A manufacturer can challenge PBS decisions made by the Pharmaceutical Benefits Pricing Authority

Higher drug prices likely from AUSFTA

Peter Drahos, Thomas Faunce, Martyn Goddard & David Henry separate fact from fiction.

In a number of statements, government ministers have claimed that the US-Australia Free Trade Agreement will not have the effect of increasing drug prices and will not contribute to the long-term financial sustainability pressures on the Pharmaceutical Benefits Scheme.

A close look at the FTA indicates that this is not the most likely outcome.

The text of the Agreement is unbalanced and most of the measures increase the pricing power of US drug companies operating in Australia. It is inconceivable, based on past practice, that they will not make use of that new pricing power.

How much will this cost? American consumers, insurers and health programs pay two to three times as much for many important drugs as their Australian counterparts.

Because most of the measures in the FTA apply to new drugs rather than existing ones, and because legislation will need to be enacted, regulations changed and new procedures put in place, there will be a substantial time-lag between the signing of the FTA and its full effect on prices.

The full effect of the FTA on the pharmaceutical market is therefore unlikely to be felt for about five years.

By that time, however, it is plausible that the gap between US and Australian drug prices could be cut in half. We estimate, very conservatively, that Australia's PBS will have to pay at least one third more for its drugs with the FTA than without it.

If the likely FTA effects are applied to 2003 figures, the extra cost to of the PBS to the government last year would have been around $1.5 billion for the same drugs at the same levels of use and with no increase in the health benefit to Australian patients. Similar pressures would be felt by other buyers of prescription pharmaceuticals, particularly hospitals.

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