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The tricky economics of subsidising psychedelics for mental health therapy


Australia is the first country in the world to legalize the medical use of psychedelics. But not everyone is sure the timing is right. There are still major issues to be resolved for this move to benefit those most in need.

In particular, it is questionable whether psychedelic drugs will be publicly subsidized given the lack of data on their cost-effectiveness compared to other treatments.

By July 1, 2023licensed psychiatrists may prescribe psilocybin and MDMA for post-traumatic stress disorder and psilocybin for treatment-resistant depression, for use in conjunction with psychotherapy.

The Therapeutic Goods Administration (TGA), which regulates pharmaceuticals and medical devices in Australia, made this decision in February, reclassifying psilocybin and MDMA from “Schedule 9” (prohibited substances, legally available for research use only) to “Schedule 8” ( controlled substances).

Many in the field were surprised. Advocacy Group Mind Medicine Australia, who lobbied hard for the decision, was delighted. But mental health experts like former Australian of the Year Patrick McGorry interrogated the sufficiency of the evidence.

Read more: The TGA has approved certain psychedelic treatments: Expert reactions are mixed

The TGA took into account the effectiveness and safety of psilocybin and MDMA, as the regulator should, but not their cost-effectiveness. This is not a requirement for TGA approval processes, but it is for the regulatory authorities who must approve these treatments for a government grant.

The paucity of such evidence will be a major hurdle.

Are they subsidized?

How much does such therapy cost? An estimate is $20,000 to $30,000consisting of the cost of the medication and the therapist’s time for sessions.

The pharmaceutical grade psilocybin and MDMA used in Australian clinical trials have largely been provided free of charge by US-based non-profit organizations such as the Usona Institute And Multidisciplinary Society for Psychedelic Studies. The bureaucratic requirements to import these drugs include a license from the TGA and an import license and license from the Office of Drug Control.

Australian clinical trials of psilocybin and MDMA were based on imports provided free of charge by non-profit research groups such as the Multidisciplinary Association for Psychedelic Studies in California.

To increase supply, these import controls need to be streamlined. There is also work to be done on the possibilities for local production. But for now, the main determinant of cost to patients will be whether the drugs and therapy are subsidized, as many psychological treatments and most psychiatric drugs are now.

A grant for the psilocybin/MDMA component must be approved by the Pharmaceutical Benefits Advisory Committee, the independent body of medical experts that advises the Federal Health Secretary on which drugs should be listed on the Pharmaceutical Benefits Scheme.

This requires a detailed submission (usually from the pharmaceutical supplier) explaining how the drug will be prescribed, its effectiveness, safety and cost-effectiveness compared to alternatives. Entries must also include a budget impact analysis, i.e. how much it will cost if the drug is listed on the PBS.

Read more: Explainer: how is the price of medicines determined in Australia?

A grant for the psychotherapy component requires an entry on the Medicare Benefits Schedule, which funds services such as blood testing, diagnostics, and related health services. This requires approval from the Medicare Services Advisory Committee (MSAC), which is not a statutory committee like the Pharmaceutical Benefits Advisory Committee, but has one a similar function.

Are they cost effective?

To date, there are no published studies on the cost-effectiveness of psilocybin, and only three on MDMA – all on its use in the treatment of PTSD.

The first of these studies was published in 2020the second in February 2022 and the third March 2022. All three used economic models to simulate the long-term benefits and costs of MDMA-assisted psychotherapy compared to standard health care, extrapolated from the results of clinical trials (involving a few hundred people).

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Phase 3 clinical trials show that therapy with MDMA and psychotherapy significantly reduces PTSD symptoms compared to psychotherapy and placebo.

All three conclude that MDMA-assisted therapy is a potentially cost-effective treatment for people with chronic and severe PTSD. However, the modeling assumes that the effects of MDMA-assisted psychotherapy from clinical trials of relatively short duration (with a maximum follow-up of 18 weeks) will extend over 10 to 30 years. This may be too optimistic. They were also based on the treatment patterns and costs from the US differing from those in Australia.

PBAC and MSAC will likely need to carefully weigh this type of evidence to make an assessment of cost-effectiveness.

Read more: Psychedelics researchers balance trippyness with scientific rigor after a history of legal and cultural controversy – podcast

Estimating ‘off-label’ use

Another issue that should be carefully considered is how many people are likely to use these medicines on a daily basis. Such estimates are complicated by the risk of off-label use – psychiatrists prescribe psilocybin and MDMA for purposes not listed by the TGA.

An estimated 40-75% of antipsychotic use is “off label”. For example, the antipsychotic quetiapine is registered for the treatment of schizophrenia and bipolar disorder, but often used off-label for conditions such as anxiety or insomnia. This despite the rules for prescribing quetiapine (the prescriber must indicate why he prescribes it).

Allowing only authorized prescribers of psilocybin and MDMA may reduce the risk but not eliminate it. It could mean that the costs of medicines for the health budget are much higher than budgeted.

The result of all this means that in practice Australia is still a long way from offering government subsidies for these psychedelic treatments. Which means that from July 1, the number of Australians who can afford these treatments will be small.

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