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A submission to the

National Healthcare and
Hospitals Reform Commission

Funding for
Hospital Medicines
Prepared by Pfizer Australia
38-42 Wharf Road, West Ryde NSW 2114

6 June 2008

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Executive summary
This submission addresses just two of the NHHRC’s Draft Principles: 6: ‘Value for Money’
and 14: ‘Responsible Spending on Health’. Our focus is the way that medicines are funded
in hospitals, and ensuring that funding supports the safe and effective use of medicines.
Funding principles:

Although we are not able to present the NHHRC with a complete new funding model, we

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wish to suggest eight principles which we believe should guide any changes to the public
funding of medicines in all hospitals.
1.

ensuring access to medicines for all Australians in hospital

2.

creating harmony between the hospital and community funding systems

3.

maintaining the integrity of the PBS and RPBS

4.

preserving individual hospitals’ ability to select their own formularies to meet their
local needs

5.

selecting medicines should involve assessing their clinical benefits, not just their cost

6.

exploring better use of medicines data to establish hospital pharmacy budgets

7.

reducing unnecessary administration

8.

formalising the funding of medicines by private health insurers.

Quality principles:

Although we have focussed on funding, this is not a goal in itself. It is simply, however, the

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major barrier to the safe, appropriate and effective use of medicines in hospital—and they
are the true goals of this submission. We noted five extra principles which we believe
should be core to the safe and effective use of medicines in hospitals, and should be
considered in any changes to the ways medicines are funded. They are:
9. enhancing the role of hospital pharmacists and specialist physicians
10. linking funding of medicines to quality improvement
11. funding research into medicines and their use
12. providing the infrastructure necessary for safe and effective medicine use
13. implementing the APAC Guidelines.

Past proposals:

There have been a number of proposals over the last decade for improving the way that

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medicines are funded in hospitals. We have summarised difficulties that we see with four
general approaches that have been proposed in the past:
1.

that the Australian Government should pay for all hospital medicines (in isolation from
other hospital funding arrangements)

2.

that the PBS should be extended to cover all hospital medicines

3.

that all hospitals should use a single medicines list, funded by the Australian
Government

4.

that the Commonwealth should reimburse all medical services via a voucher system
(much as general practitioners are reimbursed in the community).

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Disclosure
This submission was prepared by Pfizer Australia—a wholly owned subsidiary of Pfizer
Inc., based in New York. Pfizer Australia is this county’s largest manufacturer of
prescription medicines, with sales exceeding $1 billion and exports worth $500 million a
year. We employ 1,600 people around Australia. We invested approximately $50 million in
Australian R&D in 2008.
We have 452 products, used chiefly for the treatment of:
• cancer
• chronic diseases—such as diabetes, arthritis and heart conditions
• factors which increase the risk of heart disease—such as high blood pressure and high
cholesterol
• mental illness—including depression, schizophrenia, anxiety and panic disorders
• neurological conditions—epilepsy, Parkinson’s disease and Alzheimer’s disease
• eye problems—such as glaucoma
• HIV/AIDS
• osteoporosis and other bone disorders
• erectile dysfunction
• sleep disorders.
Other products we manufacture include:
• medicines to help people stop smoking
• anti-inflammatory medicines to reduce pain
• anti-rejection medicines for organ transplants
• oral contraceptives
• anti-bacterial medicines to treat infection
• hormone replacement therapies
• anti-coagulants to prevent blood clotting.
The bulk of our medicines are reimbursed by the Australian Government through the
Pharmaceutical Benefits Scheme (PBS).
Pfizer Australia is a member of Medicines Australia—the peak industry body for the
innovative medicines industry in Australia.
We have no connections with any members of the National Healthcare and Hospitals
Reform Commission.

For further information…
Dr Rob Wiseman

38-42 Wharf Road, West Ryde NSW 2114

Manager, Strategic Policy

t:

02 9850 3716

Public Affairs and Policy

f:

02 9850 3111

Pfizer Australia

e:

rob.wiseman@pfizer.com

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Background
Medicines contribute to Australia’s health in many ways—they can help prevent illness,
cure diseases, save lives, relieve symptoms and pain, maintain and improve people’s
quality of life, and help people remain healthy. But in this submission, we focus on a single
issue—the use and funding of hospital medicines—as we are concerned that it will be
overlooked in the many submissions we expect the NHHRC will receive.
In terms of the NHHRC’s Draft Principles, our comments relate chiefly to 6: ‘Value for
money’ and 14: ‘Responsible spending on health’.

