Australian Drug Spending Outpacing Healthcare Cost Growth

June 10, 2005

A new report by the Organisation for Economic Cooperation and Development (OECD) indicates that, in 1998 through 2003, the rise in drug spending in Australia outpaced growth in healthcare spending. The average annual rate of spending growth on pharmaceuticals was some 9%, or roughly 5% more than healthcare expenditure growth.

In the five-year period, the rate of increase in Australia's drug spending was similar to that in the US. However, Australia's drug spending is among the lowest in the developed world, largely because of harsh price controls. The OECD survey, which compared 30 high-income countries, indicates that drug spending in the country over the period was equivalent to just 14% of total healthcare spending.

According to the OECD, Australia has the developed world's 12th highest annual per capita drug spending, at some US$350. Unsurprisingly, the US spent the most, at some US$700 per capita, followed by France (US$600) and Canada and Italy (US$500). In terms of healthcare spending, the US also led the rankings on 15% of GDP in 2003, followed by Switzerland and Germany, with more than 11%. Australia was again ranked 12th, at just over 9%.

In general, the survey illustrates that Australia continues to spend relatively little on both drugs and healthcare, despite the country's highly developed status. The Australian drug reimbursement system, the PBS, is coming under growing pressure to allow price rises. However, generic substitution remains a key ingredient of the government's healthcare cost-conscious healthcare strategy.