Lyla Lindsey
The Australian government has been working to lower drug prices for its citizens, with the Pharmaceutical Benefits Scheme (PBS) consuming around 14% of total government healthcare expenditures. The PBS has been in place since 1950 and has grown in terms of the range of drugs covered and expenditure. The government has been able to use its monopsonistic purchasing strength to achieve lower prices relative to other countries, and recently introduced a mandatory 5% price reduction for drugs on the PBS for more than five years. However, there are concerns that free trade agreements with the US could result in increased costs for prescription drugs in Australia.
| Characteristics | Values |
|---|---|
| Government bargaining for lower drug prices | The Australian government has been able to use its monopsonistic purchasing strength to achieve lower prices relative to those paid in international markets. |
| The government has introduced a mandatory 5% price reduction for any medicine listed on the PBS for more than five years. | |
| The government has also implemented a range of progressive reforms to ensure that prices for older drugs on the PBS are reduced. | |
| The government has been working to extend the use of cheaper generic medicines. | |
| The government has a strong position to negotiate over price due to the significant marketing boost provided by listing under the PBS. | |
| The government agreed-upon price for purchasing arrangements under the PBS involves 90% for the supplier and 10% for the wholesaler. | |
| The government undertakes post-marketing surveillance to ensure that the volumes of listed drugs are close to the predicted amounts used in cost-effectiveness analyses. | |
| The cost governments are willing to pay drug companies for medicines depends on the outcome the drug will provide. | |
| The government provides subsidies for certain medicines, such as those under the PBS, RPBS, or the Life Saving Drugs Program, resulting in lower prices for patients. |
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What You'll Learn
The Australian government's monopsonistic purchasing strength
The Australian government has historically been able to use its monopsonistic purchasing strength to achieve lower drug prices relative to those paid in international markets. This is done through the Pharmaceutical Benefits Scheme (PBS), which consumes around 14% of total government healthcare expenditures. The PBS involves a government-agreed-upon price, 90% of which goes to the supplier and 10% to the wholesaler.
The PBS has been in place since 1950 and has grown substantially in the range of drugs covered and expenditure. The scheme incorporates patient copayments, with differentials for the general population compared with concessional beneficiaries. The government also undertakes post-marketing surveillance to ensure that the volumes of listed drugs are close to those predicted in the cost-effectiveness analyses and other submissions on which the pricing negotiations were based.
However, the government's ability to use its monopsony power to drive down prices appears to be weakening as other countries establish similar schemes and monitor international pricing negotiations. Additionally, the differences between new and innovative pharmaceuticals are much lower than for all pharmaceuticals, suggesting that the Australian purchasers are not able to extract the same price discounts for newer drugs relative to older drugs.
To address the high cost of medicines, the Australian government has introduced a mandatory 5% price reduction for any medicine that has been on the PBS for more than five years, even if there is only one brand. This means that the older a drug is, the lower the price the government pays. The government has also made some PBS medicines cheaper by allowing Australians to buy two months' worth of medicine for the price of a single prescription.
The Australian Orphan Drug Program also provides support for the registration and listing of new therapeutic agents for rare diseases through waived application fees.
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The Pharmaceutical Benefits Scheme (PBS)
The PBS is part of the Australian Government's National Medicines Policy, which aims to ensure that people can access the medicines they need while also considering the costs. The PBS is available to all Australian residents with a current Medicare card, as well as overseas visitors from countries with which Australia has a Reciprocal Health Care Agreement (RHCA). These countries include the United Kingdom, Ireland, New Zealand, Malta, Italy, Sweden, the Netherlands, Finland, Norway, Belgium, and Slovenia.
The PBS Schedule lists all the medicines available to be dispensed to patients at a government-subsidised price. This schedule is updated monthly and can be accessed online. The cost of medicines under the PBS depends on several factors, including co-payment fees, whether the patient has a concession card, and if they have reached their safety net. The co-payment amount changes on 1 January each year, and patients with a concession card pay a reduced co-payment amount. The PBS Safety Net helps those who spend a lot of money on PBS medicines by reducing or eliminating costs once a spending limit, known as the Safety Net threshold, is reached.
Medicines are recommended for funding under the PBS if they are safe and effective and provide health benefits compared to existing treatments for the same condition at an acceptable price. The PBS incorporates patient co-payments, with differentials for the general population compared to concessional beneficiaries. Before listing a drug on the PBS, it is subject to a rigorous cost-effectiveness analysis. Additionally, there is a mandatory 5% price reduction for any medicine that has been on the PBS for more than five years, regardless of the number of brands.
