Australian system ‘close to ideal’: pharmacy economists

an pharmacist holding up a piggy bank employee pharmacist wages money earning funding salary salaries wage

The CPA is “world leading”, say experts – but its co-payments and safety net are relatively expensive

Expert economists in the pharmacy sector have pointed out that community pharmacies have a good thing going with the Community Pharmacy Agreement – particularly the 7CPA.

National, negotiated funding agreements between Federal governments and the community pharmacy sector are the exception rather than the rule, said Stephen Armstrong, Chief Economist of the World Pharmacy Council at APP2021.

Even those countries that do have national funding agreements don’t have the same guarantees.

For example, New Zealand has an “evergreen” agreement that is reviewed or amended each year, said Mr Armstrong. In this scenario, pharmacies sign individual contracts.

Meanwhile in England, the community pharmacy network signs a five-year deal, however some of these elements require renegotiation each year.

There are “many benefits” of Australia’s CPA versus other agreements, said Mr Armstrong, who is also an economic advisor to the Pharmacy Guild of Australia.

For example, it provides five years of relative certainty, annual indexation, specific rural and regional funding arrangements, and national programs and services funding.

“Our is more comprehensive than any of those other agreements,” he said.

Additionally, in the 7CPA, the Pharmacy Guild was able to negotiate a remuneration adjustment mechanism.

“This time around it’s far clearer [than the former risk-share arrangement], there is a guaranteed floor for dispensing remuneration for delivering subsidised medicines … it’s really a first,” said Anthony Tassone, the Pharmacy Guild’s Chair of Health Economics & Policy Committee, at the APP conference’s 7CPA session.

Philip Chindamo, Group Executive Health Economics at the Pharmacy Guild of Australia, explained further that, “should remuneration fall below that floor, and depending what happens to below co-payment scripts, there would be an adjustment upwards in the AHI to bring the network back to the agreed remuneration”.

He explained that there is a ceiling to the mechanism that allows for growth up to 5% year on year before any adjustment mechanism would be triggered.

There are four assessment periods during the 7CPA where the Commonwealth and the Guild will compare what scripts have been against the agreed totals, and see whether that triggers the remuneration adjustment mechanism, said Mr Chindamo.

In the first six months ending December 2020, the variation was 3.39% so there was no trigger to the mechanism and the community pharmacy network got “to keep that growth”, he explained.

“If it was above 5% and depending on what happens to below copayment scripts, there would be adjustment. If it was below 0%, there would be an adjustment in the AHI. Hopefully this provides confidence to the network and certainty that wasn’t available in previous CPAs.”

Mr Tassone said the Agreement, including this new mechanism, gives “security to our sector”.

Other countries have no such certainty from a volume-based adjustment mechanism written into their Agreements, although a few countries are able to negotiate support.

New Zealand community pharmacies may receive an undefined “contribution to cost pressure” explained Mr Armstrong, and in England community pharmacies can renegotiate for an adjustment.

However Mr Armstrong noted that the situation isn’t quite so sunny for consumers in Australia.

The concessional co-payment for medicines is quite high, he said. And for people with two or more chronic conditions, Australia’s affordability is worse than other countries.

In Australia there is a co-payment of up to $41.30 for most PBS medicines or $6.60 if you have a concession card. The safety net is $1497.20 for general patients and $316.80 for concessional patients.

By comparison, Scotland, Wales and Northern Ireland provide prescriptions medicines free of charge.

In England, about 90% of items are free, with a maximum charge of £9.15 (AU$16.73).

Meanwhile in New Zealand, there is a NZ$5 (AU$4.66) maximum co-payment, with a safety net of NZ$100 (AU$93.13) per year for all patients.

And in France, consumers pay €0.50 (AU$0.79) per item, with a maximum of €50 (AU$78.81) per year for all patients.

“This pharmacy agreement is unique, comprehensive and world leading, but unfortunately Australia’s co-payments and safety net are very expensive compared to many other countries,” said Mr Armstrong.

However he added that the Australian system is “pretty close to ideal” for community pharmacies, with its location rules coupled with pharmacy ownership restrictions.

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1 Comment

  1. Michael Ortiz

    The remuneration from dispensing is a function of volume of the subsidised above copayment, while the under-copayment segment is growing and is subject to price competition. There is also the issue of high cost (Section 100 medications which are supplied by Hospital Pharmacies.

    PBS claims data can be used to track volume and expenditure after copayment.

    Summary of Pharmaceutical Benefits Scheme 2019-2020

    Total Pharmaceutical Benefits Scheme (PBS) Government expense on medicines under Section 85 and Section 100 for the 2019-2020 financial year was $12,614 million (excluding revenue), compared with $11,818 million for the previous year. This is an increase of 6.7%.

    Total 2019-20 PBS subsidised prescription volume increased by 1.6% to a total of 208.5 million, compared to 205.1 million for the 2018-19 financial year. In 2018-19 there were 94 million under copayment prescriptions (6% increase from 2017-18) at a cost to patients of $1.4 billion. 2019-20 undercopayment numbers have not been released yet.

    Don’t be fooled, the prices didn’t rise by 5.1%. The mix changed with price disclosure causing more low cost drugs to fall under the Copayment threshold, while more high cost Section 100 drugs were added to the PBS.

    The majority of Government expenditure in 2019-20 on PBS Section 85 and Section 100 prescriptions was directed towards concessional cardholders ($8,253 million, 66.0% of the total), compared to concessional cardholders expenditure for 2018-19 ($7,777 million, 66.5% of the total).

    In 2019-20, PBS Government expenditure on medicines under Section 85 and Section 100 was $12,507 million (excluding rebates) and patient contributions, amounted to $1,520 million. These previously secret rebates a could be as much as $1,000 million per year in 2019-20.

    In 2018-19 there were 94 million under copayment prescriptions (6% increase from 2017-18) at a cost to patients of $1.4 billion. We don’t have any 2019-20 undercopyament data yet, so it is too early to assess whether pharmacies are better or worse off with new agreement.

    If you combine Under with Over copayment numbers and patient costs and deduct rebates paid to Government, then patients are paying $2.9 billion for 300 million prescriptions, while Government is only paying around $10 billion of the cost for 210 million prescriptions.

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