National Health (Supplies of out-patient medication) Determination 2019 (No. 2)

The determination introduces or relies on several distinct concepts that are critical to its operation. First, out‑patient medication adopts the definition from subsection 84(1) of the National Health Act. That definition generally covers medication supplied to a patient who is not admitted to hospital (or who is discharged on the same day) and who is not covered by an in‑patient medication supply arrangement. The boundary between in‑patient and out‑patient medication is fundamental because this determination only applies to the latter; in‑patient medication is governed by separate state‑based arrangements, typically included in hospital activity‑based funding.

Second, concessional beneficiary and dependant of a concessional beneficiary are defined by reference to the Act. In practice, these are patients who hold a current concession card (Pensioner Concession Card, Health Care Card, Commonwealth Seniors Health Card, or are dependants of such cardholders). For this group, section 7 caps the maximum charge at the paragraph 87(2)(a) amount , the concessional co‑payment. That amount is periodically adjusted under section 99G of the Act, typically each January 1, and as at 2026 stands at $7.70. The determination does not adjust the amount itself; it simply incorporates the adjustment mechanism from the Act.

Third, the Pharmaceutical Reform Arrangements are a set of agreements between the Commonwealth and states/territories under which public hospitals take on greater responsibility for supplying PBS medicines to certain out‑patients, including same‑day admitted patients on separation and non‑admitted patients, under section 100 of the Act. These arrangements are intended to streamline PBS supply in hospitals and shift certain costs from state budgets to the Commonwealth PBS. A public hospital that is an Approved Hospital Authority under section 94 of the Act and that has opted into these reform arrangements is subject to section 10 (if outside Queensland) or section 9 (if in Queensland) instead of the flat $20 cap.

Fourth, the proportional ex‑manufacturer price is a defined term used in sections 9(2)(c) and 10(2)(b) for non‑PBS medication. It refers to a price determined under a separate PBS pricing determination (subsection 84C(7) of the Act). When a hospital supplies a drug that is not listed on the PBS, the determination requires the hospital to calculate a deemed PBS‑equivalent price by taking its actual acquisition cost and applying the same proportional mark‑up and dispensing fee formula that would apply if the drug were a PBS item. This prevents a hospital from charging an arbitrary amount for non‑PBS drugs that have no approved PBS price.

Finally, the amount referred to in paragraph 87(2)(a) and the amount referred to in paragraph 87(2)(e) are the two standard PBS co‑payment amounts: the concessional and general co‑payments, respectively. The determination uses s.87(2)(e) as the ceiling for general patients in Queensland and reform‑participating hospitals. It also references regulation 17A of the National Health (Pharmaceutical Benefits) Regulations 2017, which prescribes the maximum patient contribution for a PBS supply by an approved pharmacist. For participating hospitals outside Queensland, section 10(2)(a) applies regulation 17A as if the hospital were an approved pharmacist, thereby importing the same co‑payment ceiling.

The determination directly impinges on four groups: public hospitals as suppliers, patients as consumers, state health departments as funders, and the Commonwealth PBS administrator. Each faces different compliance burdens and financial consequences.

Public hospitals that are Approved Hospital Authorities under section 94 of the National Health Act are the primary duty‑holders. They must determine which of the four pricing regimes (sections 7, 8, 9, or 10) applies to each transaction. This requires the hospital to ascertain the patient’s concessional status (e.g. concession card holder or dependant), the hospital’s own jurisdictional and reform‑participation status, and whether the medication is listed on the PBS or not. For a large metropolitan hospital that has joined the Pharmaceutical Reform Arrangements, the daily workflow may involve thousands of transactions where a staff member must look up the patient’s concession status and then apply either the s.87(2)(e) co‑payment for PBS items or a cost‑based calculation for non‑PBS items. For a small non‑reform hospital in New South Wales, the rule is simpler: charge any general patient no more than $20, and concessional patients no more than the concessional co‑payment. But for Queensland hospitals and reform hospitals, the complexity increases substantially because they must track the Commonwealth price for each PBS item to determine whether it exceeds the s.87(2)(e) amount. If it does, the patient pays the s.87(2)(e) amount; if not, the patient pays the full PBS price (which could be less than $20). This differential creates an incentive for hospitals to prefer supplying cheaper drugs where possible to minimise patient charges, but it also adds a layer of pricing computation absent in the $20‑cap regime.

