Flow-on Price Reductions for Combination Items

Page last updated: 1 July 2022

This page deals with flow-on of statutory price reductions (SPR) including anniversary SPRs, first new brand SPRs and catch-up SPRs, for single-branded combination items on the Combination Drug List (CDL). Once a single-branded combination item on the CDL moves to the F2 formulary, it is subject to price disclosure arrangements. Direct or flow-on price disclosure price reductions for combination items are dealt with in the Price Disclosure Guidelines.

A combination item is a pharmaceutical item that contains at least two drugs, where at least one drug is listed on the PBS. For example, pharmaceutical item Purple and Orange, 10/20 mg tablet, oral, where drug Purple is PBS listed and drug Orange is not PBS listed. When a PBS listed component is subject to a SPR* under Division 3A of Part VII of the National Health Act 1953 (the Act), the SPR will automatically flow-on to that component in the combination item. Components that are not PBS listed will be subject to the same SPR as the listed component. The formula for flow-on reductions to combination items is set out in regulation 65A of the National Health (Pharmaceutical Benefits) Regulations 2017 (the Regulations).

*All SPR reductions are capped at 60 per cent off (or 40 per cent of) the Listed Brand’s AEMP on 1 January 2016 or, if the pharmaceutical item listed after 1 January 2016, of the AEMP on the date the pharmaceutical item was first listed on the PBS.

Application of flow-on price reductions

From 1 July 2022, the National Health Amendment (Enhancing the Pharmaceutical Benefits Scheme) Act 2021 gives effect to the reforms in the Strategic Agreements with Medicines Australia and the Generic and Biosimilar Medicines Association. Amongst other things, the amendments to SPRs ensure that flow-on SPRs to combination items automatically apply, so new price agreements under section 85AD of the Act will not be required.

List of Affected Drugs

A list of medicines subject to flow-on reductions under section 99ACC of the National Health Act 1953 on 1 April 2023, and the indicative 1 April 2023 Approved Ex-Manufacturer Price (AEMP) can be found below.

1 April 2023 Combination flow-on reductions – List of Affected Drugs and Indicative pricing

Calculation of flow-on price reductions

A price reduction in one or more component drugs will be applied to the proportion of the AEMP of the component item within the combination item (adjusted for any differences in the quantity or amount, or pricing quantity (PQ).

The formula used is set out in section 65A of the Regulations:

Reduction day component AEMPs

x

Day before combination item AEMP
_________________________________________
Day before component AEMPs

All prices in this formula can be found or calculated by referring to the most recent ex‑manufacturer spreadsheets and relevant indicative price reductions published on the PBS website.

The day before combination item AEMP is the AEMP of the combination item on the day before the reduction day.

The day before component AEMPs is the sum of:

  • The listed component AEMP – these are the AEMPs, on the day before the reduction day, of any PBS listed component items. The AEMPs are adjusted for any difference in quantity or amount and any difference in pricing quantity; and
  • The non-listed component AEMP – this is calculated as the day before combination item AEMP minus the day before listed component AEMP. If this calculation results in a negative value, the non-listed component AEMP is zero.

The listed component AEMP is made up of the AEMPs of pharmaceutical items that have the same drug and manner of administration as the component and the smallest difference in the total quantity or amount of the component drug contained in the quantity or number of units in the PQ compared to the total quantity or amount of the component drug in the PQ of the combination item.

The reduction day component AEMPs is the sum of:

  • The AEMPs, on the reduction day, of any PBS listed component items. The AEMPs are adjusted for any difference in quantity or amount and any difference in pricing quantity; and
  • The non-listed component AEMP multiplied by the differential reduction percentage.
  • The differential reduction percentage is calculated as follows:
  • If only one component is subject to a SPR, the same percentage reduction that applies to that component; or
  • If one or more components are subject to a SPR, the difference between 100% and the average of the percentage reductions

Timeframes for notifying affected Responsible Persons

Please note, the Department will publish lists of all flow-on anniversary SPRs to combination items at the same time indicative anniversary SPRs are published on the PBS website, on 1 August each year.

The Department will notify Responsible Persons with combination items that will be subject to flow-on first new brand SPRs within five days from the Department receiving the application to list the new brand that triggers the SPR. In some instances where the medicine is subject to a Deed of Agreement, it may not be possible to notify the new AEMP within five business days. In these instances, Responsible Persons will be notified that an application has been received within five business days and will be notified of the new AEMP as soon as possible.

