The Pharmaceutical Benefits Scheme subsidises a selected list of medicines. The Government lists drugs on the advice of an expert committee, the Pharmaceutical Benefits Advisory Committee. Australia was one of the first countries in the world to require products to be costeffective as well as efficacious before they can be listed. Despite existing strategies, expenditure is growing every year and new initiatives will be required to contain the cost of the Scheme.


The Australian Pharmaceutical Benefits Scheme (PBS) is one of 4 arms of the National Medicinal Drug Policy.1

The PBS provides equity of access to necessary medicines for the Australian community. The other 3 arms of the drug policy ensure:

  • the quality, safety and efficacy of marketed medicinal products; this is the role of the Therapeutic Goods Administration (TGA)
  • a viable Australian pharmaceutical industry; this is the role of the Department of Industry, Science and Technology and the purpose of schemes such as the Factor (f) program2
  • the quality use of medicines, a key body being the Pharmaceutical Health And Rational use of Medicines (PHARM) Committee.

The PBS started in the 1950s, supplying about 140 lifesaving and disease preventing drugs. It has now evolved to subsidise the treatment of most medical conditions and includes 540 drug substances, which are available in over 1100 dose forms and strengths. As more than one brand of a drug may be subsidised, the total number of products on the PBS is approximately 1600.

The PBS is designed to meet community needs and covers prescribing by community medical practitioners and dispensing by community pharmacists. Patients in private hospitals and the residents of nursing homes and hostels also have access to PBS drugs. The drugs used in public hospitals are primarily funded by the Medicare Agreements between the States and Territories and the Commonwealth. The States and Territories are responsible for the allocation of these funds. Under special funding arrangements, the Commonwealth also pays for some high cost drugs which can only be supplied from hospitals to outpatients (these are funded through section 100 of the National Health Act). In the 1994/95 financial year, the Government will provide approximately $80 million to cover the cost of 12 drugs under these special arrangements.

The cost of the full Scheme, which is financed from consolidated revenue, is about $2 billion annually. Ultimately it is the taxpayer who pays.

How drugs are listed on the PBS (Fig.1)
Products available through the PBS are listed in the Schedule of Pharmaceutical Benefits (the 'Yellow Book'). This is updated regularly and includes any prescribing restrictions, maximum quantities and maximum number of repeat prescriptions. It also lists the dispensed price of each product.

Products are included in the PBS following advice from the Pharmaceutical Benefits Advisory Committee (PBAC). This is an independent expert committee consisting of medical practitioners and pharmacists. It advises the Minister for Health on which drugs should be available as pharmaceutical benefits and any restrictions that should apply. The Minister approves the listing except for products with a potential outlay exceeding $10 million annually, which are decided by Cabinet.

The Government relies heavily on the advice of the PBAC; however, its final decision to subsidise a drug may also reflect other considerations such as whether assistance is already provided or is more appropriate through other programs such as State public health programs.

The PBAC receives requests from both health professionals and pharmaceutical companies for drugs to be included in the PBS. Ultimately, it is the sponsor of the product who must provide the data to substantiate an application for listing .

Recommendations for PBS listing by the PBAC are consistent with the clinical indications approved by the TGA when the product is registered for marketing. Indications not approved by the TGA cannot be subsidised by the PBS. The Committee considers the need for the drug to be available for the community and also assesses its value for money based on an economic analysis provided by the sponsor.3

The PBAC makes its recommendation to the Minister, advising on appropriate uses, appropriate quantities and number of repeat prescriptions. For acute conditions, the quantities reflect normal usage patterns, and, for chronic diseases, the quantities are based on a month's average treatment, with up to 5 repeats.

Certain items are limited to uses specified in the Schedule. Some prescriptions need to be approved by the Health Insurance Commission (authority prescriptions), while others can only be prescribed under the PBS for the stated purposes (restricted benefits).

Many products considered by the PBAC represent alternative brands of drugs which are already included in the PBS. For these products, conclusions based on relative need and value for money are quite straightforward. In contrast, decisions on novel drugs can be very complex and are not assisted by the often emotive and unrealistic expectations of the pharmaceutical company, doctors, the media or the public.

Fig. 1
Processing a new product for PBS listing.

Drug prices
A product will be included on the PBS if the Government agrees to the listing and a price is agreed with the sponsor. During this process, the TGA Laboratories analyse a sample of the product to ensure it complies with the agreed product specifications.

Once the PBAC has recommended listing of a new product, it is considered by the Pharmaceutical Benefits Pricing Authority (PBPA). This is an independent body, with pharmaceutical industry and consumer representatives, which advises the Minister on a reasonable price for the product.

If there are similar drugs available on the PBS, new products are priced in relation to the prices of the other drugs (benchmark or reference pricing). A unique product is priced using a margin over its cost of manufacture. A higher price can be justified if the economic analysis shows that the product offers value for money compared with alternative treatments. Sponsors have the opportunity for the prices of their products to be reviewed every 6 months by the PBPA.