Patients are affected by the cap on their out‑of‑pocket cost. For concessional patients everywhere, the maximum is the concessional co‑payment, which is low. For general patients, the outcome varies by hospital type. A general patient at a non‑reform hospital outside Queensland pays at most $20 per PBS item, which is below the standard PBS co‑payment. A general patient at a Queensland or reform hospital pays at most the standard PBS co‑payment (currently ~$32.20) for expensive drugs, but for cheap drugs may pay the full PBS price , which could be as low as a few dollars. The patient has no control over which regime applies; it depends solely on the hospital’s location and reform status. This creates unequal treatment: two patients with identical conditions and prescriptions could face different costs if one attends a reform hospital and the other a non‑reform hospital. However, since the hospital is the gatekeeper for the supply, the patient’s choice of hospital is often limited by geography or clinical need.

State health departments are indirectly affected because the determination influences how much a hospital can recover from patients and, consequently, how much net revenue the hospital retains. In reform hospitals, the higher patient charge ceiling may reduce the state’s funding gap relative to the Commonwealth PBS subsidy. In non‑reform hospitals, the $20 cap limits patient revenue, meaning the state must bear more of the drug cost. This creates a fiscal incentive for states to push hospitals into the reform arrangements, which the determination accommodates by providing separate pricing pathways.

The Commonwealth PBS administrator (the Department of Health and Aged Care) uses the deemed paid amount to calculate the hospital’s PBS benefit. If a hospital charges the maximum, the deemed paid equals that maximum, and the Commonwealth pays the difference between the approved PBS price and that amount. If the hospital charges less, the Commonwealth pays a larger subsidy. The determination therefore affects the total PBS outlay, though the overall effect is likely small since hospital out‑patient dispensing is a modest fraction of total PBS volumes.

The determination does not create new statutory duties in the traditional sense; it modifies the operation of Part VII of the National Health Act. However, by defining the “amount taken to have been paid”, it imposes several practical obligations on public hospitals.

Duty to charge no more than the applicable maximum. A hospital that charges a patient more than the maximum under section 7, 8, 9, or 10 does not face a direct penalty in this determination, but the excess charge will not be recognised for PBS purposes. The hospital would then have to remit the full PBS benefit back to the Commonwealth while retaining the patient’s higher payment, creating an accounting loss unless the hospital is separately funded by the state to cover the gap. Moreover, overcharging could result in a breach of the hospital’s approved hospital authority obligations under section 94 of the Act, or constitute a contravention of the National Health Act’s pricing provisions, leading to civil penalties or loss of authority status. In practice, hospitals are incentivised to charge exactly the maximum (or less) to comply with PBS rules and avoid administrative friction.

Duty to classify patients correctly. The hospital must determine whether a patient is a concessional beneficiary, a dependant of a concessional beneficiary, or the holder of a concession card. This requires checking the patient’s concession card or verifying their status through Medicare records. A misclassification (e.g. treating a concessional patient as a general patient and charging $20 instead of $7.70) would result in the patient paying more than allowed, likely leading to a refund obligation and potential breach of the Act. Conversely, undercharging a general patient as if they were concessional would not breach the determination (since the deemed paid would be the lower amount), but it would reduce hospital revenue and potentially distort PBS subsidy calculations.

Duty to determine the correct pricing regime. As discussed, the hospital must know whether it is located in Queensland or not, and whether it is participating in Pharmaceutical Reform Arrangements. These facts are not always static; a hospital may enter or exit the reform arrangements over time. The hospital must apply the correct section accordingly. For reform and Queensland hospitals, there is an additional duty to ascertain the Commonwealth price for each PBS medication (from the PBS schedule and the subsection 84C(7) determination) and compare it to the s.87(2)(e) amount. For non‑PBS medications, the hospital must calculate a deemed price using its acquisition cost and the subsection 84C(7) formula.

Rights of patients. The determination gives patients a right to not be charged more than the prescribed maximum. This is a form of price control. However, the determination does not itself create a private right of action; enforcement would rely on the hospital’s compliance with the National Health Act. If a patient is overcharged, they may complain to the Department of Health or pursue remedies under state health complaints mechanisms. The determination also implicitly creates a right for concessional patients to pay the lower concessional co‑payment, and for general patients to pay either $20 or the general co‑payment depending on the hospital.

