Updated/posted: February 2015
Validated by: special subcommittee of ISPOR-Australia

Australia Map

 

BACKGROUND

Australia's formal name is the Commonwealth of Australia. The form of government used in Australia is a constitutional monarchy – 'constitutional' because the powers and procedures of the Australian Government are defined by a written constitution and and 'monarchy' because Australia's head of state is Queen Elizabeth II.

There are six states in Australia: New South Wales (NSW), Queensland (Qld), South Australia (SA), Tasmania (Tas.), Victoria (Vic.) and Western Australia (WA). Each state has its own constitution, which divides the state's government into the same divisions of legislature, executive, and judiciary as the Australian Government. The six state parliaments are permitted to pass laws related to any matter that is not controlled by the Commonwealth.

Australia has a population of 23.5 million spread over a large land mass of some 7.7 million square kilometers. Most of the population; however, is concentrated along the eastern seaboard with Sydney, Melbourne, and Brisbane being the major population centers. Australia has a well-developed modern economy with an average Gross Domestic Product (GDP) per capita in 2011 of $42,540 (Purchasing Power Parity (PPP), 2011 international $) and a life expectancy at birth in 2010 of 82 years [1]. Total expenditure on health care in 2011/12 was around AUD$140.2 billion dollars (9.5% of GDP). Of the total health expenditure, the Australian government contributed 42.4% with State, Territory and local governments contributing 27.3% [2]. The remaining contribution is from co-payments and private health insurance. As of June 2014, 47.2% of the population (11,090,000 persons) held basic private health insurance for hospital coverage [3].

In 1996, the Council of Australian Governments agreed to develop a National Medicines Policy so that both optimal health outcomes and economic objectives are achieved. This saw a shift of emphasis from healthcare program inputs to quality health outcomes [4]. The central objectives of the policy are:

  • timely access to the medicines that Australians need, at a cost individuals and the community can afford
  • medicines meeting appropriate standards of quality, safety and efficacy
  • quality use of medicines
  • maintaining a responsible and viable medicines industry

The policy states, “Cost should not constitute a substantial barrier to people’s access to medicines they need. Therefore, normal market mechanisms may be tempered in access arrangements, to increase the affordability of important medicines.” [4 p1] The Australian Government funds pharmaceuticals through the Pharmaceutical Benefits Scheme (PBS), facilitating access to most prescribed medicines by subsidizing the costs of the pharmaceuticals.

The PBS is a universal coverage scheme which aims to provide all Australian residents and eligible foreign visitors with “timely, reliable, and affordable access to necessary medications” [5]. The PBS is administered by the Department of Human Services (formerly Medicare Australia) under the Health Insurance Act 1973. The PBS began in June 1948 as an “essential drugs list” for pensioners and has expanded to include the total population. A similar related scheme, the Repatriation Pharmaceutical Benefits Scheme (RPBS), covers veterans. It is funded and administered through the Department of Veterans’ Affairs (DVA), and can be used by veterans. All medicines supplied under the RPBS are dispensed at the concessional rate (or free if the patient has reached their Safety Net threshold).

In addition, the Australian Government subsidizes a range of community healthcare services through the Medicare Benefits Schedule (MBS), provides bulk funding to state health departments (who operate public hospitals), and provides hospital funding through “activity-based funding,” which is a performance-based mechanism administered through the Independent Hospital Pricing Authority. Medicare subsidizes out-of-hospital medical treatment and funds free universal access to hospital treatment. The state and territory health departments operate public hospitals and private hospitals operate independently. Medicare is funded by a 2.0% tax levy (1.5% prior to July 2014) on taxpayers with incomes above a threshold amount, with an extra 1% to 1.5% levy on high income earners without private health insurance, and the balance being provided by the government from general revenue.

The Australian Government subsidizes the cost of medicines through the PBS and works with the pharmaceutical industry to ensure the supply of PBS medicines. The maximum co-payment set for 2014 is AUD$36.90 per prescription for individuals, or AUD$6.00 for concession card holders (pensioners and low income earners) [6]. This co-payment is reviewed annually and increases are indexed to the Consumer Price Index (CPI). An additional brand and/or therapeutic group premium may be charged if a premium brand or medicine within a therapeutic group is supplied.