Medicines in hospitals
It is difficult to have a single overall picture of prescription medicine use in Australian
hospitals—much more difficult than the community sector, where the supply of medicines
through the PBS makes tracking their use and cost relatively easy.
In 2005-06—the year for which the most recent figures are available—Australian public
hospitals dispensed $1.2 billion worth of medicines1 and private hospitals $1.7 billion2.
(By contrast, the PBS reimbursed $6.1 billion for prescription medicines in the same
period3, although roughly $600 million would have covered medicines used in private
hospitals.)
These figures understate the true impact of hospitals on the cost of medicines. Many
medicines used in the community are initially prescribed in hospital: for example, a person
take to an Emergency Department following a severe asthma attack may have their
corticosteroid inhalers changed to avoid future events—and the person will almost certainly
fill their prescription in the community, not the hospital. The same is true for most other
disease groups (or DRGs) covered by the PBS. A major study of continuity-of-care in 2000
found that 87% of patients audited had changes made to their medicines while in hospitals4.
We are not aware of any figures quantifying the cost of ‘follow-on’ prescriptions paid for
by the PBS or individual patients, but we estimate they would be worth $1.5-2.0 billion of
the current PBS spend (in addition to the direct spent in both public and private hospitals).
There are substantial and well-known problems with the use of medicines in hospitals.
Unfortunately, the best Australian research is now thirteen years old, so can no longer be

1

2
3

4

Australian Institute of Health and Welfare (2007) Australian hospital statistics 2005–06. Health services
series no. 30. Cat. no. HSE 50.Canberra: AIHW.
ABS (2007) Private Hospitals 2005-06. ABS Cat. No. 4390.0. Canberra: ABS
Pharmaceutical Benefits Pricing Authority (2006) Annual Report for the year ending 30 June 2006. Canberra:
Department of Health and Ageing.
Mant A et al(2000) Continuity of Care in Therapeutics from Hospital to Community. Final Report to the
Pharmaceutical Health and Rational Use of Medicines Committee. Sydney: South East Health.

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treated as reliable5. However, a 2003 report to the Australian Health Ministers Conference
suggests 10-20 percent of all clinical incidents in hospitals are due to adverse drug events6.
The 2000 continuity-of-care study mentioned above found that, for 72% of patients, the list
of medications prescribed by the hospital at discharge differed from what the GP
understood the patient be taking before hospitalisation. Problems on this scale demand
urgent attention.
Widespread medication errors occur as the result of many different factors. Steps have been
taken toward addressing some them: we would single out the development of the National
In-Patient Medication Chart for all Australian hospitals as a major improvement in
medication safety.
However, the scale of continuing problems with medications, combined with the substantial
cost to government (leaving aside the cost to patients), means that this is an area in need of
national reform. Compared with, say, the funding of medical services in hospitals or
continuity of care across health sectors, it is also relatively simple to address.
Past efforts at improving medication use and funding in hospitals
Several reports and inquires have discussed ways of improving the use of medicines: we
would single out the excellent work done by the Society of Hospital Pharmacists (SHPA) in
its Moving Forwards discussion paper7 (2004), as well as the Healing Our Hospitals
Inquiry8 (2000). They and others have consistently identified the core problem as costshifting between the Commonwealth and State Governments (chiefly between hospitals and
the community, and hospitals and aged care facilities). As most stakeholders have pointed
out at different times, cost-shifting is artificial, because the Commonwealth actually pays
for the bulk of medicines in hospital, but via three different pathways:
• in public hospitals, medicines are paid for by State Governments, but they in turn
receive roughly half of their funding from the Commonwealth Government under the
Australian Healthcare Agreements
• in private hospitals, (1) about a third of medicines are reimbursed directly from the PBS
and (2) the balance are paid for by patients, most of whom claim this from their private
health insurers—who in turn receive significant financial support from the
Commonwealth Government via private health insurance rebates.
Funding arrangements—and consequently the opportunities for cost-shifting—have
become steadily more complex over the last decade. Where, once, State Governments
funded all medicines prescribed in public hospitals, the Commonwealth has increased its
role by reimbursing:
• non-admitted patients
5

6

7

8

Wilson RM, Runciman WB, Gibberd RW, Harrison BT, Newby L, Hamilton JD (1995) ‘The Quality in
Australian Healthcare Study’. Medical Journal of Australia 163(9): 458-471.
Australian Council for Safety and Quality in Health Care (2003) Patient Safety: Towards a Sustainable
Improvement. Sydney: ACSQHC.
Society of Hospital Pharmacists of Australia (2004) Moving forward - The funding of medicines in Australia’s
hospitals. Accessed from http://www.shpa.org.au/pdf/whatsnew/move_forward.pdf
Senate Community Affairs References Committee (2000) Healing our hospitals : a report into public hospital
funding. Parliamentary Paper No 423. Canberra: Australian Parliament House.