Rights of hospitals. The determination gives hospitals a legal basis to charge up to the maximum: by setting the deemed paid amount, it validates that charging the maximum is consistent with Part VII. It also allows hospitals participating in reform arrangements to charge the standard general co‑payment, which is higher than $20. This is a significant financial right for those hospitals, giving them greater patient‑revenue potential.

The determination does not itself prescribe any penalties. Enforcement operates through the National Health Act and the administrative framework of the PBS. The critical enforcement mechanism is the reconciliation of PBS payments. Under Part VII, the Secretary of the Department of Health (or a delegate) may conduct audits of approved hospital authorities to verify that supplies of pharmaceutical benefits are lawful and that the amounts charged are correct. If a hospital is found to have charged more than the maximum value for out‑patient medication, the supply may be deemed not to have been a supply of a pharmaceutical benefit for the purposes of Part VII, or the amount deemed paid may be recalculated, potentially requiring the hospital to repay Commonwealth subsidies.

The National Health Act provides for civil penalties for various contraventions. For example, section 103 of the Act makes it an offence for an approved pharmacist or approved hospital authority to demand or receive a fee or charge that exceeds the amount prescribed or determined under the Act. The maximum penalty is 120 penalty units (currently about $26,640). While that provision directly targets pharmacists, similar provisions may apply to hospital authorities by analogy. Additionally, section 99F of the Act allows the Secretary to recover overpaid amounts from persons who have received PBS payments to which they were not entitled. If a hospital incorrectly charges a higher amount and receives a larger PBS subsidy (because the deemed paid is lower and the subsidy is higher), the Commonwealth could seek recovery of the excess subsidy. Conversely, if the hospital undercharges and receives a smaller subsidy, there is generally no provision to claim the difference; the hospital bears the loss.

Enforcement risk also arises from the hospital’s participation in the Pharmaceutical Reform Arrangements. These are governed by separate agreements and funding determinations. A hospital that fails to comply with this determination might lose its participation status or face reduced Commonwealth funding under the National Health Reform Agreement. The determination itself is a legislative instrument, and a breach could lead to the instrument being used as evidence of non‑compliance in administrative or contractual proceedings.

Historically, enforcement of PBS pricing in public hospitals has been low‑profile, largely because most hospitals have revenue management systems to ensure compliance. The small number of complaints suggests that the $20 cap and concessional co‑payment are generally followed. However, the complexity of the Queensland and reform‑hospital provisions likely increases the risk of error, particularly for non‑PBS items where the hospital must compute a deemed price. Auditors from the Department of Health may focus on these areas during hospital PBS compliance reviews. Potential consequences include a letter of non‑compliance, repayment orders, and in serious cases, suspension from PBS supply.

This determination sits within a web of Commonwealth and state legislation. The most direct interaction is with the National Health Act 1953, specifically Part VII and sections 84BA, 87, 94, 99G, 100, and 103. Section 84BA is the enabling provision that authorises this determination. Section 87 defines the patient co‑payment amounts for PBS supplies by approved pharmacists; this determination imports those amounts by reference. Section 99G provides for periodic indexation of those amounts, meaning any change to the s.87(2)(a) or (e) amounts automatically flows into the maximum values under sections 7, 9, and 10 of this determination, without requiring an amendment to this instrument. Section 94 defines approved hospital authorities and imposes conditions on their PBS supply. Section 100 permits special supply arrangements (including the Pharmaceutical Reform Arrangements) that this determination explicitly references.

The National Health (Pharmaceutical Benefits) Regulations 2017 are relevant through section 10 of this determination, which incorporates regulation 17A as the metric for the maximum value for reform hospitals outside Queensland. Regulation 17A prescribes the maximum patient contribution for a pharmaceutical benefit supplied by an approved pharmacist. By applying that regulation “as if the pharmaceutical benefit had been supplied by an approved pharmacist”, the determination harmonises the hospital charge with what a community pharmacy could charge , namely, the standard general co‑payment.

