Why our pharmaceuticals scheme is still sick

by Stephen Duckett

Published by The Australian, Friday 6 December 2013

Pharmacy Guild executive director David Quilty published an article on this page defending the high spending of the Pharmaceutical Benefits Scheme on the same day that reports of the OECD’s Program for International Student Assessment international comparisons of school performance were released.

The comparison is stark: Australia’s school performance is benchmarked internationally, raising vital questions about why we are performing worse than other countries and what can we do about it.

The PBS story, by contrast, is a kindergarten evaluation. Instead of asking if we’re the best or worst, we ask whether we’re doing better than last year. We get the prize for being “most improved”, even when we’re still failing miserably.

Quilty is right: the cost of the PBS has improved over the past five years. But the question we raise in Grattan Institute’s report Poor pricing progress, published this week, is whether that is good enough. There is an order of magnitude of difference in the prices Australian taxpayers and consumers pay for many medicines, compared with prices paid for the same drugs in Britain, New Zealand and other places.

For the drugs we looked at, Australia would get the biggest savings by adopting British prices. We pay more than 14 times as much as they do for the seven drugs that had price reductions earlier this week.

Quilty claims that our proposals would deny doctors and patients choice and send many pharmacies to the wall. But, like Australia, Britain subsidises a broad range of brands for generics, so matching their prices should not reduce choice.

The question of the viability of the pharmacy industry is more complex. We recognise that price reductions would be a challenge for pharmacies that have effectively built windfall gains from high prices into their business model.

If pharmacies can’t survive without drug prices that are many times what’s paid overseas, something is seriously wrong. But the answer isn’t to keep paying far too much for drugs.

A better option would be transparent, direct support for pharmacies to help them adjust to lower prices. Rather than use high drug prices to prop up pharmacies, this support could be targeted at the pharmacies that need it most.

Crucially, the cost would fall on all taxpayers instead of people who can afford it least: sick consumers paying high out-of-pocket costs.

There are other options, too. Getting rid of anti-competitive regulations could help pharmacies become more efficient. Pharmacies could be allowed to provide more services for their customers, as they do in other countries.

All these solutions should be considered before we decide to stick with the high prices we’re paying now.

As long as we keep patting ourselves on the back for making slow improvements, we’ll stay at the bottom of the class and keep wasting about $1 billion a year on prescription drugs.