Problems with the Pharmaceutical Benefits Scheme (PBS) mean that Australian taxpayers are paying over $1 billion more than they should every year, just to cap the amount patients pay for drugs, according to the Grattan Institute and the Consumers Health Forum.
Currently, patients pay their pharmacies up to $36.10 towards the cost of a PBS-subsidised drug, or $5.90 if they have a concession card. The government pays the rest. This keeps pharmacies and drug manufacturers in business, while keeping healthcare affordable for more patients.
However, two major improvements could be made to this process.
First, when the patent for a drug expires, later generic versions of that drug become subject to mandatory price reductions. Since 2010, this mandatory reduction has been 16% of the original price.
However, other countries have far more stringent mandatory price reductions. For example, the Czech Republic requires a drop of 40%, while all Canadian provinces except for Quebec have a mandatory reduction of 82% for post-patent drugs.
A 50% mandatory price reduction in Australia would save the taxpayer upwards of $1 billion a year, according to the Grattan Institute.
Second, since 2007, pharmacies have been forced to disclose the price that they pay to drug manufacturers and wholesalers for individual drugs. The government then adjusts the level of its subsidy for that drug, so it matches more accurately with the market price of the drug.
However, there is a long wait from the pharmacy's price disclosure, to the government's reduction in the PBS payment associated with that drug. This wait used to be 18 months, during which pharmacies would benefit from any drop in the market price of a drug, while continuing to pocket the higher government subsidy for a year and a half. The wait was recently cut to 12 months, a move that will reportedly save the Australian taxpayer more than $800 million over the next four years.
Despite this, the Consumer Health Forum says the wait could be even shorter, saving the Australian taxpayer more money.
If the Abbott team is serious about reducing the size of government, then changes to the current PBS process should be made.
William Shrubb is a Research Assistant at The Centre for Independent Studies.
Home > Commentary > Opinion > Reform the PBS to save taxpayer dollars
Reform the PBS to save taxpayer dollars
Currently, patients pay their pharmacies up to $36.10 towards the cost of a PBS-subsidised drug, or $5.90 if they have a concession card. The government pays the rest. This keeps pharmacies and drug manufacturers in business, while keeping healthcare affordable for more patients.
However, two major improvements could be made to this process.
First, when the patent for a drug expires, later generic versions of that drug become subject to mandatory price reductions. Since 2010, this mandatory reduction has been 16% of the original price.
However, other countries have far more stringent mandatory price reductions. For example, the Czech Republic requires a drop of 40%, while all Canadian provinces except for Quebec have a mandatory reduction of 82% for post-patent drugs.
A 50% mandatory price reduction in Australia would save the taxpayer upwards of $1 billion a year, according to the Grattan Institute.
Second, since 2007, pharmacies have been forced to disclose the price that they pay to drug manufacturers and wholesalers for individual drugs. The government then adjusts the level of its subsidy for that drug, so it matches more accurately with the market price of the drug.
However, there is a long wait from the pharmacy's price disclosure, to the government's reduction in the PBS payment associated with that drug. This wait used to be 18 months, during which pharmacies would benefit from any drop in the market price of a drug, while continuing to pocket the higher government subsidy for a year and a half. The wait was recently cut to 12 months, a move that will reportedly save the Australian taxpayer more than $800 million over the next four years.
Despite this, the Consumer Health Forum says the wait could be even shorter, saving the Australian taxpayer more money.
If the Abbott team is serious about reducing the size of government, then changes to the current PBS process should be made.
William Shrubb is a Research Assistant at The Centre for Independent Studies.
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