The Federal Financial Relations Act 2009 is referenced in the definition of National Health Reform Agreement. That agreement, made under the Council of Australian Governments, sets out the funding arrangements for public hospitals including pharmaceutical supplies. The determination uses the agreement’s existence as a criterion to trigger section 10, but does not incorporate its text. This means that a hospital’s classification as “participating in Pharmaceutical Reform Arrangements” may change if the agreement is amended or terminated, potentially altering the applicable pricing rule without amendment to this determination.

The subsection 84C(7) determination (the PBS pricing determination) is used in sections 9 and 10 for calculating the maximum value for non‑PBS medications. That determination sets the approved ex‑manufacturer price, the wholesale mark‑up, and the dispensing fee for PBS medicines. The hospital must apply those same mark‑ups and fees to its acquisition cost to derive a deemed PBS price. This ensures that non‑PBS drugs are priced consistently with PBS pricing principles, preventing hospitals from charging inflated amounts for unlisted drugs.

State health legislation and hospital funding agreements also interact with this determination. State governments often enter into bilateral agreements with the Commonwealth under the National Health Reform Agreement, which may incorporate this determination by reference. State laws regulating hospital charges may set additional requirements, but the Commonwealth legislation prevails to the extent of any inconsistency (section 109 of the Constitution). The determination is silent on whether a state can impose a lower cap than the federal maximum; it only sets a ceiling, so states are free to cap charges at a lower amount if they wish.

Finally, the determination interacts with the Health Insurance Act 1973 and Medicare only indirectly, as Medicare covers medical services, not pharmaceuticals. The line between medical and pharmaceutical benefits is maintained; this determination relates solely to the PBS.

The determination was originally made on 23 December 2019 as PB 110 of 2019 and commenced on 1 January 2020. It has been amended annually, almost without fail, with seven amendment instruments registered between 2020 and 2025. The compilation date of the current version is 1 January 2026, incorporating the latest amendment (F2025L01524) which also started on 1 January 2026. This pattern of annual amendment suggests the instrument is used to adjust pricing parameters (particularly the $20 cap for general patients) or to update references to other determinations or amounts.

The amendment history in endnote 4 shows that section 8 has been amended six times: by F2020L00527, F2020L01694, F2021L01900, F2022L01764, F2023L01750, and F2025L01524. Despite this, the current text of section 8(1) reads simply "$20.00". It is possible that earlier versions of section 8 set different amounts that were later replaced by amendment, or the amendments changed only the provisions for Queensland and reform hospitals. The compiled text does not preserve the earlier figures, so the precise drift in the $20 figure cannot be determined from the source alone. However, the fact of repeated amendment indicates that the flat $20 cap has been a subject of regular policy re‑examination, perhaps in response to inflation or bargaining between the Commonwealth and states.

Section 10 was amended by the first amendment instrument (F2020L00527) but not subsequently. That suggests the pricing rule for non‑Queensland reform hospitals has been stable since May 2020. Section 5 (interpretation) was also amended by F2020L00527, presumably to add or refine definitions such as “Pharmaceutical Reform Arrangements” or “proportional ex‑manufacturer price”. Sections 2 and 4 were repealed by legislative provisions (LA s 48D and s 48C) which are standard for legislative instruments and relate to commencement and sunset clauses.

The amendment pattern reveals that while the instrument is nominally annual, most amendments affect only the $20 general patient cap, while the concessional and reform‑hospital rules remain unchanged. This suggests that the political focus is on confining the cost of out‑patient medication for general patients outside the reform framework. The increasing number of amendments (six in six years) may also indicate that the fixed $20 figure is often adjusted or that its application is refined to close loopholes. Without the history of the actual dollar values, one cannot conclude whether $20 has been constant or has been changed each year, but the amendment count alone is unusually high for a simple pricing rule.

The source text does not mention any litigation relating to this determination. A search of case law databases (not conducted here, but assuming the author has not) would likely reveal few if any cases, given the determination’s technical nature and its role as a subordinate instrument. The National Health Act has been litigated in areas such as PBS listing, pricing disputes, and pharmaceutical patent terms, but challenges to the specific amounts charged by public hospitals are rare. Hospitals are generally incentivised to comply because the financial consequences of overcharging are administrative rather than criminal, and patients have limited standing to sue for overcharges under the Act.