The Australian Orphan Drug Program, part of the PBS, supports the registration and listing of new therapeutic agents for rare diseases by waiving application fees. The purchasing arrangements for pharmaceuticals covered under the PBS involve a government-agreed-upon price, with 90% going to the supplier and 10% to the wholesaler. The government also undertakes post-marketing surveillance to ensure that the volumes of listed drugs align with the predictions made in the cost-effectiveness analyses and other submissions on which pricing negotiations were based.
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The Australian Orphan Drug Program
The Orphan Drug Program is particularly important for making drugs available to treat leprosy and trachoma, which affect the Aboriginal population. It is also highly relevant in the context of neoplastic and hematological disorders, which account for around half of the orphan drug designations.
The program has been increasingly used by applicants since its inception, with 287 applications designated as orphan between 1998 and 2013. It is anticipated that this trend will continue, with the definition of orphan drugs also likely to be expanded. However, the place of orphan drugs within Australia's Pharmaceutical Benefits Scheme is still under discussion. There is currently no specific law concerning intellectual property for orphan drugs, and R&D is not supported by grants or tax incentives.
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The National Medicines Policy
The NMP is built on four central pillars:
- Fair, timely, safe, and reliable access to medicines and medicine services at affordable prices.
- High-quality, safe, and effective medicines.
- Quality use of medicines, including appropriate prescribing, consumer education, and medication management.
- A thriving, dynamic, and innovative medicines industry and research sector that meets current and future health needs.
The NMP aims to ensure that all Australians have access to world-class medicines when they need them. It guides and informs a range of activities related to medication and medical services management, access, and affordability through a partnership approach between all sectors. The policy also recognises the importance of collaboration with state and territory governments, the health and medicines industry, consumers, and the media to achieve its goals.
The NMP's overall goal is to optimise health outcomes for Australians by working collaboratively with key stakeholders. This includes recognising the evolving nature of healthcare and consumer expectations. For instance, consumers now have better access to information and advertising via the internet, leading to higher expectations of being informed and involved in their healthcare decisions. The NMP also acknowledges the increasing diversity of healthcare professionals and the expanding scopes of their practices.
The NMP is designed to future-proof Australia's health system by preparing for innovative medicines, vaccines, or biotherapeutic breakthroughs. It also aims to ensure the country is ready for any future health crises. By fostering a supportive environment for the medicines industry, the NMP seeks to make Australia a priority country for launching new medical advancements.
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The impact of free trade agreements on drug prices
Australia has had a government-subsidised universal system of pharmaceutical provision for over 50 years. The Pharmaceutical Benefits Scheme (PBS) consumes around 14% of total government healthcare expenditures and has grown substantially in terms of the range of drugs covered and expenditure since it was introduced in 1950.
The PBS is subject to rigorous cost-effectiveness analysis, and the government has been able to use its monopsonistic purchasing strength to achieve lower prices relative to those paid in international markets. However, this ability appears to be weakening as other countries establish similar schemes and monitor international pricing negotiations.
In 2004, Australia and the United States released the text of a bilateral trade agreement designed to reduce trade barriers between the countries. This agreement included several concessions to US demands concerning the PBS, such as the creation of an independent review body to examine drugs rejected by the Pharmaceutical Benefits Advisory Committee (PBAC) and changes to intellectual property protection that could delay the entry of generic drugs.
The US drug industry has lobbied for changes to the PBS to ensure higher prices for drugs under patent. The regulatory changes required by the Australia-United States Free Trade Agreement (AUSFTA) could increase rewards to manufacturers for innovation but could also substantially reduce the government's capacity to apply price controls in the pharmaceutical sector. Without the bargaining authority afforded by expert cost-effectiveness evaluation and reference pricing, the government may struggle to sustain desirable and medically/socially acceptable sector outcomes.
One hypothesis is that the AUSFTA may result in increased industry investment but at the cost of reduced equity of access to essential medicines. Few studies have directly measured the effects of trade agreements on access to medicines, and the impact of the AUSFTA on drug prices in Australia remains uncertain.
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Frequently asked questions
Yes, the Australian government has a history of bargaining for lower drug prices. The government has used its monopsonistic purchasing strength to achieve lower prices relative to those paid in international markets.
The PBS is a government-subsidized universal system of pharmaceutical provision. The PBS consumes around 14% of total government healthcare expenditures and has grown substantially in terms of the range of drugs covered and expenditure since it was introduced in 1950.
The PBS involves a government-agreed-upon price, 90% of which goes to the supplier and 10% to the wholesaler. The government also undertakes post-marketing surveillance to ensure that the volumes of listed drugs are close to the predicted amounts.
The cost the government is willing to pay drug companies for medicines depends on the outcome the drug will provide. The government has to decide whether the medicine represents good value for money, balancing the needs of patients with the opportunity costs.
The Australian Orphan Drug Program provides support for the registration and listing of new therapeutic agents for rare diseases through waived application fees.
