4 Drugs

4.1 Proposed drug
4.2 Main comparator and co-prescribed drugs
4.3 Over-the-counter drugs
4.4 Drug delivery systems
4.5 Drug administration costs

This category of resource item refers to all drugs used as part, or as a by-product of, the non-hospital treatment therapy in which the proposed drug or its main comparator applies. Drugs prescribed or used in a hospital setting are excluded from this category and are included in the category ‘Hospital services’.

The unit of measurement to be applied to all categories of drugs is the dispensed maximum quantity for each PBS item together with the prescribed period of treatment. In some instances, such as drugs administered by aerosol spray, alternative units of measurement may be more appropriate. In such instances details of the unit of measurement used should be specified and based on the normal recommended dosage.

There are three main categories of drugs used in economic evaluations.

4.1 Proposed drug

4.1.1 Proposed drug for general PBS

This refers to the drug which is the subject of the application for listing on the Schedule of Pharmaceutical Benefits, as identified on the DoH form PB11, ‘Application to list a Drug or Medicinal Preparation as a Pharmaceutical Benefit.’ The current PB11 form is available on the PBS Forms page . Except where identified otherwise below, the price applied to this drug for the purpose of its economic evaluation is the equivalent of the ‘Dispensed Price for Maximum Quantity’ as defined in the Schedule of Pharmaceutical Benefits. The current Schedule is available on the Publications page.

The PB11 form requires the applicant seeking listing to propose a List Price (i.e. a maximum price to the pharmacist) for the proposed drug and thus constitutes the formal application for PBS listing. The List Price is then further adjusted for the currently approved level of mark-up and the currently approved fixed composite dispensing fee to derive the Dispensed Price for Maximum Quantity (DPMQ). The dispensing fee and approved mark up are fixed by the Pharmaceutical Benefits Remuneration Tribunal (PBRT), and are periodically varied (see Appendix 2). At the time of publication, the approved mark-up was as follows:

  • List price ? $30, approved mark-up 15%;
  • List price ? $30.01, but ? $45, approved mark-up $4.50;
  • List price ? $45.01, but ? $180, approved mark-up =10%;
  • List price ? $180.01, but $450, approved mark-up = $18;
  • List price ? $450.01, but $1750, approved mark-up = 4%;
  • List price ? $1750.01, approved mark-up $70.

Sponsors should therefore ascertain the current dispensing fee and use the most up to date approved mark-up and apply them to the List Price to derive the equivalent of the DPMQ for the proposed drug. Current dispending fees are available from the PBS website under the ‘Health Professionals’ section in ‘Explanatory Notes’.

List Price and mark-ups are updated with each Community Pharmacy Agreement, and current pricing is available from the latest Agreement. At the time of publication, these details were found under paragraph 14.4, page 9, of the Fourth Community Pharmacy Agreement.

When the price for the proposed drug is determined on the basis of cost-minimisation, and the main comparator for a proposed drug is a PBS-listed drug to which special pricing arrangements apply – and so the effective price is not known, then the DPMQ in the current Schedule of Pharmaceutical Benefits should be used in establishing the price until such time as the effective price can be revealed to the sponsor. To determine whether a product has special pricing arrangements, consult the relevant PBS Therapeutic Relativity Sheet.

4.1.2 Proposed Highly Specialised Drug

In all cases, except private hospital patients, the price to be applied to a proposed Highly Specialised Drug dispensed under section 100 of the National Health Act 1953 is the ex-manufacturer’s price, as found in the Highly Specialised Drug section of the Schedule of Pharmaceutical Benefits.

For the proportion of a proposed Highly Specialised Drug dispensed through private hospitals, the price to be applied is the ex-manufacturer’s price plus the normal PBS ready-prepared dispensing fee plus a mark-up ascertained as follows:

  • 10% for drugs with a price ex-manufacturer of less than $40;
  • $4 for drugs with a price ex-manufacturer of between $40 and $100;
  • 4% for drugs with a price ex-manufacturer of between $100.01 and $1000;
  • $40 for drugs with a price ex-manufacturer of greater than $1000.

