19.4 The healthcare system in Australia is complex, involving many funders and healthcare providers. Responsibilities are split between different levels of government, and between the government and non-government sectors. As a generalisation, the Australian Government is primarily responsible for the funding of healthcare, through health insurance arrangements and direct payments to the States and Territories, while the States and Territories are primarily responsible for the direct provision of services.
19.5 The Australian Government operates universal benefits schemes—the MBS for private medical services and the PBS for pharmaceuticals. It also contributes to the funding of public hospitals in the States and Territories through the Australian Health Care Agreements. Public hospital services, including outpatient clinics such as those that are part of clinical genetics services, are usually delivered by state and territory governments. The private sector’s provision of healthcare includes private medical practitioners, private hospitals, pathology services and pharmacies.
19.6 The Australian Institute of Health and Welfare has estimated that total Australian health expenditure was $66.6 billion in 2001–2002. This represented 9.3% of gross domestic product. The healthcare system is largely government funded. In 2001–2002, governments funded an estimated 68.4% of the total amount spent on health services. The Australian Government met 46.1%, and state, territory and local governments met 22.3% of total funding.
19.7 Most of the Australian Government’s healthcare funding was applied to medical services, including those provided under the MBS (30.7% of federal funding), and public hospitals (27.3%). A further 16% of federal funding was directed to pharmaceuticals, including those provided under the PBS. Most state, territory and local government healthcare funding was applied to public hospitals (64.4% of state, territory and local government funding).
Funding decisions under the MBS and PBS
19.8 Decisions about Australian Government funding under the MBS and PBS are made by applying clinical and economic criteria to determine whether, and in what circumstances, the cost of new medical services or pharmaceuticals should be subsidised. These criteria apply, for example, if funding is sought under the MBS for medical genetic testing or under the PBS for drugs based on therapeutic proteins.
19.9 The Medical Services Advisory Committee (MSAC) provides advice to the federal Minister for Health and Ageing about the strength of evidence relating to the safety, effectiveness and cost-effectiveness of new and emerging medical services and technologies and under what circumstances public funding, including listing on the MBS, should be supported. Similarly, the Pharmaceutical Benefits Advisory Committee (PBAC) makes recommendations on the suitability of drug products for subsidy, after considering the effectiveness, cost-effectiveness and clinical place of a product compared with other products already listed on the PBS, or with standard medical care.
19.10 Where items are recommended by PBAC for listing on the PBS, the Pharmaceutical Benefits Pricing Authority makes recommendations on the price to be paid by government. In doing so, the Pricing Authority takes account of a range of factors, including PBAC advice on clinical and cost-effectiveness; prices of alternative brands; comparative prices of drugs in the same therapeutic group; cost data information; prescription volume and economies of scale. The pricing methodology does not provide a mechanism for the recognition of patent rights by way of a price premium. Price determination under the PBS is based on price referencing using comparative price and cost-effectiveness data, and does not take into consideration the patent status of a drug.
The challenge of new medical technology
19.11 New medical technologies have the potential to strain the capacity of the healthcare system to afford them. There are concerns that new technology, in the context of fixed budgets set by governments, may distort the balance of resources devoted to various aspects of the healthcare system.
19.12 Most experts consider that new technology is a driving force behind the long-term rise of healthcare spending. However, costs attributable to patent rights are only one component of the costs that may be involved when new medical technologies are introduced. For example, while it is sometimes claimed that patents are the predominant cause of high prices for new pharmaceuticals, the price of pharmaceuticals depends on a wide variety of factors, including the cost of research and development, production, distribution and marketing.
19.13 The effect of technological developments on the practice of medicine is one of the most important problems facing health policy makers in Australia. It has been asserted that genetic technologies will come to affect every sector of healthcare provision. If so, health expenditure attributable to genetic technology may increase. Moreover, the extent of any increase in expenditure, or compensating savings through better diagnostics or therapeutics, in other areas is uncertain.
19.14 Whether new genetic diagnostics and therapeutics will be as costly to bring to the market as the products of today, or whether greater knowledge of genetic sequences will shorten development times and reduce their costs is a matter for debate. It is also uncertain whether patients will demand new genetic tests or new medicines that give only marginal health benefit.
 See Australian Institute of Health and Welfare, Australia’s Health 2002 (2002), 238–243.
 See G Palmer and S Short, Health Care and Public Policy in Australia: An Australian Analysis (3rd ed, 2000), 10.
 Australian Institute of Health and Welfare, Health Expenditure Australia 2001–02 (2003), 6.
 Ibid, 8.
 Ibid, 23.
 Ibid, 27.
 Ibid, 29.
 See Medicare Services Advisory Committee, Funding for New Medical Technologies and Procedures: Application and Assessment Guidelines, Department of Health and Ageing, <www.health.gov.au/msac/pdfs/guidelines.pdf> at 16 June 2004; Pharmaceutical Benefits Advisory Committee, 1995 Guidelines for the Pharmaceutical Industry on Preparation of Submissions to the Pharmaceutical Benefits Advisory Committee: Including Major Submissions Involving Economic Analyses, Department of Health and Ageing, <www.health.gov.au/pbs/general/pubs/pharmpac/ gusubpac.htm> at 16 June 2004.
 Pharmaceutical Benefits Pricing Authority, Procedures and Methods (2003).
 Department of Industry Tourism and Resources, Submission P36, 13 October 2003.
 Other factors include population growth, demographic changes, increasing fees and costs of delivering health care services, growth in the medical workforce and greater community expectations. See M Fett, Technology, Health and Health Care (2000) Department of Health and Ageing.
 Biotechnology Australia, Consultation, Sydney, 22 May 2003.
 Ontario Ministry of Health and Long-Term Care, Genetics, Testing & Gene Patenting: Charting New Territory in Healthcare: Report to the Provinces and Territories (2002), 61.
 See Ibid, 61; R Zimmern and C Cook, Genetics and Health: Policy Issues for Genetic Science and their Implications for Health and Health Services (2000), 3–4.
 While many genetic technologies offer the promise of longer term savings through better disease management, in the short to medium term they are likely to increase healthcare costs, eg, certain medical genetic tests may allow disease prevention to be practised, and consequently reduce health care costs, but the clinical benefits may not be observable for many years: Ontario Ministry of Health and Long-Term Care, Genetics, Testing & Gene Patenting: Charting New Territory in Healthcare: Report to the Provinces and Territories (2002), 61.
 R Zimmern and C Cook, Genetics and Health: Policy Issues for Genetic Science and their Implications for Health and Health Services (2000), 4.