Australia-US Free Trade Agreement and
Pharmaceutical Benefits Scheme (PBS)
Talk given by Peter Sainsbury, President, Public Health Association of Australia, at the
launch of Trading Australia Away (AFTINET, May 2003) at NSW Parliament House,
19 May 2003
How many things can you think of that are Australian, are good for patients, good for
doctors, good for taxpayers, good for government, and are widely recognised as the best in
the world? Well, the PBS is one. It ensures that everyone in Australia has access to
essential medications when they are sick.
Specifically, but briefly, the PBS provides:
- An uncapped Federal Government subsidy of approximately $4.6
billion per year to the price of medications for patients;
- Fixed out-of-pocket expenses for patients for the 600 drugs
covered by the PBS;
- A financial safety net for the very sick and chronically
sick so that multiple small expenses dont add up to something unmanageable.
You might think that because the government subsidy is
uncapped the total cost, to the government and hence also the taxpayer, of the drugs
provided on the PBS would be skyrocketing. But it isnt and heres the real
benefit of the PBS. Because the PBS also involves very strict controls on which drugs get
onto the PBS list and because the government negotiates very good deals with the drug
companies, Australia has one of the cheapest drug bills in the developed world.
We get the best drugs and the newest drugs at the lowest
prices. If a new drug is no better for patients than an existing drug, the PBS wont
pay the producer any more for it. In fact, the system is so good that it saves Australians
about $1-2.5 billion dollars per year.
So every Australian can get the drugs they need when they
need them without going into debt, and without having to make impossible choices between
essential medications and other essentials such as food or rent.
The PBS delivers great value for money, efficiency, equity
BUT, SURPRISE, SURPRISE, the drug companies dont like
this. They say:
- the PBS unfairly limits our freedom to charge whatever
the market will pay;
- it doesnt allow us to recoup our immense
investment in research and development (R&D) to develop new drugs (this is like
a company that produces washing up liquid saying that theyve just spent billions of
dollars researching and developing a new washing up liquid and so they expect consumers to
pay three times as much for it as they do for existing washing up liquids regardless of
whether its any better at cleaning greasy plates);
- because the PBS uses very strict cost-effectiveness
evidence to decide which drugs should be available on the PBS and how much they are really
worth, this constitutes an unfair restraint on free trade.
Basically, they are saying that they dont like the
use of evidence-based decision making, they dont like Australians paying what drugs
are therapeutically worth, and they dont like the Australian PBS limiting their
ability to make even bigger profits than they already do. They want fewer limits in
Australia on their ability to market whatever drug they want at whatever price they want.
And because most big pharmaceutical companies are American,
theyre pressing the US and Australian governments to include the PBS in the
negotiations about the Australia-US Free Trade Agreement. The American government is
receptive to these arguments because it wants even bigger profits for its companies. The
Howard government is receptive, despite its denials, because it wants to reduce the
governments contribution to the cost of drugs and make the user pay more.
But lets get real here. Why shouldnt we expect
our government to negotiate the best deal it can with the drug companies? Isnt that
its job? To protect Australians health and dollars.
And drug companies are hardly going broke:
- in the USA the pharmaceutical industry has provided the best
return on investment every year for the last ten years;
- drug companies feature prominently among the ten most
profitable companies worldwide;
- drug company executives are among the best paid in the
- as for their high R&D costs, yes they are high in
comparison with many other industries but both their marketing and advertising expenses
(approx. 27% of revenue for the nine major US drug companies) and their profits (approx.
18%) exceed what they pay in R&D (approx. 11%).
No one should shed any tears for the drug companies.
But tears will be shed if we allow the PBS to be destroyed
- sick people will go without essential medications because
the cant afford them just like happens now in the USA;
- sick people, mostly the poorer and older people in society,
will have to pay 2-3 times more out-of-pocket expenses every time they get a prescription
filled just like happens in the USA now;
- Australia will be paying 25-50% more as a nation for our
- drug company profits will go even higher they are
principally interested in their profits, not our health, of course;
- well be transferring money from Australias sick,
Australias old and Australias poor to American pharmaceutical companies,
American CEOs and American shareholders.
It is essential that we keep the PBS out of the
Australia-US Free Trade Agreement. This requires us all to be vocal and active in
demonstrating to our politicians the gross folly of destroying something good, something
that benefits all Australians. I congratulate AFTINET and the Public Interest Advisory
Centre for producing and launching this excellent information leaflet about the
Australia-US Free Trade Agreement.
President, Public Health Association of Australia (www.phaa.net.au)
Further useful information can be found at:
The Australia Institute (www.tai.org.au). See Trading in our health system? (May
Doctors Reform Society (www.drs.org.au). See Submission to the Department of Foreign
Affairs and Trade on the proposed Free Trade Agreement (FTA) between Australia and the
United States (January 2003)
National Centre for Epidemiology and Population Health (http://nceph.anu.edu.au). See
Submission to the Senate Inquiry into the General Agreement on Trade in Services
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