The basis for remunerating dispensing fees and mark-ups for Highly Specialised Drugs dispensed through private hospitals is updated with each Community Pharmacy Agreement, and the current basis is available from the latest Agreement. At the time of publication, details of fees and mark-ups were found under paragraph 22, page 15, of the Fourth Community Pharmacy Agreement.

The calculation of the weighted average price for a proposed Highly Specialised Drug should be based on the proportions dispensed across other patients and private hospital patients for the closest therapy that is currently listed (and specifically the main comparator drug if that is PBS-listed) and the relevant price for each setting. See Subsection 4.2.2 for further details on this calculation.

4.1.3 Proposed drug for other section 100 programs

The price to be applied to drugs proposed for section 100 listing under the Botulinum Toxin Program, the Human Growth Hormone Program, the IVF Program, the Opiate Dependence Program, or the Special Authority Program is the ex-manufacturer’s price, as found in the relevant section of the Schedule of Pharmaceutical Benefits.

4.1.4 Proposed chemotherapy drug dispensed through CPAP

Under the Chemotherapy Pharmaceuticals Access Program (CPAP), the Australian Government funds eligible drugs for dispensing by day and non-admitted public hospital patients in participating hospitals. These chemotherapy drugs are also dispensed through the normal arrangements. Chemotherapy drugs available under this program are listed in the Chemotherapy Pharmaceuticals Access Program Supplement (CPAP Supplement) to the Schedule of Pharmaceutical Benefits. 

For the proportion of a proposed chemotherapy drug dispensed under the CPAP arrangements, the price to be applied is the ex-manufacturer’s price. For the remaining proportion of a proposed chemotherapy drug dispensed under the normal arrangements, the price to be applied is the DPMQ.

The calculation of the weighted average price for a proposed chemotherapy drug which is eligible under the CPAP arrangements should be based on the proportions dispensed across the CPAP arrangements and the normal arrangements for the closest therapy that is currently listed (and specifically the main comparator drug if that is PBS-listed) and the relevant price for each setting. See Subsection 4.2.4 for further details of this calculation.

4.2 Main comparator drug and co-prescribed drugs

Co-prescribed drugs are those prescribed in conjunction with, or affected by, the proposed drug or its main comparator therapy. Two types of drugs are included in this category.

4.2.1 General PBS drugs

These include co-prescribed drugs already included in theSchedule of Pharmaceutical Benefits. Except where identified otherwise below, the price to be applied to a pack of each drug for the purpose of an economic evaluation is the DPMQ as defined in the Schedule of Pharmaceutical Benefits, plus any applicable premiums or charges. The submission should specify the effective date of the Schedule of Pharmaceutical Benefits that was used to derive the price of a drug when finalising the economic evaluation.

4.2.2 Highly Specialised Drugs

In all cases, except private hospital patients, the price to be applied to a Highly Specialised Drug dispensed under section 100 of the National Health Act 1953 is the ex-manufacturer’s price, as found in the relevant section of the Schedule of Pharmaceutical Benefits.

For the proportion of a Highly Specialised Drug dispensed through private hospitals, the price to be applied is the ex-manufacturer’s price plus the normal PBS ready-prepared dispensing fee plus a mark-up ascertained as follows:

  • 10% for drugs with a price ex-manufacturer of less than $40;
  • $4 for drugs with a price ex-manufacturer of between $40 and $100;
  • 4% for drugs with a price ex-manufacturer of between $100.01 and $1000;
  • $40 for drugs with a price ex-manufacturer of greater than $1000.

The basis for remunerating dispensing fees and mark-ups for Highly Specialised Drugs dispensed through private hospitals is updated with each Community Pharmacy Agreement, and the current basis is available from the latest Agreement. At the time of publication, details of fees and mark-ups were found under paragraph 22, page 15, of the Fourth Community Pharmacy Agreement.

