Transparency

The Grattan Institute report Cutting a better drug deal comments

Australians pay too much for prescription drugs. Patients and taxpay- ers continue to pay much higher prices for medicines listed on the Pharmaceutical Benefits Scheme (PBS) than they should. This report identifies savings of over $500 million a year if the government pursues a better drug deal. With a mounting budget repair task, and the need to find money to fund new and better drugs, the government should grab this low-hanging fruit.

The government should reform two components of the PBS pricing pol- icy. The first is ‘price disclosure’, a policy introduced in 2007 in a bid to cut costs of ‘generic drugs’ that are no longer covered by a patent. It has not gone far enough or fast enough. The second is the ‘therapeutic group premium’ policy, which was introduced in 1998 in a bid to stop the government wasting money on over-priced drugs that are chemically different but have the same outcomes for patients as cheaper drugs. The policy is now full of loopholes and no longer works. The Grattan Institute has previously published three reports that tackled these issues and identified savings: Australia’s bad drug deal (March 2013), Poor pricing progress (December 2013) and Premium policy? (June 2015). This report updates the savings estimates. There is some good news, but mainly bad news.

The good news is that price disclosure has been working, albeit slowly. Our March 2013 report identified more than $1 billion in savings that could be made each year, based on retail prices, with a better policy. In terms of wholesale prices – the approach used in this report – that is more than $600 million in savings each year. Price disclosure has forced prices down over the past few years, and we now estimate there are about $93 million in savings still to be made from reform. However, Australian drug prices remain unacceptably high, at 3.7 times higher than the best international prices.

Price disclosure should be supplemented by a new and more effec- tive policy of benchmarking Australian prices to the best prices paid by comparable countries. Australia could have saved over $1.2 billion over the past four years had international benchmarking been in operation. The bad news is that Australia’s therapeutic group premium policy is weak and getter weaker. Our June 2015 report identified $320 million in savings that could be made each year if this policy were applied consistently across seven groups of commonly used drugs in Australia. In this report we update the analysis, to find that strengthening the policy as well as extending Australia’s relatively small list of therapeutic groups from seven to 18 would together save more than $445 million a year.

These pricing reforms should be complemented by introducing more competition to retail pharmacies, which would both save patients more and provide better access to quality health care.