15 May, 2018
Last night, the Treasurer delivered the Australian Federal Budget for 2018-19. Below is a high level overview of the proposed changes (subject to legislation passing) announced in the healthcare area.
Proposed Changes
In what the Government described as record health funding of AUD 78.8 billion in 2018-19, last night's Budget introduced a new AUD 1.3 billion National Health and Medical Industry Growth Plan, AUD 1.4 billion in funding for new and amended listings on the PBS, increased funding for public hospital services, guaranteed funding for the Medicare Benefits Schedule and Pharmaceutical Benefits Scheme through the Medicare Guarantee Fund and, significantly, further changes to the R&D tax incentive.
R&D Tax Incentive
The Federal Government will reform the R&D tax incentive in response to the 2016 review of the R&D tax incentive program. R&D remains an important focus for healthcare and these changes follow on the heels of several other changes to the program in the past 3 years, including the introduction of the AUD 100 million R&D expenditure cap in 2015 and a 1.5% cut in R&D tax offset rates in 2016. There are three key elements to the changes, which apply for income years starting on or after 1 July 2018.
The offset rate tied to R&D intensity
As expected, the existing tax offset flat rate of 38.5% will be replaced with staggered rates for companies with aggregated annual turnover of AUD 20 million or more. The rates will increase as R&D expenditure as a proportion of the company’s total annual expenditure increases (referred to as R&D intensity) as follows:
| Amount of R&D expenditure falling within an R&D intensity range: | Is eligible for a non-refundable tax offset of the company’s tax rate, plus: |
|---|---|
| Between 0% and 2% | 4% |
| Above 2% to 5% | 6.5% |
| Above 5% to 10% | 9% |
| Above 10% | 12.5% |
This is intended to reward more intensive additional R&D investment, but may increase uncertainty as the offset available will only be able to be accurately determined retrospectively. The R&D expenditure cap will also be increased to AUD 150 million.
Cap on cash refunds
For companies with aggregated turnover of less than AUD 20 million, cash refunds from the refundable tax offset will be capped at AUD 4 million annually. While higher than the AUD 2 million cap recommended by the 2016 review, it is likely to significantly affect start-ups which rely on this to fund the development phase. R&D tax offsets for clinical trials will be excluded from the AUD 4 million cap. The refundable tax offset rate has also been amended so that it is equal to the company’s tax rate plus 13.5%.
Increased transparency and enforcement
The ATO will publish the names of companies claiming the R&D tax incentive and the amounts of R&D expenditure claimed. The general anti-avoidance rules will be amended to ensure tax schemes involving the R&D tax incentive are captured, as well as technical provisions relating to feedstock and clawback rules. Increased funding will also be provided for enforcement activity and to enable Innovation and Science Australia to provide more effective and binding guidance.
Other proposed changes
National Health and Medical Industry Growth Plan
The Government also announced a new AUD 1.3 billion National Health and Medical Industry Growth Plan that includes:
- a ten–year AUD 500 million commitment to the Genomics Health Futures Mission.
- AUD 240 million for the Frontier Health and Medical Research Program.
- AUD 125 million for research into chronic conditions with a focus on diabetes and heart disease.
- AUD 248 million to allow more clinical trials to occur in Australia and support international collaboration.
- AUD 94.3 million to provide for Biomedtech programs and Industry Researcher Collaborations.
- Aged care
As expected the Government sought to address the concerns of Australia's ageing population.
The Government will provide AUD 1.6 billion to support 14,000 additional high‑level home care packages by 2021‑22. This adds to the 6,000 places the Government provided in the 2017-18 Budget.
With the aim of making it easier for people to navigate the aged care system and access care the Government will invest AUD 61.7 million to improve the My Aged Care website and AUD 14.8 million to streamline the assessment process for aged care services.
