direction but Preserve Flexibility: generalizable but detailed; permits all forms of economic evaluation as clinical trials are more prevalent for some areas than others.

12 Australian Guidelines: Key Provisions Justify Technique: cost minimization; cost-effectiveness; cost utility; cost-benefit not recommended.

13 Include All Direct Benefits and Costs. Analyze Indirect Costs Separately. Societal and Governmental Perspective. Australian Guidelines: Key Provisions (cont’d)

14 Subcommittee of PBAC Reviews:  Pharmacoeconomic analysis. Comparator:  market leader (version 1);  replaced in practice (version 2). Data:  clinical trials preferred;  other countries permitted;  retrospective permitted;  modeling, administrative data permitted. Australian Guidelines: Key Provisions (cont’d)

15 Final Outcomes preferred, Intermediate permitted. Open Door to Discuss Listing Decisions. Burden of Proof is on Company not Government. Australian Guidelines: Key Provisions (cont’d)

16 Approval only for restricted indications for which cost effectiveness can be demonstrated:  Theory: greater benefits for a smaller group justify higher price;  Example: Norfloxacin for Urinary Tract Infection. PBAC required authority and use went down; relaxed authority and use went up. Australian Guidelines: Experience

17 Experience: Review Time No Delays because PBAC meets 4 instead of 3 times per year. ADEC and PBS submissions can be made simultaneously. PBAC decisions in 13 weeks. Deferrals or rejections on some uncertain drugs. Delays come with marketing decision not listing decision.

18 Problems Relationship Between Cases and Effectiveness:  dose prescribed in community does not match clinical trials. Estimating Incremental Benefit in Comparison to a Comparator:  must go beyond a statement of benefits exceeding health risks to quantify this amount.

19 Problems in Australia Shortage of Experts:  would not be true in U.S. Appropriate Comparator:  what is replaced in practice vs. market leader. Rarely is a Comparison Made to a Non-Drug. Drug Development Dead Due to Low Prices. Access to Appropriate Medicines? Unsuccessful in Containing Costs?

20 Similar Activities in Other Countries Guidelines in Ontario, British Columbia, New Zealand. NEJM (2000) statement. U.S. “Guidelines” - Hillman and others (Annals of Internal Medicine); USPHS report. CCOHTA Canadian Coordinating Office for Health Technology Assessment - guidelines for guidelines. Positive lists (formularies) in: Portugal, Sweden, U.K., Japan, Canada.

21 Users in U.S. and Other Countries Negative Lists: Netherlands. U.S. Managed Care Companies. U.S. Pharmaceutical Benefits in three tier PBM. Medicaid (Florida). UK: National Institute for Clinical Effectiveness.

22 Application to United States Imagine we passed a Medicare Drug Benefit. We would have to decide:  what drugs would be reimbursable;  what Medicaid would pay;  what, if any, co-pay there would be. We might have to adopt a similar scheme.

23 Application to United States Now most managed care company plans include three tiers of pharmaceutical coverage:  generics, with no co-pay;  brand name drugs at a small co-pay;  new drugs with a large co-pay. The three tiers are often determined based on “deals” or price, but not on cost-effectiveness, or based on evidence of outcome.

24 Reflections Based on Possible Uses in United States Fastest growing employment area in companies. No cost containment. Beyond patients and physicians? Good for patient? Improperly used by triple tier pharmaceutical benefits; no one understands triple tier. Improper advertising of cost-effectiveness claims.

25 Reflections Based on Possible Uses in United States Benefits of new drugs/breakthroughs poorly understood and measured. Industry claims process is unfair. Possibility that drug development would be impeded.