The Australian Pharmaceutical benefit scheme is a monopsony buy-in arrangement for medicines run by ministries. It currently costs tax payers about ten billion dollars per year (see page 3 here), up from a paltry 149,000 pounds in its first year of operation, 1948! The upward trend was worrying enough to lead the Treasury to flag it as a real problem in its Intergenerational report, and Phillip Clarke in particular has been vigorously arguing that it is poorly designed and that we overpay for our medicines, especially generic medicines. A recent report by Stephen Duckett has increased pressure for reform by claiming that the taxpayers are being fleeced to the tune of 1.3 billion a year.
Both Clarke and Duckett point to what others pay to convince their audience. Phillip Clarke, in a recent letter to the editor of the Medical Journal of Australia points out that several other countries, such as New Zealand, pays much lower prices for the same medicines and that just on statins alone, a 260 million savings could be made by going to the low price. Duckett points out that even within Australia, several entities pay much less for the same medicines than the commonwealth does to pay for medicines-at-home. Hospitals for instance pay much less for the same medicines which they buy in bulk. Applying the lowest-cost price all round would in his estimation save around 1.3 billion. In short, we pay too much.
The deeper question is how to reform the pharmaceutical benefit scheme so that we get the incentives right to avoid paying too much. The problem hitherto has been that the decisions have become political, leading to a huge amount of lobbying by the pharamaceutical industry of both the ministers via media manipulations, and via repeated (and successful!) attempts at influencing the composition and work methods of the current scheme, forever expanding its budget.
Duckett has now started calling for a more independent monopsony scheme that would be allocated a fixed budget to buy in medicines for patients in Australia and that would hence regularly have to add and remove medicines in order to stay within the budget yet allow new and useful drugs into the system. Politicians would still determine the budget beforehand and appoint a director, after which the independent institute decides what to fund and what not. By fixing the budget beforehand one thereby removes a lot of the incentives for pharmaceutical companies to coordinate on political pressure as it puts the various companies in more direct competition with each other for the available dollars.
Buckett helpfully supplies a whole timeline for how the thing can be set up. Interestingly, what he proposes is almost a carbon copy of the first ‘piece of advise’ I gave to this government in March 2012 (see here where I call for an “independent Medicine Procurement Authority”), although his plan clearly pre-dates mine and is far more worked out.
I applaud Clarke and Duckett’s attempts at helping the nation get lower prices for our medicines and I wish them favourable political winds!