Individuals and families are protected from large overall annual expenses for PBS-listed medicines by safety nets. Once a general patient and/or immediate family has spent AUD$1,421.20 in a calendar year (~38 scripts), the co-payment per item decreases to the concessional rate (A$6.00). For concessional patients, no payment is required once expenditure exceeds AUD$360.00 in a calendar year (~60 scripts) [6].

In 2009-2010, Australia spent AUD$9.6 billion on benefit-paid pharmaceuticals and AUD$6.7 billion for other medications, which includes over-the-counter medications [7]. Of the benefit-paid pharmaceuticals, AUD$8.1 billion was spent by the Australian Government, while individuals contributed AUD$1.5 billion - either through co-payments or full payment for medicines that are below the maximum co-payment threshold [7].

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DECISION MAKERS INTERRELATION DIAGRAM

 

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DECISION MAKERS AND INFLUENCERS

Therapeutic Goods Administration (TGA) – Assesses therapeutic goods for safety and efficacy. The agency is responsible for regulating therapeutic goods including medicines, medical devices, blood, and blood products. Any product for which therapeutic claims are made, including herbal extracts and other supplements used in complimentary medicines, must be listed, registered, or included in the Australian Register of Therapeutic Goods (ARTG) before it can be supplied in Australia. The TGA is similar to the Food and Drug Administration (FDA) in the United States of America (USA).

Advisory Committee on Prescription Medicines (ACPM) – is a sub-committee of the TGA that advises and makes recommendations on prescription medicines. The recommendations include: inclusion of a prescription medicine on the Australian Register of Therapeutic Goods (the Register), changes to an entry of a prescription medicine on the Register, and removal or retention of a prescription medicine on the Register.

Pharmaceutical Benefit Scheme (PBS) – A national scheme to provide affordable medicines to all Australians. List of medicines subsidized by the government.

Pharmaceutical Benefit Advisory Committee (PBAC) – Advises the minister on whether or not a drug or vaccine should be listed on the PBS.

Economics Sub-Committee (ESC) – This is a subcommittee of the PBAC that provides expert advice on the clinical and economic evidence of pharmaceuticals and vaccines. The ESC reviews the submissions from the sponsors and the commentaries from the evaluation groups.

Drug Utilisation Sub-Committee (DUSC) – A sub-committee of the PBAC that provides advice on expected drug utilization before listing on the PBS and monitors drug use post-listing. This sub-committee uses prescriptions and sales data to make informed expectations.

Health Technology Assessment Section (HTAS previously known as the Pharmaceutical Evaluation Section / PESS) – A section within the Pharmaceutical Evaluation Branch in the Department of Health that looks after and provides secretariat support for the PBAC, ESC, and DUSC.

Department of Health (DoH) – This is the Government department that hosts the PBS, MBS, and all health care administration.

Repatriation Pharmaceutical Benefits Scheme (RPBS) – Provides a wide range of pharmaceuticals and dressings at concessional rates for the treatment of eligible veterans, war widows/widowers, and their dependents. The subsidy and range of pharmaceuticals under this scheme is greater than under the PBS.

Australian Technical Advisory Group on Immunisation (ATAGI) – Advises the Minister for Health on the administration and listing of vaccines on the National Immunisation Program (NIP) and advises the PBAC on matters relating to the ongoing strength of evidence pertaining to existing, new, and emerging vaccines.

National Immunisation Program (NIP) – A list of designated vaccines publically funded for Australian citizens.

Restrictions Working Group (RWG) – The RWG has representatives from the Department of Health, the Department of Veterans’ Affairs, and the Department of Human Services. The group provides advice to the PBAC on the conditions for prescribing medicines on the PBS.

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REGULATORY AND DECISION-MAKING PROCESSES

The Therapeutic Goods Authority (TGA) approves the registration for use of pharmaceutical products in Australia. The TGA takes advice from the Advisory Committee on Prescription Medicines (ACPM). Products must be registered by the TGA to have market access in Australia, including eligibility for listing on the PBS. A dossier on the quality, safety, and efficacy of prescription medicines must be submitted to the TGA for registering on the Australian Register of Therapeutic Goods (ARTG).