Pharmacists receive a fee for dispensing PBS medicines.4 This dispensing fee is determined by the Pharmaceutical Benefits Remuneration Tribunal.

Variations to the Schedule
The PBS is intended to meet the needs of the whole community and so it cannot usually be adjusted to meet the unique needs of individuals. However, authority prescriptions can be approved for patients who require more than the maximum quantities allowed in the Schedule. On the other hand, smaller quantities or numbers of repeats than the maximums presented in the Schedule can and should be prescribed when appropriate, even if this means breaking a pack. Pharmacists receive a broken pack fee to compensate for the broken pack.

Cost control
The PBS requires a fixed patient copayment and so hides the true cost of medicines from the consumer. Some people believe that once a product is subsidised through the PBS, its price magically becomes the copayment cost of either $2.60 or $16.20. However, while the PBS does provide strong controls over unit costs and permits reasonable prices to be negotiated, it merely transfers the real costs of the medicines from individual patients to all taxpayers. An overpriced product which would cause concern to an individual does not become better value for money if paid for by the taxpayer.

This lack of cost consciousness can also trivialise the importance of medicines and mean that cost considerations have a low priority in prescribing decisions. With the outlays of the PBS increasing at over 13% each year, disregard for the cost of drugs is a luxury which cannot continue. The increases are partly due to the increased volume of prescriptions and patients being transferred to new higher priced products.

Increased price awareness has been achieved through the Minimum Pricing Policy. When there is more than one brand of a drug in the PBS and the brands are clinically equivalent, the patient pays the price difference if a more expensive brand is prescribed. (Equivalence is established by the TGA before marketing approval is given.) The policy has now been extended to allow the patient to request a cheaper equivalent brand from the pharmacist (brand substitution), unless specifically vetoed by the doctor on the prescription.

These policies apply to out of patent drug substances except where the patent holder has a commercial arrangement for a competing brand to be on the market.

Another difficulty is patients stockpiling their medicines when they qualify for the PBS safety net. Although the safety net financially protects frequent users of medicines, some people who qualify regard this as an opportunity to squirrel away medicines. Evidence of this behaviour is given by drug utilisation data which show a peak in dispensing in the final quarter of the year.

The Health Insurance Commission is monitoring the highest users. Also, the minimum periods for the repeat dispensing of a pharmaceutical benefit have been lengthened. However, the pharmacist is able to override the periods if the circumstances warrant this. Obviously, prescribers have an extremely important role in monitoring usage so that patients do not collect wads of extra prescriptions.

Within the National Medicinal Drug Policy, there are unavoidable tensions which must be recognised and taken into account. Some examples are:

  • intense promotion of drugs by the pharmaceutical industry can lead to poor prescribing patterns and result in increasing costs for the PBS
  • the control of prices through the PBS could damage the viability of the pharmaceutical industry
  • financial arrangements can encourage cost shifting between the public hospital system and the PBS, leading to possible adverse health outcomes. For example, some public hospitals have a policy of discharging patients with a minimum supply of medications, referring them to general practitioners.

One unavoidable controversy which we are already entering is when do pharmaceuticals (and other health services) become unaffordable for governments and societies? It is the age old debate of unlimited expectations against limited resources which, to date, has bypassed some health areas. However, economic analysis of pharmaceuticals has focused this debate and placed the onus on suppliers to establish that they are providing value for money. Increasingly harder decisions will have to be made about which drugs are subsidised within a finite budget. Consumers as well as health professionals will need to be involved in these decisions.

Much depends on making better use of the Scheme. This is being approached from a number of directions, from rigorous decisions about what is added to or deleted from the Schedule, to encouraging improved quality use of medicines and strengthening controls against misuse.

Direct intervention is sometimes necessary. For example, when authority restrictions were loosened to allow the urgent supply of drugs, doctors channelled 75% of all authority prescriptions through this mechanism. It is estimated that over 30% of these prescriptions were for uses outside PBS indications, so prior approval has been reinstated. However, the Government has accepted that it must provide an efficient approval service and that authority requirements should be based on medical considerations. Purely cost based authorities will be removed as soon as possible.

The PBS quietly and successfully subsidises over 100 million prescriptions each year. There will be increasing demands to contain costs and to ensure that PBS outlays are appropriate. This will be a shared responsibility between the Government and health professionals and must include consumer input.

Footnote: General information about the PBS can be obtained from the free PBS Information Line on 1800 020 613. The free phone number for authority approvals is 1800 888 333.


Self-test questions

The following statements are either true or false.

1. The Pharmaceutical Benefits Advisory Committee sets the price of drugs listed in the Schedule of Pharmaceutical Benefits.

2. If treatment with a new drug is expected to cost over $10 million a year, its PBS listing may be decided by the Cabinet.

Answers to self-test questions

1. False

2. True


David Graham

Head, Pharmaceutical Benefits Branch, Department of Human Services and Health, Canberra