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• chemotherapy medicines
• Section 100 ‘High Specialised Drugs’
• Medicines prescribed on discharge from hospital (only in some States under the most
recent Australian Healthcare Agreements).
Also making the situation complex are individual State processes: Queensland and Western
Australia have State-based hospital formularies (that is, all the medicines that hospitals may
use are selected and paid for at a State level), while in all other States and Territories
decisions about formularies are made by individual hospitals.
The result of these complexities is that the funding of hospital medicines has become
needlessly complex, with many peculiar consequences for the supply of medicines—and
potential harmful effects for patients. To give just four examples:
1. In States that have not adopted PBS dispensing at discharge, some patients are still
being discharged with only a few days’ medicine supply. In principle, this is to
minimise the hospital’s medicine bill and get patients to visit their GP shortly after
discharge for a check-up and new prescription, but in practice this creates costs and time
pressures for patients (visiting a GP, visiting the pharmacy), and it may be physically
impossible for them to get a prescription filled before their hospital supply runs out.
2. Chemotherapy patients are treated as non-admitted patients and the Commonwealth
Government reimburses the cost of their medicines. However, in States without PBS
prescribing arrangements under the Australian Healthcare Agreements, the hospital
pharmacy cannot fund the medicine. Consequently, the hospital has to send an order to
a community pharmacy, which can fill the script. (In fact, the situation is more complex,
because many hospitals do not mix their own chemotherapy medicines, but outsource to
third-party ‘reconstitutors’—so the role of the community pharmacy is simply to write
the script for the reconstitutor on behalf of the public hospital!)
3. Some hospitals prescribe medicines which are not listed on the PBS, or else are for unlisted clinical conditions. If the patient still requires that particular medicines after
discharge, then the hospital—or occasionally even the manufacturer—ends up paying
for the on-going costs.
4. There are anecdotal reports that some hospitals ‘confiscate’ PBS medicines from
patients upon admission, and some ambulance officers advise patients not to bring their
medicines to hospital9—which is clearly not in the interests of good medication
management.
This is far from an exhaustive list, but it illustrates some of the problems stemming from
the current funding arrangements.

9

Reported in Wiseman R and White S (2005) , Views on Quality Use of Medicines; Stakeholders' perceptions
of their needs, values and responsibilities, and the opportunities and barriers for QUM. Sydney: the
Pharmaceutical Alliance. Available from http://www.pharmalliance.com.au/page/publications.html

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Past proposed reforms
Before summarising how Pfizer Australia suggests the NHHRC approaches hospitals
medicine funding, we want to summarise four reforms proposed by others, and the
problems we see with their proposals.
Scenario 1

The Australian Government should pay for all public hospital medicines.
While the goal of this type of proposal is to remove opportunities for cost-shifting and
eliminate the State administration costs, in practice, it could simply shift the line inside
hospitals—medicines might all be Commonwealth funded, but hospital pharmacies and
pharmacists would still be funded by State Governments. There would also be no obvious
incentive for State-funded or private hospitals to use medicines economically if medicines
will all be funded by the Commonwealth. (The incentive really only exists if the entire
hospital budget is Commonwealth-funded.)
This type of proposal also leaves open the question of how medicine budgets are
determined, and by whom. If there is no link between medicines use and health outcomes in
individual hospitals (assuming hospitals remain State-funded), then there would be no
incentive to get the best health outcome for the available resources (cost-effectiveness),
only to minimise the cost of medicines. But cost is an inappropriate basis for making
decisions about health.
One other issue is equity: we believe that all Australians should have equitable access to
medicines they need at equal cost, in both public and private hospitals. (It is clearly
inequitable for the Commonwealth fund medicines in public hospitals via one scheme,
while private patients are partly reimbursed by the Commonwealth at a different rate out of
a separate program, the PBS.)

Scenario 2

The extension of the PBS to cover all hospital medicines.
This suggestion is an extension of the current PBS funding arrangements for non-admitted
patients and hospital separations (in some States) to cover all patients. It is motivated by the
goal of eliminating the duplication between State and Commonwealth funding, and also
improving consistency between hospital formularies and the PBS. But there are substantial
problems.
1.

Many medicines used in hospitals are not and never would be listed on the PBS—some
are not even registered with the Therapeutic Goods Agency for marketing in Australia.
These include intravenous medicines, anaesthetics, surgical products, many type of
wound-care, chemotherapy drugs, and some excipients (such as Surgical Water).

2.

Even where a medicine is listed on the PBS, the hospital may not use it for the listed
indication (Unlisted uses are high for many medicines in hospitals).

3.

The PBS is concerned, fundamentally, with funding medicines used in the
community—which has a very different pattern of medicine use in hospitals.
Consequently, the methods used to determine what medicines should be included on
the PBS are not always applicable when evaluating medicine use in hospitals.