Decisions on whether to make a product eligible for listing on the PBS, and hence for public subsidy, are made by the Minister for Health (or full cabinet of federal ministers) on the advice of the Pharmaceutical Benefits Advisory Committee (PBAC). The PBAC is assisted in the decision-making process by two sub-committees, the Economics Sub-Committee (ESC) and the Drug Utilisation Sub-Committee (DUSC).

Since January 1, 2011, PBAC submissions for reimbursement may be submitted according to a new process, called parallel processing [8]. This parallel processing allows for a submission to the PBAC to be lodged any time from the date of lodgment of a TGA registration dossier. However, the following aspects need to be noted:

  • A PBS listing cannot occur prior to the product being listed on the Australian Register of Therapeutic Goods.
  • Sponsors will be permitted to submit the TGA delegate’s overview up to one week prior to the PBAC meeting.
  • A PBAC recommendation will not be made public before a decision by the TGA that a product is registered for the relevant indications.
  • Publication of PBAC outcomes will not occur until TGA outcomes are known.
  • Publication that an application has been submitted to the PBAC will continue.

In the instance of vaccinations, the Australian Technical Advisory Group on Immunisation (ATAGI) provides advice to both the PBAC and the Minister for Health. ATAGI provides advice on the Immunise Australia Program, which aims to increase national immunization rates, the medical administration of vaccines available in Australia, as well as other related issues. In addition to technical experts, ATAGI’s membership includes a consumer representative, a nurse, and general practitioners [9].

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REIMBURSEMENT AND PRICING APPROVAL PROCESS

The PBAC is an independent statutory body that recommends pharmaceuticals and medicinal preparations to the Minister for funding under the PBS, and since 2006, also recommends vaccines for funding under the National Immunization Program (NIP).

There are 17 PBAC members who are appointed by the Minster for Health, including medical practitioners (specialists, GPs and clinical pharmacologists), pharmacists, and consumer and health economists. The PBAC can consider submissions for new listings or changes to existing listings from industry sponsors, medical bodies, health professionals, private individuals, and their representatives. In practice, due to the expense involved in preparing a submission and availability of data, submissions are generally only received from industry. In addition to the preparation costs of a submission, a cost-recovery fee paid by the sponsor to the PBS for the evaluation and listing of medicines and vaccines on the PBS and NIP has been applied since January 1, 2010. Each submission must follow PBAC guidelines, which were developed to guide sponsors to prepare consistent and comprehensive submissions. These guidelines specify the clinical and economic data that must be presented. Some submissions relate to new forms of previously listed products or changes to the conditions of use. Such submissions may be considered to be minor submissions; minor submissions do not usually require the presentation of an economic evaluation. All major submissions must provide an economic analysis undertaken by the sponsor. This is then assigned to an evaluation group by the PES for critical appraisal.

The PBAC sub-committees provide specialist advice to assist the PBAC with the decision-making process. Both sub-committee memberships overlap somewhat with the PBAC membership, and the chair of the PBAC sits on all three committees. The Economics SubCommittee (ESC) is comprised of 13 members, including clinicians, clinical epidemiologists, health economists, biostatisticians, and clinical pharmacologists. Their role is to review and interpret economic analyses of pharmaceuticals submitted to the PBAC and advise the PBAC on technical aspects of economic evaluations. ESC reviews all major submissions of pharmaceuticals and vaccines.

The Drug Utilisation Sub – Committee (DUSC) currently has 13 members, including (pharmaco) epidemiologists, pharmacists, clinicians, clinical pharmacologists, and a consumer advocate. Their role is to collect and analyze data on pharmaceutical utilization in Australia for use by the PBAC, make inter-country comparisons of pharmaceutical utilization statistics, and to assist in generating information relating to the rational use and prescribing of medicines. Of the major submissions, DUSC often considers those submissions which are likely to have a substantial impact on the budget. Whilst the PBS budget is not capped, pharmaceutical choices are still required to ensure the sustainability of the program.

The PBAC considers the clinical place of a therapy, overall effectiveness, cost, and cost-effectiveness of a proposed pharmaceutical compared with other listed pharmaceuticals for the same or similar indications. When there are no listed alternatives, the PBAC considers the aforementioned factors compared with standard medical care.

