19.15 Gene patents are relevant to the provision of healthcare in two broad categories:
medical genetic testing, including pharmacogenetic testing; and
novel therapies, such as gene therapy, the production of therapeutic proteins, and the use of stem cells.
19.16 The existence of gene patents may make the provision of these kinds of healthcare more expensive. A patent grants exclusive rights to exploit the patented invention. This exclusivity may enable the patent holder to charge higher prices and make greater profits than would otherwise be possible. However, the extent to which this is so depends on whether the patent holder has effective monopoly control and, in particular, on the availability of substitute products and processes. It will also depend on the nature of demand, which is strongly influenced by government funding decisions in the case of healthcare. For example, decisions about whether a certain medical genetic test will be funded through the MBS are likely to influence consumer demand for the test. Demand may also be influenced by marketing and other activities of suppliers of healthcare products and services.
19.17 Gene patents may also increase healthcare costs if restrictions on access to medical genetic testing mean that preventable or treatable genetic diseases are not identified, or if gene patents on research tools contribute to the time and expense involved in developing new healthcare products or services.
19.18 Concerns about the implications of gene patents for public healthcare funding have arisen primarily in relation to medical genetic testing (see Chapter 20). Most medical genetic tests are ordered as part of healthcare services provided by state and territory clinical genetics services. Testing is most often carried out by public sector laboratories, often attached to public hospitals or significantly funded by state or territory governments. There are presently around 220 medical genetic tests available in Australia—but the MBS funds medical genetic testing under only six MBS items. Most tests are funded ‘ad hoc through cost recovery or public hospital laboratories’.
19.19 This situation may change in future as genetic medicine develops. The Australian Health Ministers’ Advisory Council (AHMAC) observed that as genetic technologies become more mainstream it is likely that the private sector will play a greater role in provision, with rebates under the Medicare Benefits Schedule.
Assessing the implications for healthcare costs and funding
19.20 Concerns about future healthcare costs attributable to gene patents have been at the centre of the Inquiry. In particular, submissions highlighted the problems that gene patents may pose for the cost and funding of clinical genetics services. For example, the South Australian Department of Human Services expressed concern that ‘high licence fees would limit the ability of the health system to provide or develop genetic testing, diagnosis and therapy, seriously threatening the delivery of health care services to a vulnerable section of the population’.
19.21 However, it was recognised that the extent and impact of such costs is uncertain and may, in the event, be manageable. Further, the costs attributable to gene patents are only one component of the overall costs of providing genetic testing and other medical technologies and they need to be considered in the context of other influences on costs. AusBiotech Ltd noted that ‘the cost of a patented therapeutic or diagnostic is far more dependent on research and development, production, distribution and marketing costs than it is on whether or not the product or method is patented’. Many other submissions also observed that cost problems are not unique to genetic technologies, but occur in other fields such as pharmaceuticals.
19.22 Gene patents have the potential to create cost problems for particular health services—for example, where state clinical genetics services are obliged to pay licence fees or royalties for medical genetic testing from existing fixed budgets. In these circumstances, governments will have to reduce service provision, increase user charges, or obtain increases in their budget allocations. However, the extent to which increased expenditure on medical genetic testing and novel therapies will pose a challenge to overall healthcare funding is not clear; nor is it clear what contribution gene patents may make to this increased expenditure.
19.23 The additional expenditure attributable to gene patents is one component of the broader challenge for health policy arising from the introduction of any new medical technology. The economic and financial implications of gene patents for the healthcare system need to be assessed in this broader context.
19.24 DP 68 discussed two mechanisms that might be used to assist in planning and resource allocation in relation to genetic medical technologies generally and to assess the cost and funding implications of gene patents in particular. The first of these involves an economic evaluation of the costs and benefits of genetic medical technologies. The second involves examination of the financial impact of gene patents on the delivery of healthcare. These mechanisms are discussed below.
Economic evaluation of genetic medical technologies
19.25 The Australian healthcare system is regarded by some as a world leader in carrying out detailed economic evaluation of the costs and benefits of pharmaceuticals and other medical technologies prior to inclusion in the MBS and PBS. These skills may be applied to evaluate the economic implications of genetic medical technologies.