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4.

The range of medicines used in hospitals is far larger than those listed on the PBS.
Limiting hospitals to medicines listed on the PBS would severely affect the treatments
that hospitals could offer.

5.

The PBS budget is uncapped, whereas hospital budgets are capped because of the
AHCAs—creating a fundamentally incommensurate economic model.

One potential health advantage of shifting to the PBS we do want to note is that the budget
for hospital medicines would become uncapped. Currently, capped pharmacy budgets mean
that hospitals have to cease purchasing medicines they need—especially toward the end of
the financial year. (We note a recent media report that some pharmaceutical manufacturers
had suspended supply of medicines because NSW Health had not paid their bills10. We do
not know the situation for other companies, but we can say that Pfizer has not ceased
supply to any hospital in Australia.)
Scenario 3

All hospitals use an identical medicines list, funded by the Commonwealth.
In essence, this proposal involves the Commonwealth being involved in both securing the
cost of medicines (procurement) and determining a national medicines list (formulary).
This is, in essence, the model of New Zealand’s PHARMAC scheme.
Because hospital prescribing strongly influences community prescribing and dispensing,
this scenario could have major impacts on the PBS—potentially undermining it completely.
Pharmaceutical manufacturers would strongly oppose a national medicines formulary. If a
company fails to list a medicine currently used in hospitals, it could potentially lose an
entire income stream. In the case of smaller manufacturers, the loss of hospital sales on
even a single major product could spell collapse. Since the bulk of Australian-owned
manufacturers are small, the introduction of a national medicines list—especially a costcapped model like PHARMAC—could result in the closure of many in the industry. Even
major manufacturers like Pfizer would have to reconsider what medicines we would bring
into Australia. This is, essentially, what has happened under New Zealand’s PHARMAC
scheme. Between 2000 and 2006, while Australia listed 78 new prescription medicines on
the PBS, PHARMAC listed only 20 of those. (The Queensland Hospital formulary is
heading in the direction of a PHARMAC-style scheme. For example, earlier this year the
decision was taken to cut the number statins available to hospitals from nine molecules to
just two: atorvastatin and simvastatin. Apart from reducing treatment options, this creates
an ethical problem for hospital pharmacists. When a patient who has been stabilised on a
statin other than atorvastatin or simvastatin enters a public hospital, they will have to be
swapped during their stay, and presumably swapped again at discharge. This is not good
medical practice, and risks adverse events and lower patient adherence. We strongly urge
the NHHRC not to use the Queensland model when recommending any changes to funding
arrangements.)
Companies that did win listing on a national medicines list could also face problems—such
as difficulty meeting supply needs. Although Pfizer is Australia’s largest pharmaceutical
manufacturer, we would be unable to supply an entire national market for some of our
10

‘Hospitals accused of overdue drug bills’ Sydney Morning Herald, 20 May 2008, page 1

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products. Currently, hospitals are only supplied with some essential products through the
combined efforts of several manufacturers.
The Australian Government needs to be aware that using its monopsony purchasing power
through a national medicines formulary could also result in higher prices. To take a
hypothetical example: if three manufacturers currently supply Medicine X in Australia, and
if the Commonwealth placed only one of these brands on a national medicines formulary,
the other two companies would quickly cease to supply Medicine X in Australia. Without
competition, there would no longer be any reason for the sole supplying manufacturer to
keep its prices low—and the Commonwealth would no longer have a mechanism to contain
aggressive cost increases. And the Commonwealth would have no alternative sources of
supply.
We expect that hospitals would also vigorously oppose a national medicines formulary.
They vary considerably in their size (from major teaching hospitals to small ‘cottage’
hospitals). They vary considerably in the conditions they treat (general hospitals,
psychiatric hospitals, maternity hospitals, cancer specialists, research hospitals, and so on).
They vary in the connections they have with other healthcare organisations in their local
area (community pharmacies, aged care facilities, other hospitals). All of these mean that
individual hospitals need the freedom to select medicines that best suit their needs.
Scenario 4

The Commonwealth reimburses all medical services via a voucher system (as general
practitioners are reimbursed in the community).
While it may be possible to fund discrete medical services through a voucher system, it is
difficult to see how support services and infrastructure—such as medicines, pharmacy,
nursing, administration and IT—could be supported on a voucher system in an equitable
manner. This proposal could establish an entirely new line for cost-shifting—and medicines
would be one area that could suffer.
One positive aspect of this proposal that we want to note from a pharmaceutical perspective
is that it would eliminate the funding difference between public and private hospitals—the
Commonwealth would provide equal baseline for both (although private hospitals would be
free to charge additional fees for extra services). This is a principle we feel could be applied
to medicine funding for all hospitals.