The criteria used by the PBAC to make decisions on whether to recommend a pharmaceutical for listing on the PBS include:

  • Comparative health gain (effectiveness, safety)
  • Comparative cost-effectiveness
  • Financial implications for PBS & government health budget
  • Severity of condition treated
  • Presence of effective alternatives
  • Ability to target therapy to those likely to benefit most
  • Uncertainty around clinical evidence, cost-effectiveness and uptake
  • Equity
  • “Rule of Rescue” - supplementary to other considerations in exceptional circumstances
    • No alternative treatment exists in Australia
    • Condition is severe, progressive and expected to lead to premature death
    • Condition applies to only a very small number of patients

Criteria are subject to qualitative judgments and deliberation; these criteria are not weighted equally and some factors may be more or less important in different situations. In making its recommendations, the PBAC, on the basis of community usage, recommends maximum quantities and repeats of medicines and may also recommend restrictions to current indications where PBS subsidy is available. When recommending listings, the PBAC provides advice to the Department of Health regarding comparison with alternatives or their cost-effectiveness. The Department of Health may sometimes negotiate the prices of the proposed medicines with the supplier and any special arrangements such as risk sharing agreements.

The PBAC meets three times a year: in April, July, and November. An estimated timeline of the process for a major submission based on the PBAC meeting date is given below.

Estimated Time compared to PBAC meeting

Action

-17 weeks

Cut-off date for major submissions.

Major submission sent for critical appraisal to an evaluation team by the secretariat at contracted university HTA center

-6 weeks

Commentaries prepared by evaluation teams sent to the sponsor (company that submitted the application) for feedback

-5 weeks

Opportunity for sponsors to give feedback on commentary 

-4 weeks

ESC and DUSC meetings and closing date for consumer comments

-2 weeks

ESC, DUSC, ATAGI & RWG advice & summary of consumer comments to sponsor

-1 week

Sponsor to provide feedback

 

PBAC meeting

+0.5 weeks

Verbal advice to sponsor

+ 3 weeks

Written advice to sponsor

+ 6 weeks

Publication of PBAC decision

+ 16-18 weeks

Publication of public summary document

+ 0-20 weeks

Negotiation with sponsor by the Department of Health

Variable

Final approval by Minister for Health

Variable

Listing on PBS

Notes: HTA = health technology assessment, PES = pharmaceutical evaluation section,
RWG = Restrictions Working Group

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DATA REQUIREMENTS

There are five categories of submission to the PBAC [10]:

Type

Status

Description

Major Submissions

Tier 1

Applications for the listing of new pharmaceuticals where the claim is one of cost minimization (or ‘at least no worse than’ according to the PBAC guidelines), where pricing is based on a nominated dosage relativity, and where the prices to pharmacist proposed are in accord with the accepted methods of price calculations.

 

Tier 2

Submissions for new pharmaceutical listing where the claim is one of acceptable incremental cost-effectiveness (or new pharmaceutical listings where the claim is one of cost minimization but where pricing is not in accord with the accepted methods) and applications for changes to listings, both cost minimization and cost-effectiveness, and where the estimated net cost to the PBS is less than $20 million per annum in any of the first four years of listing.

 

Tier 3

Any submission where the estimated net cost to the PBS is estimated to be $20 million or more in any of the first four years of listing.

Minor Submissions

Secretariat

These are minor changes to existing items and can be listed within two months of PBAC meetings. In these cases, there is no need for PBAC to consider efficacy, price is not affected, and there is no substantive financial impact on the PBS.

 

Other

These are minor changes to existing items that do not have significant financial implications but do require consideration by PBAC because of their potential impact on the PBS. These are listed no earlier than two months after PBAC meetings.

