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Federal Budget 2015: health experts react

Billions were expected to be saved from the Pharmaceutical Benefits Scheme – but surprisingly the budget only outlines $252 million in savings. Lukas Coch/AAP

The big surprise about this year’s health budget was what wasn’t there – billions of dollars in expected savings from the Pharmaceutical Benefits Scheme (PBS).

In the past week, pharmacists and drug companies have been widely reported as being “on the brink of war” with the federal government, over well-sourced predictions that the budget would try to save as much as $5 billion from the PBS over the next five years.

Those savings were expected to come in large part through a 5% cut in what the government paid for key prescription drugs, potentially worth billions, along with $400 million in savings from pharmacists.

Both Medicines Australia and the Pharmacy Guild had been preparing public campaigns against the planned cuts. Last week The Australian reported that Medicines Australia chairman Martin Cross had written to the Prime Minister asking him to intervene.

On Tuesday, the budget papers revealed that instead of billions in PBS cost-savings, just $252.2 million over five years would be saved through adjusting the price of a number of PBS-listed drugs. Talks with industry are said to be continuing.

Meanwhile, new drugs to treat melanoma and breast cancer will become more affordable from the middle of this year, under a $1.6 billion boost over five years that is also funding other recently listed PBS treatments for asthma and multiple sclerosis.

Among this year’s health measures, the single biggest cost to the bottom line was a hangover from last year: the federal government’s failure to persuade the Senate and public to support cutting $5 off the rebate it pays GPs for common doctor visits. The budget papers show the reversal of that policy will cost $2.9 billion between 2014-15 and 2018-19.

But there was better news on the big ticket health item of the Coalition’s first budget – the announcement of a Medical Research Future Fund (MRFF). It will receive $400 million over the next four years, starting with $10 million in this financial year. But that’s still a long way short of the government’s stated plan to see the MRRF become a $20 billion fund in 2019-2020.

Read David Glance’s analysis of the government’s $485 million e-health package here.

Vaccination efforts have been boosted on a number of fronts, including offering Australians aged in their 70s a free vaccination for shingles, an extra $6 payment for doctors who vaccinate children overdue for their shots, and the previously announced “No Jab, No Pay” cut to payments to parents who don’t immunise their children.

From January 1, 2016, only those with medical exemptions will be able to opt out of vaccinating their children or else face losing access to childcare payments and Family Tax Benefit Part A payments. The new “No Jab, No Pay” policy is forecast to save $72 million this financial year and a total of $508 million by 2019.

Other major savings in health include $962.8 million over five years (starting from 2014-15) from “rationalising and streamlining” a range of health programmes, including cuts to preventative health research and GP Super Clinics that had not yet started being built.

A further $113.1 million over five years are also saved through “smaller government” measures, including to avoid service duplication.

PBS changes

Mike Woods, Professor of Health Economics, University of Technology, Sydney

Cost containment in the pharmaceuticals budget is difficult. This year’s budget is no exception. The budget papers proudly announce additional expenditure of $1.6 billion over five years for new and amended listings on the PBS. These measures were all pre-announced on 9 May by the Minister for Health, garnering support from cancer patients and others who will benefit from more affordable access to expensive medicines and vaccines.

But what of the much heralded savings measures, including cutting the price for patent-protected medicines and reducing the price of generic drugs? These measures seemed to have a good fiscal return and only a modest impost on pharmaceutical companies.

The moves were expected to provoke a fight with the drug industry. The industry body Medicines Australia, in the lead-up to the budget, has been claiming that the proposed changes are arbitrary, unplanned and not in the public interest.

The government’s response is contained in a single sentence deep within the Budget Overview:

The Government … is in the final stages of negotiations with industry on reforms to pricing and remuneration across the supply chain to underpin the future sustainability of the PBS.

And the public is left to question whether the self-interest of the drug companies or the government’s judgement in its pursuit of savings will lead to the better outcome. Indeed, in the absence of a transparent and open review of PBS pricing, that’s all we can do.

The government’s proposal to allow pharmacists to discount the PBS payment by $1 is also missing. It would have been a welcome attempt to introduce greater competition into the heavily protected industry, to the benefit of consumers. But even this measure avoids the real issues - the pharmacy ownership and location protections that distort market behaviour.

The real action is also in “the final stages of negotiations”, behind closed doors with the Pharmacy Guild on a new five-year community pharmacy agreement which is due to start on 1 July. This budget doesn’t give any comfort that there will be major reform in the public interest.

