Changes in generic drug costs could save $590 million, but don’t go far enough

The recently announced price cuts to generic drugs by the Australian Government do not go far enough, according to University of Melbourne health economist, Professor Philip Clarke.


Writing in the Medical Journal of Australia, Professor Clarke, from the Centre for Health Policy, Programs and Economics, School of Population Health, University of Melbourne, says an opportunity exists for certain medications to be reduced in price and create savings for the Pharmaceutical Benefits Scheme (PBS) and for taxpayers in general.

The Pharmaceutical Benefits Advisory Committee (PABC) determines the cost-effectiveness of new drugs and recommends whether or not they should be listed on the Pharmaceuticals Benefits Scheme. In the past, budget pressures have caused the listing of some medicines to be deferred or delayed.

However, as drug patents expire and generic alternatives become available, wholesale prices should significantly reduce: the subsidies to pharmacies paid for by the PBS should also drop.

"In some cases the recent reductions are significant, but this indicated that the real cost of many generic medicines is well below the current PBS subsidy, For example, the dispensed price of generic simvastatin 20 mg is $34, $22 of which is intended to cover its wholesale cost. Pharmacists have actually only been paying $10 for this drug." says Professor Clarke.

"If we take cholesterol-lowering drugs such as statins as an example, we know that even after price reductions, Australians will continue to pay high prices for such drugs; Atorvastatin which goes off patent in May will still be around $50 a script compared with $5 in New Zealand.

"Australians have already paid around $6.8 billion to subsidise Atorvastatin since it was introduced onto the PBS in the 1990s. It is not clear why we continue to pay high prices when generics become available later this year. We could save $590 million over 18 months if we paid New Zealand Prices" says Professor Clarke.

In the case of statins, only 22% of these medications prescribed in Australia are the cheaper generic versions, while in the United States they use over 50% generics and in the United Kingdom, its 75%.

Professor Clarke concludes that with many therapies going off patent over the next few years there is potential for additional savings by expanded use of generic drugs, with taxpayers and consumers being the winners.