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Principles for changing the funding of hospital medicines
Pfizer Australia does not have a ready-made funding model we can provide the
Commission. We do, however, want to outline some principles that we believe should
apply in the re-shaping of hospital medicine funding.
1.

ensuring access to medicines for all Australians in hospital

2.

creating harmony between the hospital and community funding systems

3.

maintaining the integrity of the PBS and RPBS

4.

preserving individual hospitals’ ability to select their own formularies to meet their
local needs

5.

selecting medicines should involve assessing their clinical benefits, not just their cost
exploring better use of medicines data to establish hospital pharmacy budgets

6.

reducing unnecessary administration.

Although we have focussed on funding, this is not a goal in itself. But funding is, quite
simply, the major barrier to the safe, appropriate and effective use of medicines in
hospital—and these concerns are the true goals of this submission. We want to note five
more principles which we believe should be core to enhancing the safe and effective use of
medicines in hospitals, and should be considered in any changes to the ways medicines are
funded. They are:
8. enhancing the role of hospital pharmacists and specialist physicians
9. linking funding of medicines to quality improvement
10. funding research into medicines and their use
11. providing the infrastructure necessary for safe and effective medicine use
12. implementing the APAC Guidelines.
1. Ensuring access to medicines for all Australians in hospital
Whichever way the NHHRC suggests that medicines are funded in hospitals, we urge it to
start with Australia’s National Medicines Policy—justly regarded around the world as a
model for policy. In particular, we want to strongly endorse the Policy’s first Pillar as a
priority: “timely access to the medicines that Australians need, at a cost individuals and the
community can afford.” We agree that “Cost should not constitute a substantial barrier to
people’s access to medicines they need”.
The Policy outlines principles that need to underlie access to medicines in hospitals:
• financing and supply arrangements for medicines [should] optimise health outcomes
and represent value for money;
• all partners [should] take adequate responsibility for achieving value for money;
• access to necessary medicines [should occur] at a cost the community as a whole can
afford, particularly in the context of pressures such as the development of new high cost
medicines and Australia’s ageing population;
• access processes [should be] made as simple and streamlined as possible, so that
subsidisation of medicines is timely, mechanisms are understood, and unnecessary
administrative barriers and expenses are avoided;

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• financing arrangements for medicines [should] avoid incentives for cost-shifting
between levels of government or other funders, or other perverse incentives;
• efficient and effective distribution and supply networks (distributors, hospital, and
retail) [should] exist; and
• a fair distribution of costs and savings between the partners [should be] achieved.
As the Policy says, although all stakeholders in the healthcare sector have a role in ensuring
access to medicines, the core responsibility falls on government to avoid cost-shifting and
to implement appropriate subsidy or reimbursement arrangements.
One area that we would like the NHHRC to investigate is support for Early Access
Schemes. These are programs sponsored by pharmaceutical manufacturers on
compassionate ground, to give patients in need access to live-saving medicines before
listing on the PBS. Currently, most such programs are administered in hospitals. Because of
the increasing cost of these specialist medicines as well as the long listing-time, the cost to
manufacturers of these charitable programs is also increasing. We would like the NHHRC
to recommend a special fund be established to support patients in urgent need who show
clinical response to these new medicines—to ensure that patients continue to have access to
new medicines while PBS listing is sought, and also so that specialists can gain experience
in their use. While we feel that the decision about whether to seek support for early access
should be the role of the hospital and treating specialist, we would not want to see this cost
fall on individual hospitals.
2. Creating harmony with the Community-funded system
Many medicines initiated in hospital continue to be used by patients long after discharge.
However, many patients also stop taking medicines prescribed in hospitals—sometimes
within days. The reasons for non-adherence after discharge are complex, but supply factors
are known to be important. For example: medicines prescribed in the hospitals are not
available in the community, or are more expensive, or are simply different to those
prescribed by their specialist11.
It is in the interests of patients—and the healthcare system as a whole—that when patients
move between hospital to community care that they have access to the same medicines at
the same cost, as far as this is practical and clinically appropriate. A corollary is that the
Commonwealth and State Governments need to work together to ensure patients have
access to PBS scripts at discharge in all Australian hospitals. (This was an initiative of the
last Australian Healthcare Agreement, but has not yet been adopted in all States and
Territories).
We need to stress that Pfizer does not see ‘harmonisation’ of the PBS and hospital
formularies as being the same thing as requiring all hospitals to use PBS-listed medicines.
Hospitals may use many medicines in-house that have no use after discharge. Hospitals
may also use PBS-listed medicines for indications other than those listed on the PBS.
Hospitals may also use medicines before listing on the PBS—or even registered for
marketing in Australia by the Therapeutic Goods Administration (in the case of highly
11

WHO (2003) Adherence to long-term therapies. Evidence for action. Geneva: World Health Organisation.

