Australian drugs cost 3.7 times more than global benchmark, says report

Melissa Davey
Australian prices for 19 drugs were compared with the UK, NZ and Canada’s Ontario and Alberta. Photograph: Fairfax Media via Getty Images

Australian drug prices remain “unacceptably high”, with some medicines costing 3.7 times more compared with international prices, a report from the Grattan Institute published on Monday has said.

The institute compared the Australian prices for 19 drugs with those in the UK, New Zealand, and the Canadian provinces of Ontario and Alberta.

Even after the next round of drug price cuts, set to occur in April under the “price disclosure” policy, Australia’s prices will still be, on average, 3.7 times higher than the benchmark best price, the report found.

Australia’s prices remain almost twice those of the UK, and 3.1 times higher than New Zealand’s, the report found.

The report also said the government’s price disclosure policy was working too slowly. The policy requires drug companies to reveal how much they actually charge pharmacies for generic medicines over a year, with heavy discounts often applied to pharmacies to encourage them to buy.

The government then uses this information to calculate the average price pharmacies pay after discounts, and reduces the amount it subsidises pharmacies for each drug accordingly.

But the report, led by health economist Stephen Duckett, said that while the policy had led to substantial cuts to the price of generic drugs in Australia, it had taken many years to achieve this. “If a more effective policy had been in place, the savings to the government, and therefore taxpayers and patients, would have been much greater,” the report says.

“This report identifies savings of hundreds of millions of dollars a year that can be made if the government pursues a better drug deal. With a mounting budget repair task, and the need to find money to fund new and better drugs, the government should grab this low-hanging fruit.”

The report proposed that the government adopt a policy of “international benchmarking” used by Canada, New Zealand, Japan and much of the European Union. This would involve the government establishing an independent pricing authority which would set a price for each drug based on an international benchmark.


The report also called on the government to expand a policy known as the therapeutic group premium, which the Grattan Institute has described as being far too narrow. Under that policy, different drugs used to treat the same condition, and which do exactly the same thing, are clustered into a therapeutic group. The government then subsidises the cheapest drug within that therapeutic group.

This puts pressure on drug companies that manufacture the most expensive drugs in the group to lower their prices, otherwise doctors and their patients have little incentive to choose them.

But Australia applied the policy to only seven therapeutic groups, compared with countries such as Germany which has more than 30 therapeutic groups. “The way the therapeutic group premium operates in Australia is bad,” the report has found. “There are too few drug groups, and the current policy tolerates higher prices for drugs which are largely equivalent to cheaper versions.”

The government could save an extra $205m a year if it increased the number of therapeutic groups to 18, Duckett said.

“What we are saying with this report is that while price disclosure has been somewhat effective, there are a number of measures the government could introduce to supplement price disclosure and create additional savings,” he told Guardian Australia.

“The government has to be looking for every possible saving, especially if they are considering lifting the Medicare rebate freeze, which will cost them billions of dollars each year.”

Professor Philip Clarke, with the University of Melbourne’s Centre for Health Policy, said the report demonstrates there are still savings to be made by the government in the area of drugs pricing policy.

But he said that there may be simpler ways to achieve savings than the international benchmarking policy proposed in the Grattan Institute’s report.

“For example in England, the government claws back some of the funds community pharmacy receives in the form of discounts from manufacturers for these overpriced drugs,” Clarke said.

“The report’s recommendations for reviewing therapeutic groups are again a way to make further savings, but there is also a need to look at broader reforms to provide incentives for doctors and patients to use lower-cost medications when they are available.”

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