19.26 The term ‘economic evaluation’ is used to encompass a wide range of techniques for comparing the costs and benefits of an activity. These techniques may be used to evaluate interventions in healthcare and other contexts. Costs, outcomes and quality of life measurements are usually included in an economic evaluation.
19.27 Economic evaluation involves comparing costs and benefits for maximum societal wellbeing. Therefore, anything that adds to or subtracts from wellbeing can be included in the framework. In practice—because ethical, distributional and other intangible considerations are often difficult to quantify—economic evaluation may deal only with readily measurable costs and benefits. Another characteristic of economic evaluation of health services is that its validity depends on clinical or epidemiological analysis of health impacts.
19.28 While the economic evaluation of health services is complex, standard approaches have been developed to the measurement of costs and benefits, particularly where evaluation is linked to funding decisions, such as those under the MBS and PBS. However, as Professor Jane Hall has noted, the application of economic evaluation to genetic services presents several challenges beyond those relevant to other health service interventions. These include the following:
the health impact may not be immediate or related directly to the intervention, such as when a test reveals a susceptibility to the development of a disease that will be manifest only if certain environmental conditions prevail and, even then, only at some considerable time in the future;
even if the condition cannot be prevented, more careful monitoring may lead to earlier intervention and less severe cases of the disease;
more careful monitoring will add to healthcare costs, even though these may be offset by savings in future treatment; and
some genetic testing will not affect the health of the patient, but rather the health of the patient’s children, so that there is an inter-generational effect, which may make discounting for time preference inapplicable.
19.29 The complexity of economic evaluation is substantially greater for genetic tests that demonstrate increased susceptibility to disease (which may be followed by on-going monitoring, medical interventions, or the need to consider risk to children), than for genetic tests that demonstrate the absence of genetic susceptibility (which may lessen or remove the need for further expenditure on particular medical services for an individual).
19.30 Evaluation methodologies for emerging medical genetic testing look at ethical, legal and social implications, as well as at scientific factors such as analytical validity, clinical validity and clinical utility. Such systematic evaluation can be contrasted with the generally ad hoc process by which genetic tests may be introduced in the Australian health care system. At present, systematic evaluation is carried out only if a test is proposed for listing on the MBS, in which case the safety, effectiveness and cost-effectiveness of testing will be assessed by MSAC.
19.31 Gene patents are of less concern if they relate to medical genetic tests that are of marginal clinical benefit than if they relate to tests that may yield significant improvements in health outcomes. Economic evaluation can identify which medical genetic tests or other genetic medical technologies are the most beneficial or cost- effective for the community. While the focus of economic evaluation is on individual medical procedures, such as particular medical genetic tests, it is also capable of contributing to the planning and management of genetic health services as a whole if the results of individual evaluations are aggregated across the healthcare system.
Financial impact of gene patents
19.32 It may be problematic to assess the impact of gene patents separately as part of an economic evaluation of genetic medical technologies because of the many intangibles in the evaluation—such as whether the benefit of a particular genetic medical technology would have become available, or become available when it did, without the incentive of patent protection.
19.33 A financial or budgetary analysis of the impact of gene patents is more straightforward. Such an analysis would estimate current and projected costs of providing genetic healthcare services, taking patent rights into account.
19.34 DP 68 proposed that AHMAC should establish processes for: (a) economic evaluation of medical genetic testing and other new genetic medical technologies; and (b) examination of the financial impact of gene patents on the delivery of healthcare services in Australia. These proposals received broad support.
19.35 The Department of Industry, Tourism and Resources (DITR) submitted that the process used in decision making under the PBS could easily be applied to genetic and related technologies, but noted the methodological difficulties involved in ‘accurately recognising and quantifying the direct and indirect benefits of the new technologies’. The Human Genetics Society of Australasia (HGSA) observed that the evaluation of best practice in the use of medical genetic technologies ‘lags far behind’ current medical developments.