Medical Research Future Fund

David Hunter, Associate Professor of Medical Ethics, Flinders University

The Medical Research Future Fund, one of the failed measures introduced in the last Coalition budget is to go ahead, with an initial investment of $400 million to be followed by an investment fund of $1 billion. The central idea is to fund medical research from the interest earned by the money to create a self-sustaining research fund.

The measure failed last time around because it was tied to the introduction of GP co-payments, which were generally regarded as unfair and scrapped. While the government has clearly learnt a lesson and not tied the fund to a specific cut, the money for the MRFF is still coming directly from the health-care budget.

As I argued after last year’s budget announcement, this is in essence a regressive move.

While we don’t yet know the funding agenda of the MRFF, new medical research is more likely to benefit the already well off, whereas cutting current health-care resources disproportionately impacts on the poor.

E-health, prevention and primary care

Peter Breadon, Health Fellow, Grattan Institute

The 2014 budget’s big primary health care idea was a fee for GP visits and tests. After a fierce backlash it failed to pass the Senate.

This year there are some positive changes, such as improvements to electronic health records and cancer screening. Yet previous preventive health and GP funding cuts remain and we’re still waiting to hear about the long-term future of the primary care system.

Setting the record straight?

Providing patients and clinicians with up-to-date information about a patient’s history could reduce duplication, improve care and improve how the health care system is managed. But Australia doesn’t compare well to other countries when it comes to sharing records and duplicating tests.

Since 2012 only a small minority of Australians have signed up to for the Personally Controlled Electronic Health Record (PCEHR) and clinicians rarely use it. It will be re-branded as My Health Record, and an opt-out version will be trialled in at least two locations. Not having to sign up should lead to much greater uptake, but the system will not be perfect and digital records will not achieve better results on their own.

Despite this, the changes are a step in the right direction and the pilots can find ways to improve the system further. The changes will cost $485 million over four years.


In line with expert recommendations, the budget announces a change to cervical cancer screening. The current program recommends a pap smear every two years to detect abnormal cells. This will be superseded by a test for the cancer-causing human papillomavirus (HPV) every five years. This change will make Australia (along with the Netherlands) the first country to introduce a national HPV screening program.

State cancer screening data will also be centralised. Because screening will be less frequent, the changes will have a net cost of only $13,000 over four years.

Several measures will promote vaccination including funding new vaccines, incentives to administer them, increased data collection, and promotion, costing a total of $188 million.

What’s missing?

After the GP co-payment debacle, the government introduced a four-year freeze of GP Medicare rebates. The cut has not been reversed and by 2017-08 a GP seeing a non-concession patient will get a rebate that is 7% lower than today. GPs are likely to pass some of these losses on to patients through higher fees. This would increase out-of-pocket costs and could stop some people getting care.

Likewise, last year’s abolition of the national partnership on preventive health, a $370 million cut over four years, has not been reversed.

The budget will refocus existing programs to encourage GPs to work in smaller rural communities, but incentives of this kind are unlikely to solve the severe access gaps in many rural areas.

What is missing above all is a big-picture agenda for the future of primary health. The government recently announced an advisory group on primary care (which this budget funds, along with a review of Medicare items). The primary care review concludes this year, so next year’s budget may fill this gap. Hopefully it will focus on Primary Health Networks, preventive health and chronic disease management, which receive very little attention in this year’s budget.

Hospitals, Medicare and cancer drugs

Stephen Leeder, Emeritus Professor, Menzies Centre for Health Policy, University of Sydney

The yawning multi-billion dollar hole in public hospital funding drilled last year – a kind of health-equivalent of Gonski – in the federal budget’s cancellation of forward commitments to the states and territories continues to yawn. This will need much work during this financial year.

With the $7 co-payment for visiting bulk-billed doctors gone, Health Minister Sussan Ley is searching for $3 billion in savings by cutting back on useless services covered by Medicare and subsidised pharmaceuticals that don’t work. These should not be difficult to find.

Changes to the way pharmaceuticals are subsidised by government will theoretically provide savings of many million dollars, some of which will be spent on high-cost designer therapies for cancer that currently cost several hundred thousand dollars a year per patient. Collectively these drugs cost about $1 billion a year. This will be a tough battle because of resistance from big pharma and little pharma (dispensing pharmacists) whose megaton lobby power is truly frightening.

The Trans-Pacific Trade Agreement could easily play further havoc as US companies insist on their inalienable rights to charge what they like in the Australian market.

There were a few grace notes. Aged care is likely to be better tailored to the individual and the sabre-rattling around child immunisation is covered. But essentially this is a very steady budget, free of all surprise. Lots of yawning.

Read more of The Conversation’s Federal Budget 2015 coverage.

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