Poor pricing progress: price disclosure isn’t the answer to high drug prices

by Stephen Duckett and Peter Breadon

While the wholesale price of seven medicines fell by about a third today, Australia has a long way to go before consumers pay fair prices for pharmaceuticals.

Even after today’s reductions, Australian prices for the seven drugs are on average 14 times higher than prices for the same medicines in the United Kingdom.

Australia’s “price disclosure” policy was introduced in 2007 in a bid to cut costs. But drugs that have just been through this process have wholesale prices that are on average over 16 times the lowest price in New Zealand, the UK and the Canadian province of Ontario.

Under price disclosure, pharmacies are forced to reveal discounts on drug prices that manufacturers provide them, and the Government accordingly reduces the amount paid to pharmacies for each drug.

But Grattan Institute’s earlier report, Australia’s bad drug deal, revealed that if the Government benchmarked the prices of generic drugs against prices paid overseas it could save more than $1 billion a year in payments to manufacturers.

The Government’s purchasing policy needs to be much tougher on manufacturers and much fairer for consumers. It is not just a matter of saving money: nearly one in 10 Australians doesn’t take medicines a doctor prescribes because of cost.

For six of the seven drugs with price cuts today, benchmarking would save patients nearly $20 more for each box of pills, on average.

Atorvastatin, a high cholesterol drug that is sold as Lipitor, reduced in price by about $7 today for a box of 30 40 milligram pills. But if Australia had the UK’s wholesale prices, patients would save up to $19 extra on each box.

Any smart business would look around to check the market price, and the Commonwealth should do the same. There is simply no reason why Australians shouldn’t get a better deal on medicines.