19.36 The South Australian Department of Human Services submitted that ‘social impact’ should be a factor in any economic evaluation:
Given the concerns of the public about the ethical and social issues in gene patenting, it is proposed that the economic evaluation should include social impact. This wider scope of the evaluation would provide more useful information, and would give due recognition to social concerns about the implications of gene patenting on equity, affordability and quality of healthcare service provision.
19.37 Several submissions suggested that economic evaluation of genetic medical technologies should be conducted or assisted by MSAC, which has conducted similar assessments in the past, for example with respect to the genetic test for fragile X syndrome. However, the HGSA stated that existing MSAC processes are not an appropriate model for evaluating how best to deliver predictive and screening genetic testing as MSAC’s processes are focused primarily on assessing whether individual medical procedures should be put on the MBS. The HGSA submitted that ‘the role of MSAC may need to be revised to address broad technology changes rather than individual tests’.
19.38 The Department of Health Western Australia noted that comprehensive economic models have been developed in Western Australia for breast, ovarian and colon cancer treatment and that it would be possible to expand the analysis to look at other aspects of genetic testing services. The HGSA and the Queensland Government referred to the United Kingdom Health Technology Assessment Programme as a possible model. It was also suggested that there may be a role for the HGCA in the economic evaluation of genetic medical technologies. The Department of Health Western Australia submitted that, until the HGCA is established, AHMAC would be the appropriate body to coordinate economic evaluation of new genetic medical technologies and financial analysis of the impact of gene patents. The Department of Health and Ageing also supported a role for AHMAC in examining the financial impact of gene patents.
19.39 The impact of new genetic technologies on healthcare needs to be monitored closely by health policy makers in Australia. The ALRC highlighted some aspects of the need for long term planning in genetics in its 2003 report, Essentially Yours: The Protection of Human Genetic Information in Australia (ALRC 96).
19.40 While the ALRC’s Terms of Reference are directed to the impact of patent laws and practices, submissions highlighted a more general need for economic evaluation of genetic medical technologies. Private sector involvement in medical genetic testing has led to concern that commercial interests may be in a position, to ‘dictate which genetic tests are performed, how and where they are performed, and the price of the tests without any consideration of societal needs or input from professional and government stakeholders’.
19.41 An effective system for the economic evaluation of genetic medical technologies would help address these concerns. It would place Commonwealth, state and territory health departments in a better position to influence the way medical genetic testing and other new genetic medical technologies are introduced to the Australian healthcare system. It would also assist in deciding which products or services should receive government funding or other support.
19.42 Economic evaluation may also assist health departments in decision making about gene patents. For example, decisions about whether to challenge a patent, and strategies for negotiation with patent holders, may be informed by an assessment of the value of particular inventions to the health of the community. This approach would be consistent with the more active role in managing patent issues recommended by the ALRC. Further, such an evaluation can directly assist decision making by health departments about how to absorb any future costs attributable to patent licence fees or royalty payments.
19.43 Submissions emphasised the importance of a national approach to the economic evaluation of new genetic medical technologies and examination of the financial impact of gene patents. The ALRC considers that a national program for economic evaluation of genetic medical technologies is important to counteract the ‘fear of unknown’ in the public health sector about the implications of gene patents for healthcare delivery. Such a program would allow principled and comprehensive policies to be developed.
19.44 The ALRC considers that AHMAC is the appropriate body to take this forward. AHMAC is a committee of the heads of the Commonwealth, state and territory health departments. It is the major policy making body on national health matters, advising the Australian Health Ministers’ Conference on policy, resource and financial issues.
19.45 In May 2002, AHMAC established an Advisory Group on Human Gene Patents and Genetic Testing (AHMAC Advisory Group). Its terms of reference include advising AHMAC on matters relating to the planning, management, regulation, provision and delivery of human genetic testing and screening services. In addition, AHMAC may be assisted by MSAC. MSAC’s terms of reference include undertaking health technology assessment work referred to it by AHMAC, and reporting its findings to AHMAC.