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specialised or experimental medicines for small population groups). It is vital that these
functions are not curtailed by limiting hospitals to PBS-listed medicines for PBS-listed
indications.
3. Maintaining the integrity of the PBS and RPBS
Any changes to the funding of hospital medicines should not threaten the integrity of the
PBS and RPBS. As we noted earlier, medicines initiated in hospital have a major flow on
effect on the PBS and RPBS. We estimate that 25-35% of all prescriptions are initiated in
hospitals. Consequently, hospital prescribing decisions impact directly on PBS expenditure,
as well as the assumptions upon which PBS-listing is based.
For example, if patients are required to make a co-payment for medicines while in hospital,
then it should not be higher than that charged in the community. (We have no view on
whether a co-payment should be charged on hospital medicines or not—our chief concern
would be whether the imposition of a co-payment would limit Australians’ access to
medicines they need.)
Another example: if there were a national procurement system for hospital medicines, then
prices reimbursed should not be below that for indications listed on the PBS. Recent
reforms to the PBS system require mandatory price reductions for medicines with
competitors in the subsidised market (Formulary F2A medicines) based on price disclosure.
Lower hospital procurement prices could therefore drive down reimbursement medicines
on the PBS—potentially undermining the viability of some medicines (particularly generic
medicines). The medicines industry and Department of Health and Ageing are currently
implementing substantial PBS Reforms, and neither will want these derailed.
4. Preserving hospitals’ ability to select their own formularies
Any new system of funding for hospital medicines needs to allow hospitals to develop their
own formulary to suit their own needs. (To draw a parallel—just as the PBS sets prices for
medicines but individual community pharmacies stock particular products, so too,
individual hospital pharmacies should be free to select the products that best meet their
institution’s needs, even if there were, for example, a national procurement scheme.)
Determining the content of a hospital’s formulary is best done locally—not nationally or
even at a State level. In this respect, the needs of hospital pharmacies are quite different
from community pharmacies—where a national formulary (in the form of the PBS) makes
sense. Australia’s 950-odd hospitals vary enormously in:
• their size (from ‘cottage hospitals’ to major teaching institutions)
• the services they provide, and hence the medicines they require
• specialisations (some hospitals, for example, provide specialist mental health or cancer
services)
• whether they conduct research
• the proportion of admitted to non-admitted hospitals.
A national formulary cannot hope to meet the needs or budgets of all these institutions.
Consequently, we urge the NHHRC to recommend that hospitals be permitted to prepare
their own formularies.
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5. Considering clinical benefit as well as cost when selecting hospital medicines
Hospital medicines should not be selected simply because they are the cheapest medicine
available. It is of great concern to us that medicine purchasing by State Governments is
done by public tender, and awarded purely on cost. At the State level, there is no
assessment of the clinical benefits of medicines—indeed, in most States, the tenders are run
by Public Tender Boards, not the State Department of Health! This is a very poor starting
point for selecting safe, appropriate and effective medicines.
Another problem—and a major source of inefficiency—is the way hospitals select
medicines to include in their own formularies. (This occurs in all States except Queensland
and Western Australia, which are assessed at a State level). These assessments are typically
limited to a rudimentary benefit analysis together with a comparative cost assessment.
Because this is done by hundreds of individual hospitals and Local Areas Services, the
result is a substantial duplication of effort. Improving the quality of these assessments and
conducting formal cost-effectiveness assessments in every hospital is not practical. Formal
assessment of cost-effectiveness is an increasingly technical and specialised task, and a skill
that most hospitals and even Local Area Services cannot be expected to have in-house. It is
also unreasonable to expect already-busy healthcare professionals to acquire the necessary
skills in addition to their current roles.
There will doubtless be suggestions that hospitals should use the cost-effectiveness
assessments generated by the Pharmaceutical Benefits Advisory Committee (PBAC), upon
which decisions to list medicines on the PBS are based. This needs to be done with caution,
and with a full understanding of the purpose of PBAC assessments. The PBS is a
community-based scheme, and the clinical or economic data used in assessing the costeffectiveness of some medicines may relate only to community use—therefore are not
directly applicable to the hospital environment. The PBAC is concerned with the
assessment of the long-term effectiveness and cost-effectiveness of a medicine. This is
different to the hospital setting, which is more typically focussed on the resolution of an
acute episode or the complications that may arise from a chronic condition.
One final major concern for manufacturers are the existing procurement and contractual
arrangements with State Governments. To take our own experience, the NSW Department
of Commerce has not yet finalised its most recent tender details after twelve months. This
means that our existing contracts have remained in force far longer than we had anticipated.
Hospitals are purchasing medicines at out-of-date prices, which affects their patient care.
Manufacturing capacity that we had intended to direct elsewhere is still committed to
supplying NSW hospitals. Since manufacturing has lead times of 3-4 months, this is a
major imposition on our business. Any new funding model needs to drastically improve on
the performance of current procurement practices.
6. Exploring better use of medicines data to establish pharmacy budgets
Just as decisions about which medicines to list on hospital formularies are currently made
by individual hospitals in most States, so too are decisions about hospital pharmacy
budgets.

