Fixing loophole in drug pricing could save $120 million a year, expert says

The Australian government pays $120 million a year more for medicines that combine more than one drug in a single pill than it would if it paid for the drugs separately, according to new research.

Writing in the Medical Journal of Australia on Monday, Philip Clarke, a professor of health economics at the University of Melbourne, argues for changes to the way such drugs are priced under the Pharmaceutical Benefits Scheme.

The use of combination therapies, which combine two or more drugs in a single tablet, has expanded significantly in Australia over the past two decades, especially since 2000. Adjusted for inflation, annual government spending on combination therapies for diabetes and cardiovascular disease has grown from less than $50 million in 1992 to more than $600 million in 2012.

There is evidence that patients find it easier to take a combination therapy than several separate medicines, and combination therapies also reduce out-of-pocket costs for patients because patients pay a single co-payment for the combination drug instead of a co-payment for each individual medicine.

But Professor Clarke argues deficiencies in the PBS system mean combination drugs cost the budget more than they should.

While the price of a combination drug is generally lower than the sum of its component drugs at the time it is listed on the PBS, the future price of combination drugs are not necessarily linked to the prices of its components.

If a combination drug is only available in one brand, its cost will be linked to the prices of its component drugs, so that reductions in the prices of the component drugs flow onto reductions in the price of the combination drug.

But when there are multiple brands of a combination, even if the brands are supplied by the same manufacturer, its price is set by a separate process known as price disclosure.

Under price disclosure, the price the government pays for a drug is brought into line with the prices paid by pharmacists to wholesalers.

In one example cited by Professor Clarke, a combination therapy to treat cardiovascular disease comprising clopidogrel and aspirin cost 1 per cent less than clopidogrel at the time it was listed on the PBS. In September 2011, a month before the PBS subsidy for clopidogrel was due to decline by 18 per cent due to price disclosure, the same manufacturer introduced another brand of the combination. This prevented the price of the combination being reduced in line with the price reduction for clopidogrel. As a result, the marginal cost of adding aspirin - which costs about 30c per tablet separately - to clopidogrel has been as high as $1.36 per tablet.

"Many other combinations are initially listed on the PBS at a reduced cost, but end up costing far more, as there are fewer manufacturers of these therapies. This means that combinations are subject to less competition that would generate the discounting to pharmacists that drives the prices of generic drugs lower," Professor Clarke wrote.

Professor Clarke said the Pharmaceutical Benefits Advisory Committee, which advises the government on PBS listings, did not appear to have considered the long term pricing implications of combination drugs.

"Almost all combinations have been listed on the basis of cost minimisation, even though the subsequent PBS subsidy often exceeds the costs of component therapies after pricing becomes delinked," he wrote.

Professor Clarke calculated combination drugs for diabetes and cardiovascular disease cost the government $120 million a year more than they would pay for the equivalent drugs separately.

He said the government should only pay a premium for combination drugs when there was evidence the combination drug carried benefits to the patient above the benefit they got from taking the component drugs separately.

Medicines Australia chief executive Brendan Shaw said combination drugs should cost more because they provided a range of benefits to patients.

"They're more convenient, they help in compliance- it's easy to take them and the big saving for patients is they only get one co-payment to pay, not two," Mr Shaw told ABC radio. "We've long believed that government undervalues the benefits that combination products provide, so I don't accept the argument that combination products should be priced at the same level as individual components."

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