 

The steps involved for an application to the PBAC for listing a pharmaceutical on the PBS are [11]:

  1. Seek advice from the PES (not a mandatory step)
  2. Follow the PBAC guidelines and make an application for listing using the PBAC submission template
    1. The sponsor must provide:
      1. A copy of the letter confirming registration on the ARTG
      2. A copy of the current Certificate of Registration or Certificate of Listing issued by the TGA
      3. Current approved Product Information where applicable
      4. A copy of primary pack label
      5. Written assurance that stock of the product will be available from the date of listing
    2. The Economics Sub-Committee (ESC) Secretariat will evaluate and develop commentaries on major submission.
    3. The Drug Utilisation Sub-Committee (DUSC) Secretariat evaluates and develops commentaries on major submissions that are likely to be identified as Tier 2 or 3.
    4. The PBAC Secretariat prepares an overview of the submission for the PBAC.
    5. The Pharmaceutical Pricing Section allocates a provisional ‘tier’ status to submissions.
  3. The Economics Sub-Committee (ESC) and Drug Utilisation Sub-Committee (DUSC) meet to consider the submission, the PBAC Secretariat overview, the evaluation report, and the sponsor’s response.
    1. The sponsor may provide a written response to the evaluation report and overview to the PBAC Secretariat.
    2. Sub-committees then prepare formal advice for the PBAC meeting.
  4. At the PBAC meeting, the committee will consider:
    1. The submission
    2. the PBAC Secretariat overview and sub-committee secretariat commentaries
    3. DUSC and ESC advice
    4. the sponsor’s responses to the commentaries and advice
    5. relevant product information such as TGA documents
    6. a 10-minute presentation by the sponsor (optional)
  5. The sponsor may be required to work with the Restrictions Working Group (RWG) to develop restrictions and the restrictions’ wording. This guidance is also considered at the PBAC meeting.
  6. The sponsor will be notified of the outcome of the PBAC meeting and a public summary document of redacted minutes will be published on the website.
  7. Formal pricing discussions will be initiated by the Department of Health aiming to reach agreement with the sponsor.
    1. Discussion may include risk sharing agreements.
    2. Listing unit requirements should be checked.
  8. The Department of Health makes a Cabinet Submission for medicines that will cost the PBS more than $10 million a year. The Minister for Health authorizes listing on the PBS for items under this limit.

The PBS calendar for submission deadlines also contains PBAC timeframes and dates for meeting with sponsors.

Major submissions to the PBAC comprise six sections [11] and are described in the PBAC Guidelines and the PBAC Submission Template:

Section A must contain the pharmacological properties, proposed listing, and nomination of the proposed comparator.

Section B comprises the clinical evidence to support the application for listing. The preferred data is at least one good-quality head-to-head randomized trial with the appropriate comparator. Indirect trial comparisons are also acceptable if no head-to-head trials exist.

Section C includes the translation of the clinical evidence for the economic model.

Section D contains a cost-effectiveness, cost-utility, or cost-minimization analysis. The preferred option is a cost-utility analysis.

Section E estimates the financial impact on the PBS and government health budgets over five years if listing is approved.

Section F is where additional information may be presented by the submission, usually on quality use of medicines or where a risk sharing agreement may be proposed.

In 1992, Australia became the first country in the world to require evidence on cost-effectiveness for government subsidy of pharmaceuticals. Within the framework of the guidelines, economic evaluations are used to determine cost-effectiveness. The guidelines are descriptive rather than prescriptive. While a cost-utility analysis is encouraged as the preferred economic evaluation method, only approximately 20-25% of major submissions use this approach, with the remainder being based mostly on cost-effectiveness or cost-minimization analyses [12].

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ACRONYMS

ACPM – Advisory Committee on Prescription Medicines
ARTG – Australian Register of Therapeutic Goods
ATAGI – Australian Technical Advisory Group on Immunisation
AUD – Australian Dollars
DoH – Department of Health (formerly known as the Department of Health and Ageing)
DUSC – Drug Utilisation Sub-Committee
ESC – Economics Sub-Committee
FDA – (United States) Food and Drug Administration
GDP – Gross Domestic Product
HTA – Health Technology Assessment
MBS – Medicare Benefits Schedule
NIP – National Immunisation Program
PBAC – Pharmaceutical Benefit Advisory Committee
PBS – Pharmaceutical Benefit Scheme
PES – Pharmaceutical Evaluation Section
PPP – Purchasing Power Parity
RPBS – Repatriation Pharmaceutical Benefits Scheme
RWG – Restrictions Working Group
TGA – Therapeutic Goods Administration
USA – United States of America