19.46 The ALRC therefore recommends that AHMAC establish processes for the economic evaluation of medical genetic testing and other new genetic medical technologies, and for the examination of the financial impact of gene patents on the delivery of healthcare services in Australia.
Recommendation 19–1 The Australian Health Ministers’ Advisory Council (AHMAC) should establish processes for:
(a) economic evaluation of medical genetic testing and other new genetic medical technologies; and
(b) examination of the financial impact of gene patents on the delivery of healthcare services in Australia.
 See Intellectual Property and Competition Review Committee, Review of Intellectual Property Legislation under the Competition Principles Agreement (2000), 138.
 In turn, half of all public hospital funding comes from the Commonwealth through the Australian Health Care Agreements.
 J Brasch, DNA Diagnosis of Genetic Disorders in Australasia, Human Genetics Society of Australasia, <www.hgsa.com.au/labs.html> at 16 June 2004. Not all tests are available from all laboratories. The register does not include newborn screening laboratories.
 These items concern testing for haemochromatosis, factor V Leiden, protein C or S deficiencies, antithrombin 3 deficiency, and fragile X syndrome: Department of Health and Ageing, Medicare Benefits Schedule (MBS) (2003).
 R Trent, Correspondence, 23 September 2003.
 Australian Health Ministers’ Advisory Council, Submission P49, 23 October 2003.
 Human Genetics Society of Australasia, Submission P31, 3 October 2003; Commonwealth Department of Health and Ageing, Submission P65, 28 January 2004; South Australian Government, Submission P51, 30 October 2003.
 South Australian Government, Submission P51, 30 October 2003; D McFetridge, Submission P23, 30 September 2003; G Suthers, Submission P30, 2 October 2003; South Australian Department of Human Services, Submission P74, 15 April 2004; Genetic Support Council WA (Inc), Submission P119, 13 May 2004.
 South Australian Department of Human Services, Submission P74, 15 April 2004.
 Genetic Technologies Limited, Submission P45, 20 October 2003.
 AusBiotech Ltd, Submission P58, 7 November 2003.
 Department of Industry Tourism and Resources, Submission P36, 13 October 2003; Queensland Government, Submission P57, 5 January 2004; GlaxoSmithKline, Submission P33, 10 October 2003; AusBiotech Ltd, Submission P58, 7 November 2003; IP Australia, Submission P56, 4 November 2003; G Suthers, Submission P30, 2 October 2003; Queensland Government, Submission P57, 5 January 2004; A McBratney and others, Submission P47, 22 October 2003; Australian Health Ministers’ Advisory Council, Submission P49, 23 October 2003; Genetic Technologies Limited, Submission P45, 20 October 2003; Commonwealth Department of Health and Ageing, Submission P65, 28 January 2004.
 Australian Law Reform Commission, Gene Patenting and Human Health, DP 68 (2004), Proposal 20–1(a) and (b).
 Biotechnology Australia, Consultation, Sydney, 22 May 2003.
 The techniques applied in the economic evaluation of healthcare are derived from the same theoretical base as in other contexts, but differ in how benefits are measured and valued. For example, the ‘benefits’ of health services usually include both the extension and the quality of life.
 J Richardson, ‘The Economic Framework for Health Service Evaluation and the Role for Discretion’ (Paper presented at Health Outcomes Conference, Canberra, 21 July 1999), 1.
 Ibid, 2.
 Ibid, 3.
 See J Hall, R Viney and M Haas, ‘Taking a Count: The Evaluation of Genetic Testing’ (1998) 22 Australian and New Zealand Journal of Public Health 754; J Hall, ‘Evaluation of Genetic Testing: How are We Going to Assess the Costs, Risks and Benefits of this New Technology?’ in G O’Sullivan, E Sharman and S Short (eds), Good-bye Normal Gene (1999), 30.
 Australian Law Reform Commission and Australian Health Ethics Committee, Essentially Yours: The Protection of Human Genetic Information in Australia, ALRC 96 (2003), [23.49].
 Australian Law Reform Commission, Gene Patenting and Human Health, DP 68 (2004), Proposal 20–1.
