Paying the right price for pharmaceuticals: a case study of why the comparator mattersJean M. Spinks A and Jeff R. J. Richardson A B
A Centre for Health Economics, Monash University, Level 2, Building 75 Clayton Campus, Clayton, VIC 3800, Australia. Email: email@example.com
B Corresponding author. Email: firstname.lastname@example.org
Australian Health Review 35(3) 267-272 http://dx.doi.org/10.1071/AH10930
Submitted: 1 June 2010 Accepted: 13 December 2010 Published: 25 August 2011
This article considers the pricing policy for pharmaceuticals in Australia, which is widely seen as having achieved low drug prices. However, compared to New Zealand, the evidence implies that Australia might have improved its performance significantly if it had proactively sought market best pricing. The Australian record suggests that the information sought by authorities may not be sufficient for optimal pricing and that the economic evaluation of pharmaceuticals may be neither necessary nor sufficient for achieving this goal.
What is known about the topic? Pharmaceutical expenditures vary significantly across countries. Few surveys exist to determine the role of price but these suggest that Australian prices are relatively low compared with most OECD countries.
What does this paper add? An analysis of public data implies that Australia pays significantly higher prices than NZ for its pharmaceuticals. This is attributable to NZ’s more effective use of competition, especially in the market for generics. Australian policy effectively limits competition by the provision of price information to competing companies. Recent agreements are similarly consistent with de facto regulatory capture.
What are the implications for practitioners? There should be a review of pharmaceutical pricing policies with the criterion for success being the ‘lowest’, not ‘comparable’ world prices. Comparators should include prices paid for quality drugs in all, not selected countries, where data are available.
References International Pharmaceutical Price Differences. Research Report. Canberra: Australian Productivity Commission, AusInfo; 2001. Available at http://www.pc.gov.au/projects/study/pbsprices/docs/finalreport [verified 28 May 2009].
 Defina J. Pharmacoeconomics. Today’s Life Science 1993; 10–2.
 Danzon PM, Furukawa FF. International prices and availability of pharmaceuticals in 2005. Health Aff 2008; 27 221–33.
| International prices and availability of pharmaceuticals in 2005.CrossRef |
 Pharmaceutical price controls in OECD countries: Implications for US Consumers, pricing, research and development, and innovation. US Department of Commerce, International Trade Administration; 2004. Available at http://www.ita.doc.gov/td/chemicals/drugpricingstudy.pdf [verified 15 April 2009].
 Calfee J, Villarreal M, DuPré E. An exploratory analysis of pharmaceutical price disparities and their implications among six developed nations. American Enterprise Institute (AEI) – Brookings Joint Centre for Regulatory Studies, Working Paper 06–07. Washington, DC: AEI; 2006. Available at http://aei-brookings.org/admin/authorpdfs/redirect-safely.php?fname=./pdffiles/WP06-07_FINAL.pdf [verified 16 April 2009].
 Non-patented prescription drug prices reporting. Canadian and Foreign Price Trends, June 2006. Patented Medicine Price Review Board; 2006. Available at http://www.pmprb-cepmb.gc.ca/english/View.asp?x=805 [verified 16 April 2009].
 Pharmaceutical Pricing Policies in a Global Market. Organisation for Economic Cooperation and Development (OECD); 2008. Available at http://www.oecd.org/document/36/0,3343,en_2649_33929_41000996_1_1_1_37407,00.html [verified 16 April 2009].
 Clarke PM, Fitzgerald EM. Expiry of patent protection on statins: effects of pharmaceutical expenditure in Australia. Med J Aust 2010; 192 633–6.
 MacKay P. Is PHARMAC’s sole-supply tendering policy harming the health of New Zealanders? N Z Med J 2005; 118 1214
 Faunce T, Lofgren H, Harvey K, Johnston K. Tendering for low cost generics in Australia. Health Issues. 2006; 87: 26–9. Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1407764 [verified 14 February 2010].
