Pharmaceutical companies in the United States – where millions can’t afford life-saving drugs – are trying to interfere in Australia’s national, subsidised medicine system.
In Australia, prices for pharmaceutical medicines are capped at $31.60 if listed on the Pharmaceutical Benefits Scheme (PBS).
It’s a far cry from the prices Americans pay. Lipitor, a cholesterol-lowering drug that prevents heart attacks and strokes, can cost about A$2,000 in the US, and autoimmune drug Humira more than $11,000. Sildenafil, or Viagra as it’s more commonly known, can cost more than $4,000 in the US.
A report by research organisation Rand found that US drug prices were, on average, about 370% higher than in Australia and 278% above the OECD average.
Big pharma US wants to sell more drugs in Australia for more. Its demands are now entangled with the ongoing trade tariff war. First, it was steel and aluminium; now, the Trump administration is looking at targeting medicines and meat.
The Pharmaceutical Research and Manufacturers of America (PhRMA) has taken aim at the PBS in a submission to the US government for not allowing them to charge Australians more and for delays getting their products to market.
How does the PBS work?
New and improved drugs are being developed all the time. Once the Therapeutic Goods Administration has decided they’re safe and effective, drug manufacturers take them to the Pharmaceutical Benefits Advisory Committee (Pbac).
They submit evidence about the safety and efficacy of the drug and a proposed price.
The Pbac then pits them against existing drugs (if they exist) and performs a cost/benefit analysis.
If the Pbac decides it’s a good deal, it recommends the government list the drug on the PBS. At that point, the government starts haggling with the drug manufacturer to get the best price. If a generic version of an existing drug has run out of its patent, it gets additional discounts.
The health minister then approves it to be listed or rejects it.
“The government determines the price they’re willing to pay for a new medicine, and then it’s up to the pharmaceutical company to accept that price,” the Medicines Australia chief executive officer, Liz de Somer, says.
“Once they’ve accepted that price, the commonwealth applies multiple statutory price reductions over the life of the medicine in Australia. They always go down, they never go up, regardless of manufacture, freight, and distribution costs.”
More than 900 medicines are listed on the PBS, which costs the government about $18bn a year (although de Somer points out that about $5bn of that is paid back to the government through rebates).
How does it decide medicine prices?
The government has estimated that a year of your life (or “the value society places on reducing the risk of dying”) is worth about $245,000. Your life, overall, is worth about $5.3m.
When it comes to medicines, however, they use a different calculation called a quality adjusted life year. They work out how much it’s worth paying for a medicine by calculating how many years of life it’s likely to save, and the quality of those years. It’s a flexible, undisclosed amount usually in the tens of thousands of dollars.
That’s all the behind-the-scenes stuff. Then the government subsidises the drug so patients only have to pay a co-payment, which is now $31.60, and $7.70 for concession card holders.
Labor has announced it will cut the price of PBS drugs to a maximum of $25 a script, a pledge the Coalition swiftly matched. The concession maximum remains the same.
“From a consumer perspective, that co-payment is pretty small,” Jonathan Karnon, a professor in health economics at Flinders University, says.
“The government essentially buys on behalf of the Australian population.” But, he says, there are plenty of drugs that don’t get listed and can be far more expensive
What is the US’s beef?
Big pharma in the US claims Australians aren’t paying enough for medicines, considering the billions they pour into research and development, and there are too many delays in getting drug approvals.
PhRMA has asked the Trump administration to put Australia on a “watch list” and wants it to push for change, saying Australia has set the bar too high on cost effectiveness. Australia’s price reductions and “restrictive subsidy caps” meant prices were too low to support investment in innovation, it claims. There are also too many delays in approval processes, it says, adding that the PBS continues to list generic products without the patent owner’s consent.
Concerns about the US putting pressure on the PBS to get a better deal for its drug companies kicked off in 2003 when Australia and the US were negotiating a free trade agreement.
The then US president, George Bush, told the then Australian prime minister, John Howard, that Australia should increase its prices to support the high research and development costs. Some experts said at the time that the government made concessions to the US, which could undermine the PBS.
Do US drug companies have a point?
Research and development, negotiations and approvalsdo take time. Companies may not submit new drugs because they don’t think it’s worth it, especially once a cheaper generic version is available.
The assessment system has just undergone a comprehensive review, with 50 recommendations that will go partway to resolving some of the issues raised by PhRMA, de Somer says.
The health technology assessment review found people were waiting almost two years for drugs to be listed on the PBS. It suggested ways to streamline the process.
De Somer says PhRMA also had a point about generic medicines.
“One of the most contentious [issues] is that we have a system of older generic medicines, where the prices are coming down very rapidly, and they’re very cheap,” she says. Drug companies might propose a new drug, but its cost is compared to the old one, and the submissions and review create delays while they work out how to value the new drug.
“Sometimes the old medicine isn’t even used by anyone,” she says.
“It’s like comparing the price of a new Aldi with an old Volkswagen. They both get you from A to B but [in the case of the VW] without the comfort and technology of the new car.”
Can the US even do anything to the PBS?
It can try. It can threaten tariffs on our exports. It can lobby.
Monash University experts, writing in The Conversation, say it’s hard to see how tariffs would influence the PBS “unless these issues are caught up in some larger trade or political deal”. But, they write, if the US puts tariffs on drugs Australia exports to the US, that could have an effect.
It would make Australian drugs more expensive, potentially driving down demand, which could prompt Australian manufacturers to move overseas where production might be cheaper.
Australia exports about $2bn worth of pharmaceuticals – mainly vaccines and blood products – to the US each year.
Albanese says the PBS is “not up for negotiation”, and the opposition leader, Peter Dutton, says protecting it is “sacrosanct” in trade negotiations.
Karnon says if the pressure over the PBS gets mixed up in the trade war, “it could impact on how decisions are made about pricing”. “The government could say they agree to pay more, then we’ll get lower tariffs”, he says, or there could be “implicit” pressure on prices.
It’s difficult to know what else the US may have in store that will affect Australians. The US government will roll out the next tranche of tariffs on 2 April.
It is also winding back Biden-era moves to make drugs in America more affordable, even though Donald Trump himself said in his first term that drug companies had jacked up prices by 1,000% to 5,000% on some products. Back then, he promised to bring those prices down.
“The savings is [sic] going to be incredible,” the president said.
