THIS week the Australian government signed what has been termed a historic agreement with peak industry body Medicines Australia regarding pricing of pharmaceuticals during the next four years. Who got the best deal from this agreement? Certainly not consumers.
It comes as a surprise that some older, off-patent, medications cost more in Australia than many other places on the planet.
Take the wholesale price of Simvastatin, a drug commonly used to treat high cholesterol. The wholesale price is about $30 a month here for a 40mg dose. In Britain the same drug costs aabout $3 a month and in New Zealand it costs just $1.50.
These higher prices cost Australia hundreds of millions of dollars each year.
The recent four-year agreement between the government and Medicines Australia is aimed at reducing the price of older medications on the Pharmaceutical Benefits Scheme. At its heart are a series of regulated price reductions: 16 per cent reduction when a medicine goes off patent; for generic medications there will be a price reduction next year of 2 per cent to 5 per cent, with greater reductions from 2012.
It sounds like a great win for a government trying to save money. But from an international perspective this is almost certainly not the case.
Take The Netherlands for a comparison. In 2008 it introduced mandatory price reductions that cut the price in half when a medicine's patent expired. Not satisfied with these reductions, it followed the NZ government's approach of putting out to tender its supply of the main generic medicines, resulting in additional price reductions of up to 93 per cent.
In The Netherlands many generic drugs such as statins cost almost one-twentieth of what they cost in Australia. In contrast the recent PBS pricing agreement is likely to bring about only very modest price reductions during the next few years. Further, the government has agreed to not implement any new price saving measures until 2014.
This pharmaceutical pricing agreement follows on from the Howard government's attempt to reform the PBS in 2007. This also involved a similar system of regulatory price cuts. While this has resulted in some reductions, they've been small compared with other countries. The price of Simvastatin has declined by about half since its patent expired in 2006 but, as the prices I noted earlier suggest, in the most other countries its price has decreased by 95 per cent or more.
This slow downward price adjustment costs dearly.
I examined this issue in a recent article in The Medical Journal of Australia, along with University of Sydney colleague Ed FitzGerald. We estimated that Australia could have saved about $1 billion during the past four years if we'd paid English prices for just one class of generic drugs. More importantly, we could save up to $3.2bn during the next 10 years were we to pay the lower prices now.
Beyond the issue of reducing the prices of generic pharmaceuticals there's the broader question of how best to allocate health spending to ensure we get value for money. Again, Australia faces choices when a pharmaceutical comes off patent. Often doctors can choose between a newer more expensive patented medication, or a generic alternative.
Our research shows, for instance, that Australian doctors make different choices from their overseas counterparts in prescribing statins, cholesterol lowering medications. Britain has guidelines for doctors that explicitly recommend use of lower-cost generic statins.
In Australia there are no comparable guidelines, so more expensive statins are overwhelming prescribed. The cost of prescribing the newest medications on the PBS, even just for statins, will cost billions of dollars during the next 10 years. The question is whether the additional health benefits of these drugs justify the higher cost.
While the recent PBS agreement gives Australian pharmaceutical companies business certainty, it's hard to see how this is in the interest of consumers or taxpayers. The challenge for the pharmaceutical manufacturing industry doesn't come from the Australian government but a world where prices for generic drugs are rapidly falling.
Successive Australian governments have learned that the cost of protecting industry from global trends is high. Why should a former metal worker -- retrenched after the restructuring of the steel industry in the 1980s because it was cheaper to import steel from overseas -- have to pay so much more for some medications?
To take a new pharmaceutical product through all the stages of development requires deep pockets, but success brings large rewards. Take Gardasil, the cervical cancer vaccine developed from research conducted by Ian Frazer at the University of Queensland and supported by Australian pharmaceutical company CSL.
Not only will this vaccine potentially save the lives of thousands of Australian women, it has generated considerable exports as it's now used worldwide.
If we want a vibrant pharmaceutical sector in Australia, surely it would be better to focus support on the development of new products rather than the manufacturing of older medicines.
So what can Australians do during the next four years to lower the cost medications? Maybe a visit to NZ could become the Australian equivalent of a trip to Canada by US citizens: a chance to stock up on medicines that cost much less.
Philip Clarke is a health economist with the University of Sydney's school of public health.
Friday, May 14, 2010
Screwed down under! Drug deal costing billions: Medicines Australia | The Australian
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