Time to get tough on Australia’s continuing bad drug deal

by Stephen Duckett

Published by The Australian Financial Review, Monday 2 December 2013

Atorvastatin, which lowers cholesterol, is one of Australia’s most commonly prescribed drugs. On Sunday, the wholesale price of a box of 30 tablets fell almost 40 per cent, from $30.69 to $19.32. This sounds like a big drop. It isn’t.

The equivalent price for the drug in Britain is $2.84. In New Zealand it is $2.01. After pharmacy mark-ups, the December price reduction will save patients without a concession an average of around $7.25 per box of pills.

But if we had the UK’s wholesale prices, the saving would be around $19 extra. With New Zealand’s it would be around $20 extra.

Another example of what is wrong with pharmaceutical pricing in Australia.

Prices for seven drugs on the pharmaceutical benefits scheme dropped by an average of one-third on Sunday. The Grattan Institute’s new report, Poor Pricing Progress, argues that prices should have dropped much further.

The report compares the drugs that had price reductions Sunday with the lowest prices paid for them by governments in Britain, New Zealand and the Canadian province of Ontario.

It finds that even after the price cuts, Australia’s prices are more than 14 times what the United Kingdom pays, more than nine times what New Zealand pays and more than twice what Ontario pays.

Australia is paying an average of almost 16 times the lowest price in these three jurisdictions.

The result is at least $1 billion of excess costs to the Commonwealth government every year. Should this be tolerated in a time of “budget emergency”?

Sunday’s reductions are the result of an “expanded and accelerated price disclosure” policy for off-patent, or generic, drugs. The policy, introduced in 2007, requires manufacturers to disclose the prices they charge to pharmacies. After at least an 18-month lag, these prices are adopted as what government pays the manufacturer.

The “accelerated” label is clearly a misnomer: the prices reduce at a snail’s pace.


A far better policy is to benchmark prices against what comparable countries pay, not rely on what manufacturers can charge in a highly regulated market.

It is true that pricing settings deliver savings to government and consumers.

But every day, higher than necessary drug prices cost taxpayers and consumers millions of dollars.

A new government, a Commission of Audit, and an objective of reining in the budget deficit provide an opportunity to change policy settings and ensure Australia pays no more than comparable countries for prescription drugs.

The Commission of Audit must address this issue.

It will no doubt propose other measures that are genuinely tough choices – decisions that limit access to public services or raise taxes. Setting drug prices close to what other countries pay shouldn’t be a tough choice. It won’t reduce access to medicines because companies are selling the same drugs overseas for a tiny fraction of Australian prices.

If the commission, or the government, proposes other cuts yet leaves a highly flawed pharmaceutical pricing policy intact, it will have a hard time explaining why.