Cost/Benefits of Pharmaceuticals

Australian PBS website

By Rick Jelliffe
February 22, 2010

A friend commented that the print/website we work on, for the Australian Government Pharmaceutical Benefits Scheme (PBS), unintentionally provides a kind of cost/benefit summary for drugs prescribed or dispensed by doctors, dentists, pharmacists and the new nurse practitioners (a new breed of super-nurses.)

The PBS has been going since around 1953 and is very popular. The government and pharmaceutical companies negotiate to get a good bulk price; an accepted drug gets provided at a low price to consumers, with the government paying any gap. This overcomes the difference in market power between companies and individual consumers, keeps costs down, and in return the pharma companies get stability (they stay on the list for two years, I think.)

Doctors can prescribe drugs that are not on the PBS. Consumers have to pay full price, or have private insurance, for these. But these are rarer.

The result is that the doctor can prescribe all sorts of allowed drugs at full price, but the ones where the government has been able to get a good deal where the cost of subsidizing is outweighed by the objective relative benefits are available for lower prices: one rarely pays more than $33.30 for anything.

For example, ASPIRIN, in top entry, the price of a box is about $13 when prescribed, and the government pays about $10.

Specialized HIV medicine ABACAVIR SULFATE with LAMIVUDINE and ZIDOVUDINE 300mg is probably the most expensive: the price to the consumer is $33.30 when prescribed, and the government pays about $900.

More typical, PROCAINE PENICILLIN has a consumer price of $33.30 when prescribed and the government pays $92.22.

The interesting thing is that to get on the list, the pharmaceutical companies have to provide objective justifications that the drugs (or generics) which get evaluated. So the amount paid by the government can be seen as an estimate of the cost/benefit of the particular drug. (There are some other mechanisms such as the Safety Net for additional benefits for people who require a lot of drugs.)

So drugs which are ineffective will not be on the list, no matter how cheap, and costly drugs which are not commensurately effective to their price compared to cheaper alternatives will not be on the list either.

One exciting opportunity from having the Asutralian PBS information online is that it can start to create a free market for similar schemes internationally. A free market requires information, and the information like that in the PBS would allow one nation to say "Oh, the Australians think this drug at this price provided good value (negotiating with vendor X for brand Y), how much are we paying for it here?"

General practitioners, dentists and nurses are obviously not in a good position to be able to track the effectiveness and costs of every drug or brand individually: they often will stick with brands they know (which makes them the targets of pharma marketing) if left to their own devices. A system like the PBS provides another input into the prescribing/dispensing: the prescriber/dispenser can check which drugs and which brands of a drug are considered effective and cheap enough to be subsidizable by the government; the prescriber/dispenser will be more inclined choose from them: the consumer will demand it in most cases.

And, of course, the consumer is more informed by having this information online: they are probably taxpayers as well. The PBS scheme costs the government about 7.7 billion Australian Dollars per year (US$7billion), or around $AU333 per person per year. It seems a fairly effective scheme: Australians have said, in effect, we want to negotiate price discounts with Big Pharma collectively, and the organization with the technical and financial resources to act as this collective the best is the Department of Health and Aging. (For a list of the top 10 drugs by cost see here.)

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