Distributional Analysis – PBS Scheme

The Pharmaceutical Benefits Scheme (PBS) provides all Australians with access to low-cost medicines for a growing list of common medical conditions. The Australian Government pays the cost for these medications with citizens making a contribution: the PBS Co-Payment. First, this essay will outline the institutional arrangements of the PBS Co-Payment in both the public and private spheres. Next, this essay will analyse its distributional effects on various demographic groups, specifically age, gender and relationship status. The relative fairness of policy is informed by both ideological and societal expectations. Definitions of fairness will be explored in relation to the PBS Co-Payment using McClelland’s five philosophical traditions (2010: 17-18) and Welch’s societal standards of fairness (2014: 80).

The PBS Co-payment is a government-subsidised contribution made by individuals towards the cost of approved prescription medicines (Lofgren & Harvey 2012: 107). The Government pays for the difference between the co-payment and the actual cost of the medication (DH 2016a). The Co-Payment has both a general and a concessional rate as does the PBS Safety Net, which limits the costs individuals and their families1 have to pay for medications each year (DH 2016a). When reached, the general patient rate reduces to the concessional rate while concession card holders no longer have to make a contribution (DH 2016a). The general patient PBS Co-Payment rate is available to any Australian resident with a Medicare card2 and concessional rates are available to aged, disability or single parent pensioners; seniors, unemployed and low income health care card holders; and veterans3 (DHS 2016a; DH 2016a).

The Department of Health is responsible for PBS policy decisions, legislated under the National Health Act 1953 and part of the wider National Medicines Policy framework (DH 2016a; DH 2014; Lofgren & Harvey 2012: 108). The PBS Co-Payment is administered by the Department of Human Services, through Medicare (DH 2016a; DHS 2016a). Medicines are approved for sale within Australia by the Therapeutic Goods Authority (TGA) (Biggs 2003). Once approved, pharmaceutical companies may apply for PBS Listing through the Pharmaceutical Benefits Advisory Council (PBAC). PBAC then makes recommendations to the Minister for Health, after considering each new drug’s medical and cost effectiveness compared to alternatives (Lofgren & Harvey 2012: 108-109; DH 2016b). Both the TGA and the PBAC are administered by the Department of Health; however, the PBAC is an independent body funded by the pharmaceutical industry under the National Health (Pharmaceuticals and Vaccines — Cost Recovery) Regulations 2009 (DH 2016c; Lofgren & Harvey 2012: 105).

Industry membership organisations and professionals are important facets of the policy’s formation and delivery. Since 2010, the price of pharmaceuticals has been determined by a memorandum of understanding between the Australian Government (2010) and Medicines Australia, representative for “discovery-driven” pharmaceutical manufacturers (MA 2016). The Australian Medical Association is the industry representative for “registered medical practitioners” and ensure doctors retain independence in clinical decisions (AMA 2016). Medical practitioners and pharmacists are the frontline of PBS Co-Payment service delivery. Doctors provide prescriptions for medications best suited to their patients’ needs; meanwhile, pharmacists are responsible for the collection of patient contributions as well as dispensing medicines (DH 2016b). These arrangements form part of Community Pharmacy Agreements between the Pharmacy Guild of Australia and the Australian Government (PGA 2015a). Despite opposition, pharmacists are now able to discount the co-payment by $1 at their discretion (DH 2016a; PGA 2015b).

Since its introduction, the PBS has maintained a balance of both universalist and targeted policy (Lofgren & Harvey 2012: 105). When the co-payment was introduced in 1960, PBS medicines were provided free of charge to pensioners and other patients were required to make a small contribution (Biggs 2003). In 1983 a concessional co-payment was introduced and this was extended to include pensioners in 1990 (Biggs 2003). Since 2003, the co-payment amount has almost doubled, with general patients now paying $38.30 per medication and concessional patients paying $6.20 (Biggs 2003; DHS 2016b). In 1986, to counteract rising costs for the “chronically ill”, a PBS Safety Net was implemented (Biggs 2003). This too has doubled in the last 15 years: general and concessional patients now contribute $1,475.70 and $372 respectively before reaching the Safety Net (Biggs 2003; DHS 2016b). In 2011-12, the Australian Government spent $10 billion on pharmaceutical subsidies with PBS prescriptions accounting for “70% of all prescriptions dispensed in Australia” (Lofgren & Harvey 2012: 104) and concessional patients accounted for 80% of all PBS prescriptions (AIHW 2014: 34, 428; AIHW 2015: 24).