Possible scenarios for litigation could include: a hospital disputing a Department of Health audit finding that it overcharged; a patient bringing an action for misleading or unconscionable conduct under state fair trading laws if charged above the maximum; or a constitutional challenge if the determination was alleged to be invalid (e.g. exceeding the power under s 84BA). None of these appear to have eventuated. The determination’s complexity may discourage private actions, and the amounts at stake are small per transaction.

The absence of litigation history does not imply that the determination is problem‑free; it may indicate that disputes are resolved administratively or that the compliance burden is low enough that errors are corrected without formal proceedings. For a deep dive, the analyst should note that the instrument has survived numerous amendments without court challenge, which tends to support its legal validity.

Pitfall 1: The $20 cap is not universal. The flat $20 maximum for general patients (section 8) applies only to public hospitals that are neither in Queensland nor participating in Pharmaceutical Reform Arrangements. Many large teaching hospitals and metropolitan hospitals have joined the reform arrangements, meaning they can charge the standard general co‑payment (currently ~$32.20) for expensive PBS items. A general patient who assumes a $20 cap could be surprised by a higher charge at a reform hospital. Conversely, a patient at a small non‑reform hospital might pay less than the standard co‑payment. The determination does not require hospitals to inform patients which regime applies.

Pitfall 2: The Queensland and reform‑hospital pricing rules are not intuitive. For a PBS item in a Queensland hospital, if the Commonwealth price exceeds the general co‑payment, the patient pays the co‑payment (section 9(2)(a)). But if the Commonwealth price is less than the co‑payment, the patient pays the full Commonwealth price (section 9(2)(b)). This means patients may pay a different amount for the same drug depending on its cost. For example, an expensive biologic might trigger the co‑payment of ~$32.20, whereas an inexpensive generic might cost only a few dollars. In a non‑reform hospital outside Queensland, both drugs would be capped at $20, creating a lower ceiling for expensive drugs but a higher floor for cheap ones.

Pitfall 3: Non‑PBS medications require a calculation, not a lookup. For hospitals under sections 9 or 10, if the drug is not listed on the PBS, the hospital must compute the maximum value by taking its acquisition cost, treating it as if it were an ex‑manufacturer price, and then applying the mark‑ups and fees from the subsection 84C(7) determination. This is a multi‑step calculation that is easy to get wrong. The hospital must know the correct mark‑up percentages (e.g. wholesale mark‑up, dispensing fee) that apply under that determination. Errors can lead to overcharging or undercharging. There is no safe haven for good‑faith errors; the amount charged must not exceed the calculated maximum.

Pitfall 4: The determination does not address rounding. The amounts in sections 7 and 8 are whole dollars or fixed amounts, but the calculations for Queensland and reform hospitals under sections 9(2)(b) and 9(2)(c) involve prices from the PBS schedule, which may include cents. The determination does not specify whether rounding up or down is permitted. A hospital that charges $20.05 because the Commonwealth price is $20.05 for a cheap PBS item might be in breach if the maximum is that exact price, but the deeming rule in section 6 says the deemed paid is the lesser of the maximum and the amount charged. That would allow charging less than the maximum but not more. To be safe, a hospital should charge the exact calculated price or round down.

Pitfall 5: Concession card status must be verified at each supply. Section 7 applies only to a person who is a concessional beneficiary, a dependant of a concessional beneficiary, or a holder of a concession card at the time of supply. If a patient’s concession card has expired, or the patient is merely eligible but not yet a cardholder, the hospital must treat them as a general patient. Relying on patient self‑declaration may lead to undercharging (and lost revenue) if the patient is actually a general patient, but overcharging if the patient claims concessional status but cannot produce proof. Hospitals should have systems to check Medicare online or request the card at each dispensing.

Pitfall 6: Hospitals participating in reform arrangements must ensure they are still within the definition. The definition of Pharmaceutical Reform Arrangements in section 5 references arrangements that provide for public hospitals that are Approved Hospital Authorities under section 94 to supply pharmaceuticals funded by the PBS for specific categories of patients. If a hospital’s participation agreement lapses or is terminated, it may revert to the section 8 $20 cap without realising it, and then inadvertently overcharge under the old reform pricing. The hospital’s administrative team must track its participation status.

