A poor prescription: higher payments for pharmaceuticals are the wrong way to save

by Stephen Duckett

Hitting the most vulnerable hardest

Opening remarks by Stephen Duckett, Director, Health program, Grattan Institute to Senate Standing Committee on Community Affairs Inquiry into the out-of-pocket costs in Australian healthcare.

The share of health spending paid directly by Australian patients is unusually high in international terms and it is growing fast. Increasing patient out-of-pocket costs further is the wrong way to save money.

It will reduce service use; after all, that is what it is designed to do. There is no dispute about that. The policy issue is about the trade-offs being made. What services to what patients will be reduced? The more so called ‘necessary’ services are reduced along-side ‘unnecessary’ ones, the worse the outcome. There could be health consequences and increased long run costs.

The Grattan Institute submission to this inquiry showed:

  • Many people already miss out on health care because of cost: 5 percent skip GP visits, 8 per cent don’t go to a specialist, 8 per cent don’t fill their prescription and 18 percent don’t go to the dentist.
  • Although wealthy households pay more for health care than poorer households (around $30 per week, compared to $19 per week), poorer households spend a much higher proportion of their income on health care (median of 3% vs 1%). People who use more types of services also pay more.
  • Those figures are averages, some households spend much more. In one in 10 of the poorest households that pay out-of-pocket costs, those fees eat up over 20 cents in every dollar of the household budget.

The co-payment argument is even weaker when it comes to prescribed medicines. Co-payments here clearly don’t target unnecessary care. PBS co-payments apply to medicine that a doctor has ordered. Unless the doctor is wrong, it’s necessary. If the government thinks doctors are getting it wrong, the solution is not charging their patients more. Instead, they should focus on improving prescribing practices.

These changes will put people’s health at risk and do little to balance the budget. They would only raise an estimated $450 million in 2017-18 and this money is earmarked for a medical research fund, not the budget bottom line.

There are much fairer and safer ways to cut PBS spending. Grattan Institute analysis shows that we could save $580 million a year, starting today, by matching the prices the government pays in England for just 20 drugs. Instead of shifting costs onto patients, this would save money for both patients and the government. It is a rare example of a way to improve health by spending less.

With the abolition of the Pharmaceutical Benefits Pricing Authority, the Government took a welcome first step in improving how the government buys drugs. But we should go much further. We’ve previously called for a fully independent, expert pharmaceutical pricing authority to help Australia get a much better deal.

In the meantime, the Government could consider a one-off price cut on all generic drugs. At the very minimum, each year the Health Department should publish a comparison of our prices with those paid by a few other governments around the world, such as England and New Zealand. Surely there is no good argument against letting tax-payers know how their prices compare to those in other countries.

Increasing co-payments will hit the most vulnerable. An alternative policy on PBS pricing will save more money than the PBS co-payment change without this collateral damage. Similarly, abolishing bulk-billing will also hit the most vulnerable, and may increase costs in the medium to longer term. It is not a good policy solution and should not be pursued in any form. Rather new policies which strengthen safety net protection should be developed which are economically responsible but also socially just.

The budget has sparked a debate about whether co-payments should go up. They shouldn’t. But we should be talking about the problems with the system and how to improve it. The safety net is complex, fragmented and has gaping holes and that needs to be addressed.

It is important that we are fiscally responsible in health care, as in every area of expenditure. But in ensuring our financial rectitude we need to look first to where we can save money without impacting adversely on patients. The budget proposals jump too quickly to a cost-shifting solution when there are cost-saving opportunities that haven’t been pursued.