The calculation of the weighted average price for a Highly Specialised Drug should be based on the proportions of the drug dispensed across other patients and private hospital patients and the relevant price for each setting.

Before calculating the weighted average price of a Highly Specialised Drug, sponsors will need to determine the most recent annual volumes of the drug dispensed across other patients and private hospital patients.

The most recent annual volume dispensed for other patients, which is updated on a quarterly basis, can be determined by requesting this information from the Hospital Pharmaceuticals Section of DoH through: pbs@health.gov.au

In order to determine the most recent annual volume dispensed for private hospital patients, the relevant PBS item numbers and dates corresponding to other patients can be put into a calculator on the Pharmaceutical Benefits Schedule Item Reports page of the Medicare Australia site.

To calculate the weighted average price for a Highly Specialised Drug, first calculate a = the volume dispensed for other patients multiplied by the ex-manufacturer’s price. Then calculate b = the volume dispensed for private hospital patients multiplied by the relevant price determined above. The weighted average price is then calculated as (a+b) divided by the total volume dispensed.

4.2.3 PBS drugs dispensed through other section 100 programs

The price to be applied to drugs with section 100 listing under the Botulinum Toxin Program, the Human Growth Hormone Program, the IVF Program, the Opiate Dependence Program, or the Special Authority Program is the ex-manufacturer’s price, as found in the relevant section of the Schedule of Pharmaceutical Benefits.

4.2.4 PBS drugs dispensed through CPAP

For the proportion of a chemotherapy drug dispensed under the Chemotherapy Pharmaceuticals Access Program (CPAP), the price to be applied is the ex-manufacturer’s price, as found in the CPAP Supplement to the Schedule of Pharmaceutical Benefits.

For the remaining proportion of a chemotherapy drug dispensed under the normal arrangements, the price to be applied is the DPMQ, as found in the Schedule of Pharmaceutical Benefits.

The calculation of the weighted average price for a chemotherapy drug which is eligible under the CPAP arrangements should be based on the proportions of the drug dispensed across the CPAP arrangements and the normal arrangements and the relevant price for each setting.

Before calculating the weighted average price of a chemotherapy drug, including its use under CPAP, sponsors will first need to ensure that the chemotherapy drug is eligible for listing under CPAP, and if so, locate the PBS item number(s) under both the normal dispensing arrangements and CPAP. The different PBS item numbers are necessary to determine the proportions dispensed under the normal arrangements and under the CPAP arrangements. In order to determine the most recent annual volume dispensed under each arrangement, the relevant PBS item numbers and dates can be put into a calculator on the Pharmaceutical Benefits Schedule Item Reports page of the Medicare Australia site.

To calculate the weighted average price for a chemotherapy drug eligible under CPAP, first calculate a = the volume dispensed under CPAP multiplied by the ex-manufacturer’s price. Then calculate b = the volume dispensed under the normal arrangements multiplied by the DPMQ. The weighted average price is then calculated as (a+b) divided by the total volume dispensed.

4.2.5 Non-PBS drugs

Non-PBS drugs are those co-prescribed drugs that are not listed on the PBS. The price to be applied to these drugs for the purpose of economic evaluation should be gained through the Arrow Private Prescription Program.

Arrow Pharmaceutical Products supplies the majority of Australian pharmacies through the Arrow Private Prescription Program. The maximum price to a patient at an Arrow-participating pharmacy for non-PBS drugs is listed on the Arrow Pharmaceutical Products website. Where possible, these prices should be used. For drugs that are not available through the Arrow Private Prescription Program, prices should be sourced from a direct-order company such as Pharmacy Direct, which is in competition with Arrow Pharmaceutical Products. Current Pharmacy Direct prices are available on their website. The details of where the prices used in the economic evaluation originated should be included and justified in the submission.

