Prescription medicine

Is the government’s unsavvy spending on prescription medicines costing consumers millions of dollars more per year than they need to pay?
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02.Who decides which drugs make the PBS list?

The PBPA, a non-statutory body, was established to negotiate with drug companies and make price recommendations to the Minister for Health and Ageing about pharmaceutical items recommended for listing on the PBS. If the total cost of listing a new drug is estimated at less than $10m a year, the PBPA price is agreed. Anything in excess of this amount is referred to cabinet. 

The authority consists of an independent chairperson, two government representatives – including one from the Department of Industry, who is tasked with the responsibility of advancing the pharmaceutical industry – one consumer nominee and two industry nominees who represent the pharmaceutical companies. 

Dr Brendan Shaw is one of these industry nominees. He represents the interests of Medicines Australia, the pharmaceutical companies’ industry group. Medicines Australia member companies supply 86% of the medicines available to Australian patients through the PBS. One of these brands is Pfizer, the multinational pharmaceutical giant that is paid more than $700m a year through the PBS for the supply of Australia’s number one-selling pharmaceutical product, Lipitor, a drug used to manage high cholesterol. 

And here lies a key conflict of interest. Shaw negotiates prices on behalf of the government with the actual companies he represents, so cheaper drug prices for the government (and in turn, consumers) may not be at the forefront of negotiations. 

Also of concern is that there appears to be good money for the government in being kind to the pharmaceutical companies. Last year, Medicines Australia donated $84,636 to political parties – with almost $60,000 of it going to federal Labor. Pfizer also donated – $129,100 to both major political parties in the 2011-12 financial year and $123,100 in the year to June 2011. 

Joining Shaw to represent the drug companies is Kate Lynch from the Generic Medicines Industry Association, as well as a representative from the Department of Industry, who are tasked with advancing industry interests in Australia, including that of the pharmaceutical industry. 

Australia’s system is in stark contrast to New Zealand’s, where politics have been eliminated from the panel and independent experts are appointed to make decisions. New Zealand’s prices for wholesale drugs are now more than six times lower than ours and, in some cases, more than 20 times lower. 

Leading consumer health advocate Dr Ken Harvey from the School of Public Health at La Trobe University says that while industry deserves a place at the negotiation table, the consumer perspective must be equally represented. “As a general principle, there should be two consumer representatives,” he says. “When there are two, it is harder for industry and government departments to dismiss them.”

Price comparison

The PBPA says it takes a number of factors into account when determining prices, including the price of items containing the drug in other comparable countries. What it doesn’t necessarily have to consider, though, is just how much public hospitals in our own country are paying. 

The Australian government not only pays more than the NZ government for the same drugs, but also far more than Australian public hospitals do. Public hospitals manage their own budgets and negotiate independently with the pharmaceutical companies. This less-than-ideal situation in which the government negotiates means greater costs for consumers in many situations. 

As an example, the price of antipsychotic medication Olanzapine costs the PBS $160m each year – 64 times more than it costs West Australian public hospitals. Olanzapine was just one of 40 drugs the Grattan Institute analysed as part of its report. They found it would cost consumers without a concession card less if the government were to adopt “benchmark prices” – as determined by the lowest price available when comparing PBS, public hospital and NZ prices. 

For 12 other drugs investigated, the consumer saving would be more than $10 for each box of medicine. In four other cases, including atorvastatin (Lipitor), the saving would be more than $20.


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