King report suggests direct supply, removing CSO

medicines pills shelves pharmacy

CSO wholesalers say the King Review interim report options ‘lack rigour’, while Medicines Australia has concerns about the impact of potential changes to supply

The interim report of the Review of Pharmacy Remuneration and Regulation found that current supply chain arrangements (terms of trade and supply conditions) involve “unnecessary regulation, as well as Community Service Obligation (CSO) payments that appear unconnected with relevant distribution costs”.

One alternative suggested is the removal of the CSO and the imposition of an obligation on PBS-listed medicines suppliers to ensure delivery to any pharmacy in Australia in a specified period of time (generally 24 hours).

A second retains the CSO while the last of the three alternatives suggests a “separate review of the CSO to ensure current arrangements demonstrate value for money”. 

The CSO and existing regulations may be leading to wholesale margins that are higher than necessary for an effective and efficient supply chain, the report suggests.

The Panel found that regarding the distribution of PBS medicines in Australia:

  • “there is no need for the government to regulate wholesaling as a separate ‘segment’ of the supply chain;”
  • “there is a need for more clarity in the specification of minimum requirements for delivery of medicines to community pharmacies around Australia;” and
  • “there is a need to ensure that community pharmacists do not face significantly increased costs due to dealing with a large number of supply chains”.

The report says that the Pfizer Direct model shows the distribution of PBS-listed medicines can maintain a “generally satisfactory standard” without government regulation – that is, the CSO.

It observes that the 24-hour rule is not always met and that rules can be relaxed between the CSO distributors and pharmacies “in exchange for more favourable prices” and that terms and conditions for delivery can be changed by wholesalers.

“This is not appropriate regulation,” it says.

The NPSA expressed disappointment that options put forth in the interim report “are lacking in rigour and ignore the key problems in the supply chain funding model”.

The document fails to identify any consequences of its recommendations, says NPSA chair Mark Hooper.

Mark Hooper
Mark Hooper, NPSA Chairman

“We already have medicines shortages in Australia, so we fail to see how a proposal to effectively shift away from a hub and spoke distribution model with in-built redundancy will alleviate this or enhance access to essential medicines for consumers,” he says.

“We have said for some time that Australia’s pharmaceutical supply chain is becoming critically unbalanced because it relies on an unsustainable remuneration formula. The ongoing impact of price disclosure means that more than 90% of PBS medicines are now unprofitable to distribute.

“The CSO wholesalers welcomed the opportunity to engage throughout the Review process, providing extensive evidenced based submissions and independent economic modelling. 

“However, rather than attempt to fix the problem, the Interim Report has instead suggested three disparate ideas that fail to address the fundamental funding issue that threatens to undermine what has proved to be an efficient, effective, safe and world-class system for Australian patients.”

Mr Hooper said it was particularly disappointing that the Panel chose to make supply chain suggestions that “appear to fundamentally ignore not only submissions provided by the CSO wholesalers but also those of the Guild, Medicines Australia and individual manufacturers”.

“It is perplexing that the Panel acknowledges that its Review had ‘not been concerned with the specifics of implementation,’ then proceeds to impose an onus for distribution of medicines on manufacturers – and that is simply not practical.

“NPSA provided a detailed and independent report to the Panel and invested considerable time and money in doing so. Having provided the Review Panel with a number of options, we are very disappointed that our considerable input appears to have been ignored.”

Milton Catelin, chief executive of Medicines Australia, says a number of ideas put forward in the interim report are “of real concern” to Medicines Australia as they are either ineffective, could potentially diminish medicine quality or lead to potential medicines shortages for patients.

These include:

  • Reducing competition in off-patent medicines by tendering for a maximum of five suppliers (four generic manufacturers and the original branded supplier) per medicine;
  • Changes to chemotherapy compounding payments and minimum standards that would allow non-TGA approved compounding facilities to offer chemotherapy compounding;
  • Removal, retention or replacement of the Community Service Obligation (CSO).

Tenders are already utilised by Australian hospitals for off-patent medicines and have proven to be problematic with acute shortages of medicines becoming more common.

“Any move towards a tender-based PBS would be a retrograde step that would limit choice for consumers, increase the risk of medicines supply shortages and could ultimately lead to higher long-term average costs for off-patent medicines on the PBS,” says Mr Catelin.

“The report does not take into account recent reforms negotiated between Medicines Australia and the Government that will have a significant impact on reducing the prices paid for medicines that will see generics present even greater value to patients in the future,” he says.

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