This essay will consider the PBS Co-Payment’s distributional effects in relation to age and gender, particularly in terms of relationship status and the amount of medications taken. The likelihood of taking medication increases age, as does the likelihood of taking multiple medications (ABS 2010: 19; ABS 1999: 5). Statistics show a jump in the use of multiple medications after the age of 65, which is also around the age most people retire (ABS 1999: 5; Morgan, et al. 2012: 51). This age group is made up of aged pensioners4, low income retirees with a seniors health card, and self-funded retirees. The first two groups receive concessional rates, while the last does not. The majority of people who receive concessional rates are aged pensioners and 55% of all aged pensioners are women (DSS 2014: 6, 8). The PBS Co-payment is paid per medication, so those patients using multiple medications are affected more than those using only one medication at a time. Of those who regularly use medications, until the age of 65 most people only take one or two however this increases to around 60% of people taking three or more medications after the age of 65 (ABS 1999: 5). Of those that have attended a GP in the last 12 months, women are more likely than men to have received a prescription (ABS 2010: 5, 19; ABS 2011: 2). Furthermore, research by Morgan et al shows that after the age of 65, women were significantly more likely than men to have taken five or more medications in the previous 24 hours (2012: 51).

The PBS Safety Net applies to the family unit, whether this consists of a single individual; a single individual and their children; or, a couple with or without children (DHS 2016b; DH 2016a). This means that the larger the family unit, the less medications each individual needs to be prescribed before the safety net is reached. In 2006, 61% of all adults lived with their partner (ABS 2009a: 7). While men and women had similar chances of living alone up until the age of 50, the amount of women living alone increases significantly at that point (ABS 2009b: 5) Longer life expectancy rates for women leads to men being more likely than women to be in a relationship in the over 75s demographic, while 78% of women over 65 who live alone are widowed (ABS 2009a: 6-7; ABS 2016; ABS 2015).

Definitions of fairness and the social policies they inform vary; furthermore, these notions of fairness are often conflicting and contested. This essay considers McClelland’s philosophical traditions (2010: 16-19) in the context of Welch’s sample list of societal concepts of fairness (2014: 80), adding two more definitions: fairness as “the greatest good for the greatest number” and ‘to each based on their personal choice’ (McClelland 2010: 17-18). The Egalitarian tradition (McClelland 2010: 17) is embodied in the phrase “to each according to need” (Welch 2014: 80). By this definition, a concessional co-payment is an appropriate means of achieving fairness for aged and invalid pensioners; however, the lack of PBS-listed medicines for rare diseases and the inability to prescribe medications for unapproved conditions is unfair. If fairness is defined as “recognition of societal contribution” (Welch 2014: 80), the existing arrangements for a reduced co-payment for pensioners and veterans are very fair, while the concessional rate for the unemployed could be seen as unfair. If raising children is perceived as being a ‘societal contribution’, then the benefits of families having the same Safety Net as individuals would also be fair. This perspective is reminiscent of a both Communitarian and Conservative traditions (McClelland 2010: 17-18).

The PBS Co-Payment is a fair arrangement, if using the Social Liberal definition of “the greatest good for the greatest number” (McClelland 2010: 17), because the majority of prescriptions are used by concessional patients and Safety Net arrangements limit personal costs for the chronically ill. The policy is universalist in that all Australian benefit from reduced medication costs. This appeals to notions of fairness as “equal shares for all” (Welch 2014: 80). This perspective may consider concessional rates to be unfair; furthermore, the application of the same Safety Net to individuals and families would also be unfair. The PBS Co-Payment conflicts with Libertarian values of both individual and market freedom, where fairness is ‘to each based on their personal choice’ (McClelland 2010: 17). This standpoint drove Australia’s medical community to argue against the introduction of the PBS due to it being “an intrusion on doctors’ free choice of treatment options for their patients” (Lofgren & Harvey 2012: 104). A Libertarian ‘user pays’ mentality is echoed in “to each according to ability to pay” (Welch 2014: 80). By this measure, the PBS Co-Payment would be considered to be unfair, because it involves government interference into the freedom of the market.

The PBS Co-Payment is implemented using an intricate network of institutional arrangements involving Federal government departments, independent statutory bodies, lobby groups, medical professionals and patients. Maintaining a delicate balance between universalist and targeted policy, the PBS Co-Payment is relatively fair for as many people as possible. However, limiting medications available and applying safety nets to families regardless of size does lead to some inequality for patients who are single or have a rare condition. As can be seen in the distributional analysis above, the PBS Co-Payment policy is advantageous for large families and concession card holders. The policy is most detrimental for single women, especially those with chronic conditions that work or self-funded retirees.



1 See page 3 for the definition of the family unit in regards to the PBS Safety Net.
2 This rate is also applicable to foreign visitors whose home country is a part of Australia’s Reciprocal Health Care Agreement.
3 Veterans are covered by the Repatriation Pharmaceutical Benefits Scheme (RPBS), but co-payment amounts are the same as for concessional patients. This scheme is administered and funded by the Department of Veterans Affairs and includes more medicines than those available to the general public. For more information, please see http://ift.tt/2jQn5YF
4 Including veterans, see footnote 3.



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