 Lofgren H. Generic drugs: International trends and Policy Developments in Australia. Working Paper No. 10. Centre for Strategic Economics Studies, Victoria University of Development; 2002. Available at http://businessandlaw.vu.edu.au/cses/documents/working_papers/pharma/wp10_2002_pharma.pdf [verified 14 February 2010].
 Model lists of essential medicines. World Health Organization (WHO); 2009. Available at http://www.who.int/medicines/publications/essentialmedicines/en/ [verified 14 March 2010].
 Annual report for the year ending June 2007. Australian Department of Health and Ageing, Commonwealth Government of Australia, Pharmaceutical Benefits Pricing Authority; 2007. Available at http://www.health.gov.au/internet/main/publishing.nsf/Content/1E2737E57CEFABF5CA2575230022E984?OpenDocument [verified 17 April 2009].
 Schedule of prices, December 2007. Pharmaceutical Management Agency of New Zealand; 2007. Available at http://www.pharmac.govt.nz/2007/12/04/Sched.pdf [verified 17 April 2009].
 Management Sciences for Health (MSH). International Drug Price Indicator Guide. 2007. Available at http://erc.msh.org/dmpguide/index.cfm?search_cat=yes&display=yes&module=dmp [verified 5 January 2009].
 Foreign Exchange Rates 2007–2008. Commonwealth of Australia, Australian Taxation Office; 2008. Available at http://www.ato.gov.au/taxprofessionals/content.asp?doc=/Content/22855.htm&page=4&H4 [verified 5 January 2009].
 Purchasing Power Parities (PPP) Data, OECD Statistics Directorate. Organisation for Economic Cooperation and Development (OECD); 2008. Available at http://www.oecd.org/document/47/0,3343,en_2649_34357_36202863_1_1_1_1,00.html [verified 17 April 2009].
 National Medicines Policy. Canberra: Commonwealth Government of Australia, Department of Health and Ageing; 2000. Available at http://www.health.gov.au/internet/main/publishing.nsf/Content/nmp-objectives-policy.htm-copy2 [verified 14 February 2010].
 Clarke PM. Drug deal costing billions. The Weekend Australian, 15–16 May 2010. Available at http://www.theaustralian.com.au/news/health-science/drug-deal-costing-billions-medicines-australia/story-e6frg8y6-1225866384337 [verified].
 Fact sheet: Pharmaceutical benefits Scheme Reform. Commonwealth Government of Australia, Australian Department of Health and Ageing, Pharmaceutical Benefits Pricing Authority; 2007. Available at http://www.health.gov.au/internet/main/publishing.nsf/Content/24693658DD49E286CA2572750081DB74/$File/PBS%20Reform%202Feb07.pdf [verified 17 April 2009].
 Pharmaceutical Benefits Scheme. Memorandum of Understanding – Medicines Australia and the Commonwealth of Australia. Commonwealth Government of Australia, Australian Department of Health and Ageing; 2010. Available at http://www.health.gov.au/internet/main/publishing.nsf/Content/further-PBS-reforms-Agreement [verified 3 December 2010].
 Boer R. Budget Review 2010–11: Health – Pharmaceuticals and Pharmacy. Parliament of Australia. 2010. Available at http://www.aph.gov.au/library/pubs/rp/BudgetReview201011/HealthPharmaceuticals.htm [verified 3 December 2010].
 Bulfone L. High prices for generics in Australia – more competition might help. Aust Health Rev 2009; 33 200–14.
| High prices for generics in Australia – more competition might help.CrossRef |
 McClellan M. Speech before First International Colloquium on generic medicines. US Food and Drug Administration; 2003. Available at http://www.fda.gov/oc/speeches/2003/genericdrug0925.html [verified 17 April 2009].
 Light DW, Lexchin J. Foreign free riders and the high price of US medicines. BMJ 2005; 331 958–60.
| Foreign free riders and the high price of US medicines.CrossRef |
 Sloan C. A history of the Pharmaceutical Benefits Scheme 1947–1992. Canberra: Australian Government Publishing Service; 1995.