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Australia-US Free Trade Agreement and the
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 don’t 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 isn’t and here’s 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 won’t 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 and health.

BUT, SURPRISE, SURPRISE, the drug companies don’t like this. They say:

  • ‘the PBS unfairly limits our freedom to charge whatever the market will pay’;
  • ‘it doesn’t 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 they’ve 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 it’s 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 don’t like the use of evidence-based decision making, they don’t like Australians paying what drugs are therapeutically worth, and they don’t 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, they’re 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 government’s contribution to the cost of drugs and make the user pay more.

But let’s get real here. Why shouldn’t we expect our government to negotiate the best deal it can with the drug companies? Isn’t 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 world;
  • 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 because:

  • sick people will go without essential medications because the can’t 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 drugs;
  • drug company profits will go even higher – they are principally interested in their profits, not our health, of course;
  • we’ll be transferring money from Australia’s sick, Australia’s old and Australia’s 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.


Peter Sainsbury
President, Public Health Association of Australia (

Further useful information can be found at:

The Australia Institute ( See ‘Trading in our health system?’ (May 2003)

Doctors Reform Society ( 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 ( See ‘Submission to the Senate Inquiry into the General Agreement on Trade in Services (GATS)’ (2003)

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