Will the Abbott government adopt harsh recommendations to stem the Pharmaceutical Benefits Scheme’s bleeding?

By Sophie Morris.

Government considers PBS cutbacks

Fiscal discipline is in fashion but some measures under consideration as the government prepares for a tough budget would risk a public backlash and have previously been rejected.

The cost of medicines would rise under a proposal to save $840 million over four years, which may appeal to a government intent on reining in growth in health spending.

The Saturday Paper has seen departmental advice provided to the previous Labor government that it should increase the amount patients pay for prescription medicines by $5 for general patients and 80 cents for concessional patients.

“The cost of the PBS is growing faster than patient contributions due to increasing costs for new medicines,” says the departmental advice, which was rejected by Labor last year.

“This initiative will readjust the balance between government and patient contributions and will contribute to sustainability of the Pharmaceutical Benefits Scheme.”

The measure was twice recommended to the Labor government, including ahead of last year’s budget, and twice knocked back on the grounds that it would hit vulnerable people. It would also have been unpalatable in an election year.

Now, as a government seeks savings and aims to implement its toughest cuts in its first year in office, when it can still blame the previous government for the state of the budget, this proposal may find a more favourable reception.

The department is thought to have revived the proposal in its recommendations to the government’s National Commission of Audit, which has reported to the government on savings options ahead of the federal budget.

Treasurer Joe Hockey has been making the case for a smaller role for government and an end to “the age of entitlement”.

Since receiving the commission’s report, Hockey has warned of tough choices in the budget, due in May, and spoken of the need to tackle spending on health, education and welfare in the long term.

Hockey has said the government is ringing an “early warning bell” about the sustainability of this spending, priming the public for unpopular measures.

The departmental advice recommended increasing the patient co-payment for each prescription for general patients, from an estimated 2014 price of $37.20 to $42.20, and for concessional patients, from $6.10 to $6.90.

The actual prices this year are $36.90 and $6.00.

On average, it says, patients fill just two prescriptions a year and would pay an extra $10. The average concessional patient uses 17 prescriptions a year and would pay an extra $13.60.

Patients with a concession card would pay $414 for medicines instead of $366 before reaching the safety net, which qualifies them for free prescriptions.

But assistant professor at the University of Western Australia’s School of Population Health Anna Kemp said the impost on those with chronic conditions, relying on multiple prescriptions, would be much higher.

“Chronically ill people are on typically five to 10 scripts a month. They are often on low incomes, but may not be low enough to hold a concession card,” she said.

Her research on the effect of the previous major increase in patient co-payments, when the cost to patients rose by about 21 per cent in January 2005, showed that the number of prescriptions being filled for some medicines dropped 10 per cent.

“Often it’s the preventative medicines that people stop using. They’re the lifesaving drugs and my concern is we are going to end up with a lot more people in hospital having treatment for things that could have been avoided,” she said.

“But that doesn’t show up in the Commonwealth budget, because states are paying for hospitals. It’s not good policy economically in the long term.”

A spokeswoman for Hockey said the Commission of Audit was looking at every government program and its findings would be released in the budget context.

In the Coalition’s party room meeting on Tuesday, Abbott flagged “tough decisions” and harked back to the 1980s, when he said economic rationalism had created a “golden age” of higher real wages growth and a doubling in the wealth of Australians.

Health Minister Peter Dutton has also sought to ignite a debate about future health spending, observing that it is set to rise by an annual 5 per cent, from $62 billion today to $75 billion by 2016-17.

In a recent speech, he said the PBS, which cost $9 billion in 2013, was one of the largest contributors to health spending growth over the past decade, along with Medicare, the private health insurance rebate and public hospital funding to state governments.

His comments suggested the government was considering cutting back on the subsidies of medicines for concession card holders, who he said accounted for 80 per cent of PBS expenditure.

“Much of the money spent on the PBS is accessed by a small cohort of people. In 2012-13, 10 per cent of patients accounted for 58 per cent of PBS expenditure,” he said.

“The focus of the Commonwealth should be on getting our primary care response right, particularly for the chronically diseased and the aged. We need to look at the payment models and the way in which we manage the most frequent users.”

He also noted that the safety net meant that a family with a concession card faced no further cost for medicines after paying $6 for 60 scripts in a calendar year.

Dutton said that “expenditure on the PBS is a growing component of federal government health spending”, but official figures tell a different story.

Spending on the PBS rose during the years of the Howard government by nearly 8 per cent a year in nominal terms, compared with nearly 5 per cent under Labor, which forced the drug companies to accept lower prices.

Growth in the cost of the PBS is projected to continue at that slower rate.

The government has sent mixed signals on its plans for health policies, with Dutton raising the prospect of a patient co-payment for doctors’ visits but Abbott insisting the next day his government would be the “best friend” Medicare ever had.

Despite all the talk of a tough budget, the government still found $320 million for drought-hit farmers, mostly for concessional loans but also for increased social and mental health services and pest management.

But other industries have not fared so well, with Abbott warning the government will not be an “ATM of last resort” for companies after rejecting assistance for the Coca-Cola Amatil-owned fruit processor SPC Ardmona and for car manufacturers Toyota and Holden.

The government is also considering guaranteeing a standby debt facility for Qantas but Hockey has said it is being dragged “kicking and screaming” to such support.

This article was first published in the print edition of The Saturday Paper on February 28, 2014 as "A bitter fiscal pill".

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Sophie Morris is The Saturday Paper’s chief political correspondent.

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