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We suggest that better use of health data—for instance through the case-mix system—may
help hospitals set both their pharmacy budgets and their medicines lists. (We know that a
2004 study by the SHPA found that there was little correlation between hospital budget and
case mix, except for a handful of high-cost drugs. We suspect this was because the study
was conducted on individual hospitals. Since the number of Australian hospitals is far less
than the number of medicines used in Australia, and there is opportunity to interchange
many medicines, it is not surprising that case-mix was not predictive of medicine use or
budgets for individual hospitals. We believe that, if hospital data were examined at a
national level or by major hospitals types, rather than individual hospitals, then there would
be better opportunities to predict overall budgetary requirements).
We must add, however, that evidence of past and current medicine use should not be the
sole factor in determining either budget or medicine formularies. Funding must also be
made available for:
• ensuring universal access to medicines
• ensuring quality and safety of medicine use
• responding to emerging needs
• innovation, clinical trails and Special Access Schemes.
7. Reducing unnecessary administration
Any changes to the way that medicines are funded need to reduce the administrative burden
of the current arrangements.
Reducing the double-handling of medicines in public hospitals—as the Commonwealth
funds the States through the AHCAs and the State Governments then fund individual
hospitals—is one obvious area for reform. It adds no obvious value, and reduces the funds
available for treating patients.
Within hospitals, there is also dual-administration. For example, when some States
introduced PBS-scripts for discharged patients, hospital pharmacies had to learn to work
with the HIC (now Medicare Australia), along with their State funding sources. They
needed new software and infrastructure, and they needed to train their staff. Victoria, which
was the first to adopt PBS scripts, is still funding hospitals to build this skill and
infrastructure. But this cost—and the cost to hospitals of managing two different
reimbursement systems—is a product of cost-shifting, and generates unnecessary
administrative work for hospital pharmacists.
8. Formalising the role of medicines in private health insurance
Currently, around two-thirds of medicines used in private hospitals is paid for by patients.
Some can claim these expenses from their private health insurers, but health funds vary
considerably in which medicines they cover and under what circumstances.
We believe that it is in the interests of all involved in private hospital care—patients,
insurers and the hospitals themselves—if the coverage of medicines were better formalised
in the private health insurance sector. Goals we think are important include:
• creating greater certainty for patients

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• greater consistency between funds in the medicines covered and fees charged
• commitment to assessing both clinical benefit and cost when selecting medicines
• greater commitment to Quality Use of Medicines in private funding decisions.

Principles for improving the use of medicines in hospitals
9. Enhancing the role of hospital pharmacists and specialists
So far, we have focussed on medicines and medicine funding. But the use of medicines,
especially in hospitals, is increasingly complex. To manage this, we believe that the role of
two groups—specialist physicians and hospital pharmacists—need to be enhanced.
Areas where hospital pharmacists need to make important contributions include:
• selection of medicines for hospital use
• budgeting
• assessing patients’ medicine history and use—and identifying problems
• advising medical and nursing staff on appropriate selection and use of medicines
• substituting medicines where appropriate
• preparing and dispensing medicines safely
• ensuring quality medication records—both for use in hospital and after discharge
• managing medicines in continuity of care—including outreach to patients, families,
doctors and community pharmacists
• education of staff and trainee pharmacists
• contributing to medicines research.
These functions and the role of the hospital pharmacist need to be explicitly recognised in
any new funding arrangements.
Specialists too have a crucial role in deciding which medicines are introduced into hospital
formularies. They are normally the health professionals that lead the introduction of
innovative medicines in Australia. Clinical input into hospitals’ Drugs and Therapeutics
Committees (DTCs) is essential, and specialist clinicians need the discretion to obtain
medicines their patients require. Currently specialists’ ability to obtain innovative
medicines is extremely limited if it is not listed on their hospital formulary.
An important corollary is that any new funding scheme needs to allow specialists to access
medicines not on their hospital formulary or even on a national medicines list, if those
medicines are essential for their patients’ care
10. Linking funding for medicines to quality improvement
We believe strongly that any new funding arrangement for hospital medicines needs to
include funding for training and teaching. Funding arrangements must ensure that there is
constant improvement in the safe and effective use of medicines—and that implies teaching
and training of all hospital staff who have a role in the use of medicines: in prescribing,
dispensing, administering and monitoring.