Compliance requires a systematic approach to patient classification, pricing computation, and record‑keeping. The following steps are recommended for a public hospital subject to this determination.

1. Determine your hospital’s category. The starting point is to ascertain whether the hospital is: (a) located in Queensland; or (b) participating in Pharmaceutical Reform Arrangements. For hospitals outside Queensland not participating, section 8 applies. For Queensland hospitals, section 9 applies. For non‑Queensland hospitals participating, section 10 applies. This categorisation is binary and should be documented and reviewed annually, especially if the hospital’s participation in reform arrangements changes.

2. Implement patient status checks. At the point of dispensing, the hospital must determine whether the patient is a concessional beneficiary, a dependant of a concessional beneficiary, or a holder of a concession card. The easiest method is to integrate with the Medicare Online system to verify the patient’s enrolment status at the time of service. Concession card holders typically have a “concessional” flag in the Medicare database. For dependants, the hospital may need to rely on the patient or guardian’s declaration, supported by the cardholder’s Medicare card. The hospital should retain a record of the verification method.

3. Calculate the applicable maximum value. For concessional patients always apply the s.87(2)(a) amount (the concessional co‑payment). That amount is published by the Department of Health and updated each January 1. The hospital must use the amount in force on the date of supply. For general patients under section 8, the maximum is $20.00, no indexation. For general patients under section 9 (Queensland), the hospital must obtain the current PBS Commonwealth price for each medication from the PBS schedule. If that price exceeds the s.87(2)(e) amount (general co‑payment), the maximum is the general co‑payment. If not, the maximum is the Commonwealth price. For non‑PBS drugs, the hospital must calculate the maximum using its acquisition cost as the ex‑manufacturer price and apply the mark‑ups and fees from the subsection 84C(7) determination. The hospital’s pharmacy software should be programmed to perform this calculation automatically, but manual overrides should be logged and reviewed.

4. Determine the actual amount charged. The hospital has discretion to charge any amount up to the maximum. To simplify processes, many hospitals charge exactly the maximum; this ensures the deemed paid amount equals the maximum and avoids complex subsidy calculations. If the hospital chooses to charge less (e.g. a discounted rate for low‑income patients), the deemed paid becomes that lower amount, reducing the PBS subsidy. That may be acceptable if the hospital has a policy to absorb the difference, but it should be a conscious decision, not an oversight.

5. Charge accordingly and issue receipts. The patient should be invoiced at the chosen amount. The receipt or statement should clearly indicate the PBS item name, the amount charged, and the patient’s category. This documentation will be important for any future audit.

6. Reconcile with PBS claims. When the hospital submits its PBS claim to the Department of Health, it will report the amount charged and the deemed paid amount. The hospital’s internal reconciliation system should verify that for each supply: (a) the amount charged does not exceed the maximum; and (b) the deemed paid amount (the lesser of the maximum and the amount charged) matches the software calculation. Any discrepancies should be investigated within the hospital before claims are submitted.

7. Maintain records of PBS prices and indexation. For Queensland and reform hospitals, the maximum value depends on the current s.87(2)(e) amount and the Commonwealth PBS price. The hospital should subscribe to PBS price updates and ensure its pharmacy software is updated within a few days of any change. Failure to use the correct price can result in systematic under‑ or over‑charging across many transactions.

8. Train staff. Front‑line pharmacy technicians and pharmacists must understand the different categories and how to access price information. Training should cover the rules for concessional versus general patients, the applicability of the $20 cap, and the special rules for Queensland and reform hospitals. A written procedure manual should be maintained.

9. Conduct periodic internal audits. An independent compliance check at least once a year should select a random sample of out‑patient dispensings and verify that the correct maximum was applied, the patient classification was correct, and the amount charged was within limits. Any issues should be rectified promptly, and if overcharging is discovered, the hospital should consider refunding the excess to the patient and notifying the Department of Health if the error affected PBS claims.

Compliance with this determination is largely a matter of accurate data and sound computer systems. The biggest risks are human error in patient classification and incorrect manual calculations for non‑PBS drugs. Investing in automated pharmacy systems that incorporate the current PBS price list and the s.87(2)(e) amount will dramatically reduce compliance costs and error rates.