Healthy Skepticism Library item: 338

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Publication type: news

McGrath C.
Study predicts trade agreement will cost PBS $1.5-bil
ABC News 2004 May 19

Full text:

MARK COLVIN: A new study says the free trade agreement with the USA would cost Australia’s pharmaceutical benefits scheme $1.5-billion more than expected.

It’s the first private study of the cost since the draft of the deal was released. The study was conducted by two former members of the Government’s Pharmaceutical Benefits Advisory Committee.

The Government has consistently said that the FTA would have no material impact on the price of drugs, but David Henry, Professor of Clinical Pharmacology at the University of Newcastle and a former Chairman of the PBAC, disagrees.

Catherine McGrath asked him how he came up with the $1.5-billion figure.

DAVID HENRY: Well it has to be an estimate, clearly. We can’t find out until the agreement is actually working. What we did was that we went back to a price comparison conducted by the Productivity Commission a couple of years back, and we took the most conservative estimate of the differences between US and Australian prices, and they were always higher in the US. And then we took one half of that difference of the lowest price in the US and said, well, if we put that onto the current PBS bill, what would it amount to?

CATHERINE MCGRATH: But isn’t your assessment based on the fact that you believe that the appeals process in the Medicines Working Group will end up costing Australians more money, while the Government says that that’s not the case?

DAVID HENRY: You have to see these proposed bodies in context. For years the US pharmaceutical industry’s been after the PBS. The reason it’s been after it is because prices here are low. These low prices are then being used in other countries as benchmark prices. The US industry doesn’t like that.

It’s failed in previous attempts to really change things through major inquiries, through taking the committee to court, by having committee members dismissed by the Government, and now it’s found its opening, and that’s through the free trade agreement. So the working group and the appeals process will almost certainly be heavily loaded in favour of the industry.

CATHERINE MCGRATH: Do you accept that the Government will criticise your analysis and say that it’s based on facts that you don’t know yet? You say that the advisory committee will be loaded. That’s not proved yet.

DAVID HENRY: No, and I think there is an opportunity. because I think that there’s a real risk, given that this has all been suggested by the US. Remember this has not come from Australia. They’re the country that exports the drugs to us. They want higher prices for their compounds. So the suggestions have come from them and it’s very likely then that they will want to load up those review processes, the working group, and certainly if the free trade agreement is going to go ahead, I think it’s very important that the opposition parties recognise the risks here and make sure that the makeup, the terms of reference of these bodies is, reflects Australian interests and not just US interests.

CATHERINE MCGRATH: Well you were involved in setting up the original pricing structure for the PBS. Is it your professional opinion, you’re also a professor of pharmacology, do you believe that the signing of this deal for Australia for the pharmaceutical benefits scheme is a disadvantage to Australia and Australia shouldn’t sign it?

DAVID HENRY: Oh unquestionably. Every single provision in the text of the agreement as it applies to drugs is to favour the US companies, to increase the prices, to ultimately reduce access to cheap, affordable drugs in Australia. There’s no question about it.

MARK COLVIN: Professor David Henry, speaking to Catherine McGrath.