Australian Government, Drugmakers Agree to Price Cut

Health authorities and drugmakers in Australia have agreed to a mandatory 12.5% price cut on new generic drugs, scheduled to come into effect tomorrow, April 1. The agreement is a compromise after months of fractious negotiations and a significant government concession on the proposals.

The cut will now apply only to new generics, implying substantial cost savings to the country's Pharmaceutical Benefits Scheme (PBS). As a number of cholesterol-lowering statins come off patent this year, the substitution of cheaper generic alternatives could lead to savings of AUD1bn (US$773.38mn) for these drugs alone. Products in this therapeutic class are the reimbursement programme's largest single cost, and the PBS itself accounts for 60% of Australia's annual health spending, which last year rose by 11% to AUD5.6bn (US$4.38bn).

Officials plan to implement the cut once in each therapeutic grouping, determined according to a benchmark price set by the Pharmaceutical Benefits Pricing Authority. An earlier plan first mooted in December ahead of the elections would have imposed the cut on all medicines upon patent expiry, prompting many ethical drugmakers to threaten to raise prices or impose a surcharge, as well as reportedly warning that the measure could lead them to withdraw supplies to the PBS entirely.

Australia's per capita drug spending was estimated at US$404 in 2004, one of the lowest levels in the developed world. Multinationals are, therefore, unlikely to take much comfort from the revisions to the original proposals, particularly as the government hopes to open further negotiations aimed at reducing the country's growing drugs bill.