Healthy Skepticism Library item: 465

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Publication type: news

PBS: where the real threat is
Sydney Morning Hearld 2004 Jun 24

Full text:

Politics, said John Kenneth Galbraith, was not the art of the possible but a choice between the disastrous and the unpalatable. Labor purists trying to clear the stench over their leader Mark Latham’s backflip on the cost of subsidised medicines would do well to acknowledge the distinction. Labor needs the $1.1 billion four-year saving because the Opposition cannot find the money elsewhere to pay for its election promises. That is the unpalatable, the price of reducing the Opposition’s vulnerability to charges of fiscal policy ineptitude.

The greater issue as it affects the Pharmaceutical Benefits Scheme, however, is how Labor planned to rein in the scheme’s cost explosion if it was “not now, not ever” willing to contemplate shifting from taxpayers to users at least some of the blowout burden. The cost of the scheme has quadrupled to more than $4 billion over the past decade or so. Since 1996 the share borne by patients has declined from 20 per cent to 14 per cent. Much worse, the escalation in PBS costs will accelerate as demand grows with an ageing population and drugs become more expensive. Unchecked, the scheme would become completely unaffordable.
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Even though Labor seems inspired by election-year politics and the need to get its fiscal arithmetic together, its decision now to support the Government’s bill at least coincides with sound policy, however painful it has been for it to reverse its supposedly non-negotiable opposition to the Government’s 2002 budget initiative.

As a result, concession patients next year will pay a prescription cost of $4.60 (up 90 cents) and others up to $29.60 (up $4.90). These rises are not to be sneezed at. They will hit hardest the poor and the chronically ill. Labor’s change of heart has appropriately sparked social equity concerns. In the absence of a fairer method of curbing a runaway PBS, however, Labor has belatedly arrived at the inevitable. As Bob McMullan, the Opposition finance spokesman, said, “It’s just a hard decision that any sensible, responsible economic manager would have to make.” His squirming did not explain how it took two years for sense to prevail.

That is not the end of it. There remains the adverse potential on the PBS of the free trade agreement with the United States. If the FTA’s informal appeal mechanism forces the PBS to accept American pharmaceuticals at prices set by the American companies, the PBS co-payment changes now being made may do little to prevent the scheme from becoming unaffordable.

Mr Latham insisted four months ago that Labor would oppose the FTA because it excluded Australian sugar farmers. Now, the Opposition is delaying a Senate vote until a committee investigating the deal reports on August 12, about three weeks after the US Senate decides.

Adjudication of the PBS co-payment changes requires identification of the lesser evil. The FTA must be judged on whether it would jeopardise the PBS and, if so, whether the agreement’s trade benefits for Australia outweigh such a downside. It is not a decision to be rushed.