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Pharmaceutical manufacturers have a role to play in providing education to hospitals about
their products—with the important caveat that their claims are balanced, accurate, correct,
fully supported by the Product Information, literature from medical and scientific
publications, and all unpublished clinical and scientific information held by companies.
Medical education is critical to patient safety and it is fundamental to the quality use of
medicines.
(While Pfizer Australia fully supports responsible education in hospitals by industry, we
want to flag to the NHHRC what we consider is thoroughly inappropriate involvement of
pharmaceutical manufacturers: companies who are de-facto replacing hospital pharmacists
with their own staff. For example: we are aware of supply arrangements for some labourintensive medicines—such as oncology drugs which have to be mixed for each single
patient—where the manufacturer will prepare individual doses and stock the hospital
pharmacy; a task that may normally take several pharmacists. While this arrangement
reduces the pharmacy’s net costs, it also means that they lose permanent staff, which are
then very difficult to replace. Once this head-count has been lost, the hospital is effectively
locked into a sole suppler arrangement—and they no longer have a mechanism to prevent
substantial price increases by the manufacturer. Another example of an inappropriate
arrangement occurs when companies provide an imprest system—packaging and delivering
their medicines for individual patients directly to hospital wards, cutting out any check by
the pharmacist. We do not regard these types of business practices as in the interests of
either patients or the hospital.)
10. Funding research to improve medicines and the use of medicines
Hospitals play a central role in the development of innovative medicines, in exploring new
uses for existing medicines, and researching the safe and effective use of medicines. Some
of this is supported by pharmaceutical manufacturers, like Pfizer Australia. However, it is
important that hospitals should be able to pursue their own research agenda, independent of
commercial imperatives.
Research is also important in the introduction of novel and experimental medicines into
Australia, before they are listed on the PBS—or registered by the TGA. It provides early
access to patients with rare conditions, who would otherwise not have not have access to
medicines.
We also urge that research should cover not simply the pharmacological aspects of
medicines, but also systems and practice issues around medicine use, such as:
• pharmacy and nursing practice
• infrastructure and systems
• continuity of care between hospitals and other care settings
• quality and safety.
12. Ensuring infrastructure necessary for safe and effective medicine use
While we have focussed just on medicines in this submission, we need to stress that they
are never used in isolation, and changes to the way they are funded and used may involve

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changes in other areas. In addition to training, teaching and research, three areas that we
would single out for attention are:
1. Extending the National In-Patient Medication Chart—as we noted earlier, the
development of a single family of medication charts for all Australian hospitals was a
major achievement, and one which must be defended and extended. We are also aware
that it is already beginning to unravel, with individual hospitals making ad hoc changes.
We urge the NHHRC to address this. We also urge the development of a National
Residential Aged Care Medication Chart.
2. e-health records—one barrier to the safe use of medicines in hospitals is the difficulty
transferring patients medicine records between general practice, community pharmacy,
aged care facilities and hospitals. While Australia has had a national e-health agenda for
nearly a decade, and there have been pilot projects (including the current NT-trial),
substantial work at a national level appears to have stalled. We know that the Pharmacy
Guild is developing medication compliance software to link community pharmacy and
general practices, but we believe that any system must also link hospitals. The
implementation of e-health records will require support from government to roll out
infrastructure and to develop protocols covering consent and privacy.
3. linking hospital pharmacy with community pharmacy—particularly after discharge, to
help manage the transition of patients from hospital to community-based care.
13. Implementing the APAC Guidelines
Finally, we want to urge a much more comprehensive implementation of the Guidelines
produced by the Australian Pharmaceutical Advisory Council (APAC):
• Guiding principles to achieve continuity in medication management (first released
1998)
• Guidelines for Medication Management in Residential Aged Care Facilities (first
edition, 1997)
• Guiding principles for medication management in the community (2006).
The first of these is particularly important for hospitals, as it covers principles for good
medication management in the transfer of patients between community and hospital
settings. We are unaware of any recent evaluation of them, but research three years after
their first release found that “compliance with the Guidelines is not good at present”12,13.
All three documents provide an excellent framework for improving use of medicines in
hospitals, as well as the community and residential aged care, and we would urge the
NHHRC to utilise them, rather than reinventing the wheel.

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Mant A, Rotem WC, Kehoe L, Kaye KI (2001). Compliance with guidelines for continuity of care in
therapeutics from hospital to community. Medical Journal of Australia, 174: 277-280
Mant A, Kohoe L, Cockayne NL, Kaye KI and Rotem WC (2001) A Quality Use of Medicines program for
continuity of care in therapeutics from hospital to community. Medical Journal of Australia, 177 (1): 32-34.

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