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Useful links

REFERENCES

  1. World Bank. World Development Indicators. 2012; Available from: http://data.worldbank.org/country/australia. [Accessed October 16, 2012].
  2. Australian Institute of Health and Welfare (AIHW), Health expenditure Australia 2011-12. AIHW Cat. No. HWE 59., Health and Welfare Expenditure Series No. 50. 2013, Australian Institute of Health and Welfare: Canberra.
  3. Membership & Coverage, June 2014, Private Health Insurance Administration Council, Editor. 2014, PHAIC: Canberra.
  4. Department of Health and Ageing, National Medicine Policy. 2000, Commonwealth of Australia: Canberra.
  5. Department of Health. About the PBS. Available from: http://www.pbs.gov.au/info/about-the-pbs. [Accessed March 28, 2014].
  6. Department of Health. About the PBS. 2014 Available from: http://www.pbs.gov.au/info/about-the-pbs#What_are_the_current_patient_fees_and_charges. [Accessed March 28, 2014].
  7. Australian Institute of Health and Welfare, Australia's Health 2012. Australia's Health No. 13. 2012, AIHW: Canberra.
  8. Department of Health and Ageing. Framework for the introduction of parallel TGA and PBAC processes. 2011. Available from: http://www.pbs.gov.au/info/publication/factsheets/shared/framework-for-introduction-of-parallel-TGA-and-PBAC-processes. [Accessed March 24, 2014].
  9. Department of Health. Immunise Australia Program 2013. Available from: http://www.immunise.health.gov.au/internet/immunise/publishing.nsf/Content/about-the-program. [Accessed March 28, 2014].
  10. Department of Health. The listing steps. Available from: http://www.pbs.gov.au/info/industry/listing/listing-steps. [Accessed March 28, 2014].
  11. Department of Health. Guidelines for preparing submissions to the Pharmaceutical Benefits Advisory Committee (PBAC) (Version 4.4). 2013. Available from: http://www.pbac.pbs.gov.au/. [Accessed March 24, 2014].
  12. Scuffham PA, et al. The use of QALY weights for QALY calculations: A review of industry submissions requesting listing on the Australian Pharmaceutical Benefits Scheme 2002-4. Pharmacoeconomics 2008; 26(4):297-310.

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Additional reading

  • Hailey D. The History Of Health Technology Assessment In Australia. Int J Technol Assess Health Care 2009; 25(Suppl 1):61-67.
  • Harris A, et al. The role of value for money in public insurance coverage decisions for drugs in Australia: A retrospective analysis 1994-2004. Medical Decision Making 2008; 28(5): 713-22.
  • Henry D, Hill S, and Harris A. Drug prices and value for money: The Australian Pharmaceutical Benefits Scheme. JAMA 2005; 294(20):2630-32.
  • Hill S, Henry D, and Mitchell A. Problems in pharmacoeconomic analyses. JAMA 2000; 284(15):1922-24.
  • Hill S, Mitchell A, and Henry D. Problems with the interpretation of pharmacoeconomic analyses: A review of submissions to the Australian Pharmaceutical Benefits Scheme. JAMA 2000; 283(16):2116-21.
  • Sansom L. The subsidy of pharmaceuticals in Australia: Processes and challenges. Australian Health Review 2004; 28(2):194-205.

Authors & Contributors

Erika Turkstra, PhD, Senior Research Fellow, Centre for Applied Health Economics, Griffith University
Tracy Comans, PhD, Senior Research Fellow, Centre for Applied Health Economics, Griffith University
Louisa Gordon, PhD, Senior Research Fellow, Centre for Applied Health Economics, Griffith University
Paul Scuffham, PhD, Professor, Centre for Applied Health Economics, Griffith University

Endorsment of this roadmap

This roadmap was independently reviewed and endorsed by a special subcommittee of ISPOR-AC Inc. that comprised of:
George Papadopoulos, Managing Director, Emerald Corporate Group Pty Ltd
Hansoo Kim, Health Economics Manager, Bristol-Myers Squibb
Stephen Goodall, Associate Professor, Centre for Applied Health Economics Research and Evaluation, University of Technology Sydney

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