Back in 2013 there was an article in the Conversation that explained how "price disclosure" worked with pharmacies. "In Australia, the prices for most drugs are set by the government through the Pharmaceutical Benefits Scheme (PBS). The government pays some of the highest prices in the world for generic drugs (medicines on which the patent has expired). Take the commonly prescribed cholesterol-lowering drug atorvastatin, for instance. For a typical dose (40mg), the wholesale cost of a script in Australia is A$38. The comparative cost in England and New Zealand for the same drug is less than A$3. Based on last year’s usage alone, atorvastatin cost the Australian government A$548 million; if it had paid English prices, the drug would have cost A$119 million and with New Zealand prices, it would have cost A$100 million. Atorvastatin’s patent expired around 18 months ago and wholesale prices have been falling since as many new suppliers enter the market. But the price paid for atorvastatin by the Australian government has remained high because the pricing of all generic drugs on the PBS is governed by an agreement that’s due to end in July 2014. Under this agreement, a mechanism known as price disclosure sets future prices based on past wholesale cost of medicines to pharmacists. The problem with price disclosure is the rate of adjusting generic drug prices is too slow. It currently involves collecting wholesale price information from the pharmaceutical industry for a year and it then takes another six months to implement the price changes. So any discounts on the wholesale price of common generic drugs such as atorvastatin that flow to pharmacies do not translate into price reductions for the government or consumers for a period of up to 18 months. Under current policies, pharmacies get to keep all of these discounts and they quickly add up to very large amounts. For a drug such as atorvastatin, more than A$400 million will flow to 5,200 pharmacies from wholesale discounts from the time it came off patent to December 2013. England also uses a system of price disclosure, but the cycle over which cost reductions are made is only three months – six times faster than what happens in Australia."
The Government has since introduced a "Simplified Price Disclosure" amendment, which does bring down the cycle time. From the Pharmacy Guild: "The reality of the commencement of Simplified Price Disclosure looms large with the Department of Health announcing the list of PBS price reductions that will take effect on 1 October. This is the first cycle under the Simplified Price Disclosure amendments, which result in many drugs having their prices reduced sooner than previously scheduled. Guild members know that Simplified Price Disclosure was announced on the eve of the Federal election campaign by the previous Labor Government without any consultation or any compensation for community pharmacies. It has since been legislated under the Coalition Government. The Pharmacy Guild considers the introduction of Simplified Price Disclosure in 2014-15 to be a breach of the Fifth Community Pharmacy Agreement, which was negotiated on the basis of the 2010 price disclosure regime. We strongly maintain that the flow-on impact of Simplified Price Disclosure must be ameliorated in the last year of the Agreement...The Guild's analysis of the announced 1 October PBS price reductions indicates that the average impact of price disclosure on pharmacies in 2014-15 is likely to be close to the $90,000 estimate that we have previously released. This includes about $60,000 from the pre-Simplified Price Disclosure regime and nearly $30,000 from Simplified Price Disclosure. Two of pharmacies' most frequently dispensed PBS medicines Rosuvastatin (Crestor) and Atorvastatin (Lipitor) will be subject to price reductions of 37% and 46% respectively on 1 October. As a result, each of these medicines will provide annual savings to the Government in excess of $100 million. Together they will deliver PBS savings to the Government of about $1 billion over four years...It is also worth putting on the record that the Guild is not opposed to price disclosure per se and that we have consistently recognised the need for taxpayers to get value-for-money for the PBS. However this should not occur at the expense of hard-working pharmacists and the viability of local pharmacy businesses."
Comment from the Executive Director of the Pharmacy Guild in December last year was, "The first set of Pharmaceutical Benefits Scheme price reductions under the new, further accelerated, Simplified Price Disclosure (SPD) arrangements which cut in from 1 October 2014 have contributed more than $400 million in annual savings to taxpayers. That’s the good news. The bad news is that these savings also represent an equivalent reduction in revenue for pharmaceutical manufacturers, wholesalers and pharmacies. About 70 per cent of community pharmacy revenue is derived from the dispensing of PBS medicines. As the Government reduces what it pays for off-patent PBS medicines, which occurs twice a year, pharmacies are impacted in two ways. First, it reduces government funded pharmacy mark-up, and secondly it reduces the trading terms from manufacturers and wholesalers. The adverse impact in 2014-15 has been exacerbated by SPD, which was announced by the previous Government on the eve of the last Federal election, without any consultation or recognition of its flow-on impact on community pharmacy remuneration. Community pharmacy has consistently and publicly supported price disclosure to ensure that the PBS delivers maximum value-for-money for taxpayers. However, with PBS reforms adversely impacting community pharmacies through lost mark-up and reduced trading terms, the current remuneration trajectory for community pharmacies has become unsustainable. Without changes to remuneration in the next Community Pharmacy Agreement the impact of price disclosure will cause patient services such as dose administration aids to be discontinued, jobs to be cut, and opening hours decreased and businesses to become unviable. Already in 2014 there has been significant impact, including job losses and reductions in opening hours...The projected change in gross profit for all pharmacies is negative and ranges up to a $300,000 loss. Any reduction in gross profit comes straight off the bottom line (net profit) unless the pharmacy can find new revenues streams or reduce expenses. Ultimately the latter means cuts to patient services, accessibility and quality of health care for the community. It is vital that the flow-on impact on pharmacies of reductions in PBS prices is properly addressed. Pharmacies and wholesalers are under increasing pressure and the next Community Pharmacy Agreement must provide certainty for the industry and for the patients who are so well served by the PBS. A commitment to viable remuneration for pharmacy dispensing and professional services, and appropriate funding for the wholesaling of PBS medicines, is urgently required."