Example calculations

Example calculations are set out below.

EXAMPLE 1 – Calculation of flow-on reduction (adjusting for difference in pricing quantity)

CDL combination item Red 20 mg + Green 50 mg, with a PQ of 30 and an AEMP of $50 (Drug Red+Green).

  • Drug Red has two forms listed, 20 mg, with a PQ of 10 and an AEMP of $10 and 45 mg, with a PQ of 20 and an AEMP of $20. The pricing for Red does not appear to be on a per mg basis (i.e. there is flat pricing across strengths), however, the price appears to be adjusted based on the PQ. The AEMP of Red 20 mg is therefore calculated based on PQ pricing:

$10 / 10 = $1 and $20 / 20 = $1. Per Quantity price = $1.

The AEMP of Red 20 mg = $1* 30 = $30.

  • Drug Green is not listed on the PBS listed. The non-listed component is $50 - $30 = $20.

A reduction of 30% applies to Drug Red. This is flowed on to Drug Red+Green as follows:

  • The day before combination item AEMP of Drug Red+Green is $50.
  • The day before component AEMPs is $30 + $20 = $50
  • The reduction day component AEMPs of Drug Red+Green is $30 * (1 – 30%) + $20 * (1 – 30%) = $35
  • The reduced AEMP for Drug Red+Green is $35 x ($50/$50) = $35

EXAMPLE 2 Calculation of flow-on reduction (adjusting for difference in quantity or amount)

CDL combination item Orange 10 mg + Purple 50 mg, with a PQ of 30 and an AEMP of $30 (Drug Orange+Purple).

  • Drug Orange has two forms listed, 20 mg and 40 mg. Both forms have a PQ of 30.
  • The AEMP of Orange 20 mg is $25 and the AEMP of Orange 40 mg is $50. The AEMP of Orange 10 mg is calculated adjusting for any difference in quantity or amount and any difference in PQ. The PQ for both listed components is the same as the combination item and doesn’t need to be adjusted. The pricing for Orange appears to be on a per mg basis (i.e. not flat pricing across strengths). The AEMP of Orange 10 mg is therefore calculated based on per mg pricing:

$25 / 20 = $1.25 and $50 / 40 = $1.25. Per mg price for a pack of 30 = $1.25.

The day before component AEMP of Orange 10 mg = $1.25 * 10 = $12.50.

  • Drug Purple is not listed on the PBS listed. The non-listed component is $30 - $12.50 = $17.50.

A 5% reduction is applied to Drug Orange. This flows on to Drug Orange+Purple as follows:

  • The day before combination item AEMP of Drug Orange+Purple is $30.
  • The day before component AEMPs is $12.50 + $17.50 = $30
  • The reduction day component AEMPs of Drug Orange+Purple is $12.50 * (1 - 5%) + $17.50 * (1 - 5%) = $28.50
  • The reduced AEMP for Drug Orange+Purple is $28.50 * ($30/$30) = $28.50.

EXAMPLE 3 – Calculation of flow-on reduction (two components subject to different SPRs)

Drug Brown 100 mg + Violet 50 mg + Grey 20 mg, with a PQ of 100 and an AEMP of $100 (Drug Brown+Violet+Grey)

  • Drug Brown has one form listed, 100 mg, with a PQ of 100 and an AEMP of $50.
  • Drug Violet has one form listed, 50 mg, with a PQ of 100 and an AEMP of $30.
  • Drug Grey is not listed on the PBS. The non-listed component AEMP is $100 – ($50 + $30) = $20.

A 5% reduction is applied to Drug Brown and a 30% reduction is applied to Drug Violet. This is flowed on to Drug Brown+Violet+Grey as follows:

  • The day before combination item AEMP of Drug Brown+Violet+Grey is $100.
  • The day before component AEMPs is $50 + $30 + $20 = $100.
  • The reduction day component AEMPs of Drug Brown+Violet+Grey is ($50 * (1 - 5%)) + ($30 * (1 - 30%)) + ($20 * (1-((5+30)/2)%) = $85.
  • The reduced AEMP for Drug Brown+Violet is $85 * ($100/$100) = $85.

Ministerial Discretion

The Minister has discretion under Division 3A of Part VII of the National Health Act 1953 (the Act) to reduce by a lower amount or not apply a flow-on price reduction. Please visit the Ministerial Discretion page for further information on requesting Ministerial Discretion.