 Walter and Eliza Hall Institute of Medical Research, Submission P71, 13 April 2004; South Australian Department of Human Services, Submission P74, 15 April 2004; Human Genetics Society of Australasia, Submission P76, 16 April 2004; Commonwealth Department of Health and Ageing, Submission P79, 16 April 2004; Australian Centre for Intellectual Property in Agriculture, Submission P81, 16 April 2004; Royal College of Pathologists of Australasia, Submission P82, 16 April 2004; Department of Health Western Australia, Submission P89, 16 April 2004; Queensland Government, Submission P103, 22 April 2004; Genetic Support Council WA (Inc), Submission P119, 13 May 2004. DITR supported economic evaluation of genetic medical technologies but not examination of the financial impact of gene patents because it considered that ‘gene patents do not have a quantifiable direct financial impact on the delivery of healthcare services’: Department of Industry Tourism and Resources, Submission P97, 19 April 2004.
 Department of Industry Tourism and Resources, Submission P97, 19 April 2004.
 Human Genetics Society of Australasia, Submission P76, 16 April 2004.
 South Australian Department of Human Services, Submission P74, 15 April 2004.
 Human Genetics Society of Australasia, Submission P76, 16 April 2004; Queensland Government, Submission P103, 22 April 2004; Commonwealth Department of Health and Ageing, Submission P79, 16 April 2004.
 Medicare Services Advisory Committee, Genetic Test for Fragile X Syndrome: Assessment Report, Department of Health and Ageing, <www.health.gov.au/msac/pdfs/msac1035.pdf> at 16 June 2004.
 Human Genetics Society of Australasia, Submission P76, 16 April 2004.
 Department of Health Western Australia, Submission P89, 16 April 2004.
 Human Genetics Society of Australasia, Submission P76, 16 April 2004; Queensland Government, Submission P103, 22 April 2004. ‘The purpose of the programme is to ensure that high quality research information on the costs, effectiveness and broader impact of health technologies is produced in the most effective way for those who use, manage and provide care in the NHS’: see NHS R&D Health Technology Assessment Programme, About the HTA Programme, National Health Service, <www.hta. nhsweb.nhs.uk> at 16 June 2004.
 Human Genetics Society of Australasia, Submission P76, 16 April 2004; Department of Health Western Australia, Submission P89, 16 April 2004.
 Through the AHMAC Advisory Group on Human Gene Patents and Genetic Testing: Department of Health Western Australia, Submission P89, 16 April 2004; see also Genetic Support Council WA (Inc), Submission P119, 13 May 2004. The Department noted that the resources available to the AHMAC Advisory Group would need to be increased.
 Commonwealth Department of Health and Ageing, Submission P79, 16 April 2004.
 See Australian Law Reform Commission and Australian Health Ethics Committee, Essentially Yours: The Protection of Human Genetic Information in Australia, ALRC 96 (2003), rec 23–1, 23–4, 23–5.
 The need for economic evaluation of new genetic medical technologies has also been identified by inquiries overseas: See Ontario Ministry of Health and Long-Term Care, Genetics, Testing & Gene Patenting: Charting New Territory in Healthcare: Report to the Provinces and Territories (2002), 84; R Zimmern and C Cook, Genetics and Health: Policy Issues for Genetic Science and their Implications for Health and Health Services (2000), 76. In relation to pharmacogenetics, see Nuffield Council on Bioethics, Pharmacogenetics: Ethical Issues (2002); P Lipton, ‘Pharmacogenetics: The Ethical Issues’ (2003) 3 Pharmacogenomics Journal 14, 14–15.
 Cancer Council Victoria, Submission P101, 20 April 2004.
 See rec 19–3.
 See, eg, Department of Health Western Australia, Submission P89, 16 April 2004; South Australian Department of Human Services, Submission P74, 15 April 2004.
 Department of Health and Ageing, Medicare Services Advisory Committee Terms of Reference, <www.health.gov.au/msac/terms.htm> at 16 June 2004.