Control through government funding and purchasing

19.47 Government decisions about healthcare funding can indirectly influence patent holders’ decisions about licensing and the level of licence fees. Government funding and purchasing power may provide mechanisms to control the availability and cost of medical genetic testing and other aspects of healthcare, including those costs that may be attributable to patent rights. The ALRC has examined whether government funding and purchasing power should be used to influence the cost of medical genetic testing that is subject to gene patents and, if so, how this might be achieved.^[57]

19.48 Government funding decisions can help determine the availability of medical genetic testing. The HGSA has stated that the cost of genetic testing to individuals, including testing that is subject to gene patents, should be minimised ‘through a national funding program that is limited to tests of proven clinical utility and cost-effectiveness’, with the price to be negotiated by government.^[58] The AHMAC Working Group on Human Gene Patents^[59] recommended in 2001 that government funding for genetic testing should be restricted initially to genetic testing performed by publicly funded facilities, in part to assist in controlling healthcare costs.^[60]

19.49 The PBS has been cited as an example of how government purchasing power may assist in controlling the cost of healthcare.^[61] There is evidence that the PBS allows relatively low prices for drugs to be maintained because the government acts as a single buyer in a market with a number of sellers (a monopsony).^[62]

19.50 The MBS and PBS are already used to control the cost of medical procedures and pharmaceuticals. In DP 68, the ALRC proposed that AHMAC should examine options for using government funding and purchasing power to control the cost of goods and services that are subject to gene patents and used in the provision of healthcare.^[63]

19.51 This proposal received wide support.^[64] For example, the Department of Human Services Victoria stated that there should be ‘a national mechanism for using government funding and purchasing power to control a reasonable licence fee to those tests covered by gene patents’—through either the proposed HGCA or a body equipped to perform economic analysis.^[65] The HGSA stated that government funding and central purchasing might lead to ‘equitable provision’ of testing in both the public and private sectors.^[66]

ALRC’s views

19.52 Governments have considerable control over healthcare expenditure in Australia through budget appropriations,^[67] fixing health benefit levels, taxation arrangements, and setting the parameters for private health insurance arrangements. The MBS and PBS are relevant where funding is sought through federal funding programs. There are also funding and other mechanisms that may be used by state and territory health departments. AHMAC noted that ‘jurisdictions regularly make decisions in order to manage the costs resulting from new health technologies through the application of appropriate efficacy and cost effectiveness analysis, funding and targeting mechanisms’.^[68]

19.53 There may be other ways in which funding mechanisms might be used to address concerns about the impact of gene patents on healthcare provision, including by placing conditions on the public funding of new medical services. For example, Medicare funding of a medical genetic test might be made conditional on broad licensing of the test.

19.54 The ALRC recommends that options for using government funding and purchasing power to control the cost of genetic medical technologies subject to gene patents should be examined by Commonwealth, state and territory health departments (Recommendation 19–2). The ALRC recognises that this may have competition policy ramifications.^[69] Depending on the mechanism chosen, cooperation by Commonwealth, state and territory governments could be anti-competitive. However, this does not prevent the options being examined. Further, if the public interest warrants it, the application of national competition policy can be excluded by legislation or by seeking authorisation from the Australian Competition and Consumer Commission (ACCC) under the Trade Practices Act 1974 (Cth).