The Australian Ministry of Health has confirmed that it has no plans to raise the consumer prices of drugs supplied under the country's AUD5bn (US$3.85bn) Pharmaceuticals Benefits Scheme (PBS). Reimbursement costs have soared in recent years, fuelling expectations of a government-imposed price hike. Average drug prices remain relatively high in international terms, at AUD28.60 (US$21.70) per pack, although this is still only a quarter of US levels.

The Australian Financial Review has recently reported that the government is planning to make savings of up to AUD850mn (US$639.07mn) on the PBS, with the authorities favouring increased generic provision. In April 2005, all therapeutic classes of medicines were subject to a 12.5% price cut following the introduction of generic competition. The government will also cut wholesale drug margins from 11.1% to 7.5%.

However, industry sources claim that promoting generics will cut costs effectively, arguing that the PBS is not particularly compatible with this sector. In Australia, branded drugs reportedly retain market share for longer after patent expiry than in other developed countries, primarily due to a lack of competition among generics suppliers.

Furthermore, Australia's free trade agreement with the US has proved a challenge for generics makers. A clause in the treaty requires Australian drugmakers to notify originator companies before launching generic versions their products. This reportedly allows research-based companies time to potentially block generic entry. It was also recently estimated that if the five most commonly prescribed innovator drugs on PBS are not replaced by generics, expenditure will rise by AUD1.5bn (US$1.15bn) in the next three years.