Budget wimps out on drugs

by Peter Breadon

Published by The Australian, Friday 15 May

The budget didn’t put hospital funding back on a sustainable path after the massive cuts made last year. Nor did it outline a clear plan for primary care. These gaps were expected. A government trying to keep the deficit in check was never likely to increase hospital funding. A review into primary care has just been announced.

One other deafening silence was much more surprising: the almost­ total lack of action on the Pharmaceutical Benefits Scheme. The pre-budget build-up featured repeated warnings that the government was going to war over drug prices. It was widely reported that there were savings worth $3 billion to be made.

Instead of a confrontation, the budget was a capitulation. The government saved just $250 million over five years by reducing prices on four drugs. This was dwarfed by spending on new drugs, which will cost $1.6bn over the same period.

The budget papers say the government is in the final stages of nego­tiations with industry over pricing changes. The results had better be good. For a box of 25mg tablets of quetiapine, which treats mental health conditions, the government pays a wholesale price of $16. The equivalent English price is less than $3.

Atorvastatin, which lowers cholesterol, is one of the most commonly used drugs in Australia. For a box of 40mg pills, the price in Australia price is 2.5 times that in England, while prices in New Zealand are even lower.

There are other examples. Research­ by the Grattan Institute found in 2013 that the government wastes more than $1bn a year on high drug prices. Like other countries, we should set our prices by comparing them with best practice overseas. More people would be able to afford medicine. This is the rarest type of health cut: one that makes people healthier.

What went wrong? It looks like detailed budget policies were hastily abandoned. Lobbyists for pharmacy owners and drug companies had denounced the savings plans. No doubt there was more pressure behind closed doors.

It is understandable for politic­ians to be afraid of well-funded lobby groups. But it leads to bad policies. That is why politicians should insulate themselves from these pressures.

New Zealand’s independent drug purchaser, PHARMAC, has a fixed budget and negotiates prices with drug companies without polit­ical interference.

In Australia, this approach has worked well in monetary policy. Politicians should set clear object­ives for drug purchasing, but independent experts should execute it.