2
Dec
2013

Our billion-dollar pharmaceutical waste

by Stephen Duckett


Published by The Drum, Monday 2 December 2013

Australia still pays an astonishing 15.8 times more than the best prices found in other jurisdictions for pharmaceuticals. There is a better way, writes Stephen Duckett.

Prices paid for prescription drugs in Australia are inching their way down. Prices the Pharmaceutical Benefits Scheme pays pharmacies and, indirectly, manufacturers for seven drugs dropped yesterday by an average of 34 per cent. It sounds impressive. It isn’t.

Australian prices are nowhere near international best practice, and as a result taxpayers are paying more than $1 billion a year too much for pharmaceuticals. A Grattan Institute report released today, Poor Pricing Progress, compares the prices Australia pays with prices paid in the United Kingdom, New Zealand and Ontario in Canada.

The report finds that, even after price reductions produced by the federal government’s price disclosure policy, we pay an astonishing 15.8 times more than the best prices found in the other jurisdictions.

Under the PBS, the patient pays the pharmacist up to $36.10 of the cost of the drug (depending on whether he or she is on a concession). The Commonwealth Government pays the remainder of the drug’s cost to the pharmacist, who buys it from the manufacturer. In 2007 the Government introduced a policy forcing manufacturers to disclose discounts they were giving to pharmacies. The Government then adjusted the price paid by the PBS. The policy is working but the savings are too little and too slowly achieved. There is a better way.

Benchmarking turns this system on its head: rather than manufacturers telling government what they currently sell their product for in Australia, government checks on what manufacturers sell the drug for in comparator countries. Government then uses this international price as the price it is prepared to pay.

As well as wasting taxpayers’ money, Australia’s high prices have an impact on consumers. If the PBS paid a benchmark price that was the lowest of prices paid in the UK, New Zealand and Ontario, consumers would also pay less. Of the seven drugs that had price cuts yesterday, under benchmarking consumers without a concession and not subject to the Pharmaceutical Benefits Scheme Safety Net would save at least $21 more per pack for six of them.

Atorvastatin is one of the PBS’s biggest selling drugs. Its wholesale price dropped from $30.69 to $19.32 yesterday but the price in the UK is only $2.84 and in New Zealand just $2.01. Yesterday’s price cuts save non-concession consumers $7.25 per box. They could have saved almost $19 extra per box if we achieved UK prices or around $20 extra if we paid New Zealand prices. Another example is the breast cancer drug anastrozole (Arimidex). It costs $92 for a box of 30 1mg tablets on the PBS but a mere $3.30 in the UK.

The new government is looking for savings. A simple policy change, moving from a red-tape-ridden price disclosure process to one where PBS prices are based on benchmarks, could save taxpayers a billion dollars a year. Consumers would also benefit, in lower prices and better health, since about 10 per cent of patients currently don’t fill prescriptions because of high costs.

Importantly, a benchmarking policy would not require Australian price negotiators to achieve anything their counterparts overseas aren’t negotiating. It also would not require manufacturers to supply drugs at prices that they aren’t facing overseas.

Grattan’s March 2013 report on PBS pricing, Australia’s Bad Drug Deal, showed that current PBS pricing policies are deeply flawed. Vested interests are sitting on both sides of the table when prices are negotiated. Politicians don’t set overall policy goals and budgets to set the framework for negotiators, but Cabinet meddles right to the end, overturning expert recommendations. A spring clean of PBS pricing processes is well overdue.

Every day a policy shift is delayed, is another day when millions of dollars are wasted. The evidence is clearly there. Australia can do much better than the existing PBS pricing policy.