4.3 Over-the-counter drugs

Over-the-counter drugs are those drugs for which no prescription is required, but whose consumption may be affected by the proposed drug or its main comparator therapy. The price to be applied to a pack of each over-the-counter drug in an economic evaluation is the recommended retail price suggested by the manufacturer. The details of where the prices used in the economic evaluation originated should be included and justified in the submission. Where drugs are available both on the PBS and over-the-counter, the PBS price should be used.

4.4 Drug delivery systems

Drug delivery systems relate to consumables and equipment required for the delivery of some drugs, eg Insulin pens, nebuliser units. It is not feasible to identify and cost all such items in this Manual, as they are context-specific. Where such items are applicable to an economic evaluation, a price equivalent to the average price charged to the consumer should be used in the economic evaluation, and details provided of the basis on which it has been determined.

4.5 Drug administration costs

Where there are additional medical service costs of administering the drug, these costs should be included. The most common circumstance where these arise is if a drug is administered by infusion. They extend beyond the costs of the drug delivery system (see Subsection 4.4 above).

The cost of administering a drug varies by treatment setting. Different unit costs will need to be derived for each relevant setting. Taking chemotherapy infusion as the most frequently encountered example, a different unit cost will be relevant if chemotherapy is administered as an inpatient or an outpatient, or in a public or private hospital (see figure below). Note that the cost of administering a drug to an inpatient in a public hospital is only relevant to a submission which can show a reduction in use of a drug in this setting as a result of the requested PBS listing.

Tree diagram of infusion administration cost for chemotherapy

Source: All costs derived from the National Hospital Cost Data Collection (NHCDC) Round 12. # = Average cost for a non-admitted patient in medical oncology NHCDC Round 12 p.145.

In order to calculate the chemotherapy administration cost alone for each relevant setting, sponsors should subtract the Average Direct Component Cost for Pharmacy from the Average Total Cost of the applicable Australian Refined Diagnosis Related Group (AR-DRG). The Average Direct Component Cost for Pharmacy is found in the National Hospital Cost Data Collection (NHCDC) under the column ‘Pharmacy’. The NHCDC provides national cost weights for AR-DRGs and other statistics relevant to health service costing and planning. The ‘Overhead’ costs under ‘Pharmacy’ should not be subtracted from the Average Total Cost of the relevant AR-DRG.

The public and private inpatient hospital information is based on 5.1 AR-DRGs. Hospital outpatient information is based on the most recent NHCDC Round. Both private hospital and public hospital cost data can be found on the Department of Health website.

Since the AR-DRGs and NHCDC are subject to review, the submission should specify the effective date of the AR-DRG Classification and NHCDC round used when finalising the economic evaluation (ie AR-DRG v5.1, Round 12 (2007-8)).

In a limited number of circumstances, unit costs from the Medical Benefits Schedule (MBS) for administering a drug are available under particular MBS items, for example chemotherapy, sympatholytic agents, chronic intractable pain, immunomodulating agents, botulinum toxin, amnioinfusion for therapeutic purposes, epidural or intrathecal infusion, baclofen and verteporfin.

If no MBS item is available for the administration of a proposed new drug, a standard MBS consultation item should be used. Sponsors should use their clinical judgement in the selection of the MBS item relevant to the economic evaluation, and should provide justification for the items selected, including with respect to the duration of administration (specifically the time in which the prescriber is taking an active role to administer the drug), the type of prescriber involved (eg general practitioner, specialist, consultant physician), and whether the type of consultation is an initial or subsequent consultation.

If a sponsor considers that the circumstances of administering a proposed new drug warrant that a new MBS item should be established, then the advice of the PES of DoH should be sought (refer to the address on page 1) and this fact included in the submission to PBAC with a justified indicative unit cost.

Where it is known or expected that the drug is being, or will be administered, in more than one relevant setting, sponsors will need to estimate the proportion of administrations in each setting. A weighted average unit cost should then be calculated using the proportion of all administrations in each relevant setting as the basis for the weighting.