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Look overseas makes pill prices hard to swallow

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Grattan official says the PBS could lower costs much more with a benchmarking scheme popular in other countries. 

Current policies surrounding the cost of medications aren’t effective enough, a Grattan Institute official says.

Health program director at Grattan, Stephen Duckett, says the system in place of price disclosure, in which pharmacies are required to reveal discounts from manufacturers, should be replaced with a benchmarking scheme.

“The high cost of drugs across the whole of the pharmaceutical benefits scheme [PBS] is costing us about a billion dollars a year more than it needs to,” Duckett says.

As an example, Grattan points to seven medicines whose price in Australia fell under the current policy at the end of last year; the institute points out that despite the drop, Australians are still paying more for these drugs than the best prices obtained in other countries.

Duckett says these seven drugs are still about 16 times more expensive than the exact same medications in the UK, New Zealand and Ontario, Canada. For three of the group, the price for Australians was 20 times higher.

Atorvastatin (Lipitor), a cholesterol-lowering drug, is one of the medicines that dropped in price – from about $39 to about $20 – saving consumers about $7 after mark ups; however, the price for the same box of 30 40mg pills in the UK is still up to an extra $19 less.

Nearly 1 in 10 Australians doesn’t take medicines a doctor prescribes due to cost.

A Grattan report, Poor pricing progress: price disclosure isn’t the answer to high drug prices, states that patients have been paying a growing share of the cost of drugs under the current system – up from 23 per cent to 30 per cent over the six years to 2010–11.

Duckett also raises concerns over the time it takes for the government to reduce the price it pays manufacturers to the average of what they are charging pharmacies, saying it is a “very slow process”.

As opposed to the 12 months it now takes, after the government reduced the time period, Duckett argues it should take only about a quarter of that. “It’s a spreadsheet job we’re talking about,” he says.

However, the main issue Duckett identifies is that the government is asking the manufacturers what they’re prepared to sell medications for.

“Price disclosure has not gone far enough or fast enough, and it’s time for a new approach,” he says. “Any business would look around to check the market price, and the government should do the same.

“Governments should look at what the manufacturers are actually selling those drugs for overseas and say, ‘Is there any reason why Australia shouldn’t be getting the same price that they’re prepared to sell it for overseas?’”

He says a change of policy is needed, along with a commitment from the government to follow through. “We’re simply buying drugs the wrong way; we need to be much tougher on prices and much fairer for consumers,” Duckett says.

The Grattan Institute is advocating for use of the benchmarking policy in place in parts of the European Union, New Zealand, Canada and Japan – to be implemented. The organisation suggests that an independent body should be established in Australia to spearhead the system.

It would operate in a way similar to the New Zealand pharmacy management agency PHARMAC, which is responsible for negotiating best prices there. Duckett says PHARMAC is “leading the success” in lowering New Zealand’s medication costs.

In the EU, 25 member countries use a form of benchmarking, typically looking to the UK’s prices as the standard.

Benchmarking lowers prices faster, is less administratively complex, and can affect a larger number of drugs, including non-generics, the Poor Pricing report states.

“A lot of people say the health system is unsustainable because costs are going up,” Duckett says. “Our line is that there are ways of making the health system more efficient that we should be looking at before we’re looking at doing anything else to the health system.”

Leading Age Services Australia (LASA) president Patrick Reid says that whilst having drugs that are awaiting approval or don’t fit the government’s criteria can cause angst for certain groups, the system does have price controls.

“PBS provides Australians with timely, reliable and affordable access to essential medicines,” Reid says, “which in the main are lifesaving or life sustaining.”

He says that whilst PBS pricing changes have resulted in savings, for the government and general patients, on medicines with co-payments below $36.10, there has been “very little change” for concessional patients already paying a subsidised price.

Reid explains, “As people age, they often take more medicines to manage more health conditions and as a result cost becomes more of a factor, particularly when other costs are rising at the same time.

“If someone has to make a decision between getting their medicine or paying a critical bill, we have a problem in how we deal with health costs.”

However, Reid also says price isn’t the only important factor for seniors when buying medicines. He points to a recent study, Seniors Prefer Pharmacists for Advice on Medications, published in the Journal of Pharmacy Practice and Research, which found that cost would not have an effect on where seniors source their medications. “They were willing to pay more for prescriptions at their regular pharmacy for peace of mind, rather than paying for cheaper medicines at an unknown or warehouse pharmacy,” Reid says.

In addition, he says that over the long-term there is a risk that useful medicines could be discontinued due to a lack of ongoing profitability for the medicine company.

The price reductions in pharmacies through cost disclosure have also led to many previously subsidised programs, including dose administration aids “coming under pressure” to be fully funded by the patient, Reid says.

A recent Productivity Commission report has revealed that government expenditure on the PBS was lower in the 2012–13 period than in the previous four years, at $7.1 billion.

The Pharmacy Guild of Australia says this confirms the downwards impact of price disclosure on aggregate PBS spending and the sustainability of the scheme, adding the reductions are likely to continue.

“Spending on the PBS has been very effectively constrained by price disclosure,” guild executive director David Quilty says. “Expenditure on pharmaceuticals as a percentage of GDP is expected to decline every year between 2012–13 and 2016–17.”

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