The Government will also provide AUD 82.5 million for mental health services for people in residential aged care facilities; AUD 20 million to pilot services for older Australians to help them remain connected to their communities; and AUD 22.9 million to boost the physical activity of older Australians.
The Government will establish a new Aged Care Quality and Safety Commission from 1 January 2019. The Government is seeking to strengthen regulations and improve transparency.
The Government will establish a new independent Aged Care Quality and Safety Commission and regulatory settings will be strengthened and made more transparent.
Medicare
The Government has guaranteed funding for the Medicare Benefits Schedule (MBS) and the Pharmaceutical Benefits Scheme (PBS) through the Medicare Guarantee Fund, as announced in last year’s Budget.
For 2017‑18, AUD 34.4 billion has been credited to the Medicare Guarantee Fund. A further credit of AUD 35.3 billion will be made to meet estimated MBS and PBS expenditure for 2018‑19.
The Budget includes new and amended items on the MBS, including cystic fibrosis testing, 3D breast screening and MRI tests for prostate cancer.
Pharmaceutical Benefits Scheme
The Government will provide AUD 1.4 billion for new and amended listings on the PBS, including medicines to treat spinal muscular atrophy, breast cancer, relapsing–remitting multiple sclerosis and a new medicine to treat HIV.
Mental health
The Government will provide further support for Australians with mental illness, including providing AUD 33.8 million to Lifeline Australia to enhance its telephone crisis services and funding for beyondblue and the Way Back Support Service.
The Government will invest AUD 125 million over a decade for mental health research with the Medical Research Future Fund.
Preventative health
The Government will provide AUD 20.9 million to improve the health of women and children in their first 2,000 days of life.
In this Budget AUD 154.3 million has been committed to support Australians to take up healthier and more active lifestyles, including participating in community sport.
Public hospitals
In this Budget, the Government is fully funding a new five-year public hospital agreement from 2020-21 that will provide AUD 130.2 billion to the States and Territories and more than AUD 30 billion in additional funding between 2020‑21 and 2024‑25 — a reported 30 per cent increase over the previous five years.
As part of the agreement, the Government will provide AUD 100 million to establish a Health Innovation Fund to fund trials that support preventative health care and the better use of health data.
The Government will invest an additional AUD 189 million in the Western Australia's state hospital infrastructure. This includes AUD 158 million towards the Joondalup Health Campus expansion.
National Disability Insurance Scheme (NDIS) funding
The Government expects the NDIS to be fully rolled out from 2020. There are currently more than 140,000 participants.
For those who are not eligible but are in programs that are transitioning to the NDIS, the Government will provide AUD 92.1 million to ensure their support continues.
An NDIS Jobs and Market Fund will be established at a cost of AUD 64.3 million to grow the NDIS workforce and service providers.
Removal of some PBS rebates
Current arrangements involve pharmaceutical companies charging the Australian Federal Government a published PBS price, and then later paying a rebate to the Government. The Government has announced plans to remove some of these rebate arrangements, which will reduce the Government's upfront spending on the PBS. The Federal Government will eliminate rebates on certain medicines, with their prices to be published at their net cost to government, reducing the topline number by AUD 433 million. The Budget states: "Revenue rebates for some high cost medicines will be reduced from 1 July 2018 with the agreement of the relevant medicine manufacturers and with a corresponding reduction in the published price of those medicines." This program will continue in 2019-20.
Support for Generics and Biosimilars
The Government has allocated AUD 5 million over three years for biosimilar and generic uptake measures "to continue the biosimilar medicines awareness campaign". The Government anticipates that a move from innovator drugs and biologics to generics and biosimilars will deliver AUD 317 million in savings over the four years to 2021-22. The Budget states: "The government will deliver targeted education activities for prescribers to reduce unnecessary or inappropriate use of biological DMARDS and to support the appropriate use of blood and blood products."
For further information, please contact:
Elisabeth White, Partner, Baker & McKenzie
elisabeth.white@bakermckenzie.com
