Poor pricing progress: price disclosure isn’t the answer to high drug prices

Public health Medicine Drugs and alcohol Australia
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This report argues that Australia has a long way to go before consumers pay fair prices for pharmaceuticals.


Grattan Institute’s March 2013 report, Australia’s bad drug deal, showed that Australians paid more than $1 billion a year too much for prescription drugs. The problem is how the government sets prices. Vested interests are involved in price negotiations, there is no cap on expenditure, and the price cuts when a drug goes off patent are far smaller than in many other countries.

The problem hasn’t gone away. Current policies aren’t doing nearly enough to bring prices down. In December, the Commonwealth Government’s “price disclosure” policy led to price cuts for seven generic drugs. Price disclosure tracks discounts that manufacturers and wholesalers give to pharmacies. Then the government cuts prices to reflect what pharmacies actually pay.

The price cuts in December averaged 34 per cent. In three cases the cuts were big enough to reduce out-of-pocket costs for patients. As a result patients without a concession now save around $5 for each box of pills.

That sounds like a lot. But this report compares prices after these cuts with prices in the UK, New Zealand and the Canadian province of Ontario. On average, Australian prices remain almost 16 times higher than the best price in these three places. Our prices are more than 14 times higher than those in the UK.

High prices are very costly for taxpayers and for consumers. Many Australians pay both through their taxes and then at the pharmacy.

Once again, benchmarking against prices in other countries would get a much better deal. Of the seven drugs that had their prices reduced in December, patients would pay less for all of them, instead of just three. The out-of-pocket saving would also be much higher, averaging more than $21 per drug.

The money we spend on high drug prices could be much better spent. But this isn’t just about saving money. Almost one in 10 Australians don’t take their prescribed medicine because of the cost. Better prices would help more people to buy the medicine they need.

The Government should take three steps to cut the extremely high prices we pay for generic drugs. First, it should ask the Department of Health to release annual international comparisons of Australia’s drug prices. Everyone would then be able to see whether we are getting value for money.

Second, when the current pricing agreement expires in July next year, there should be one-off benchmarking to get fair market prices. Finally, an independent drug pricing body should be established to make sure prices stay low in the future.

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