Academic journal article Australian Health Review

The Subsidy of Pharmaceuticals in Australia: Processes and Challenges

Academic journal article Australian Health Review

The Subsidy of Pharmaceuticals in Australia: Processes and Challenges

Article excerpt


The increasing costs of health care, including new technologies and pharmaceuticals, pose challenges for all countries both in the developed and the developing world. It is essential that the increased expenditure on pharmaceuticals represents value for money and is seen as an investment in health care rather than simply the purchase of the latest released agent. The system in Australia uses a cost-effectiveness approach to guide the decisions as to whether a new drug can be recommended for subsidy. The need for a greater understanding and transparency of the processes is essential in order for a well-informed public debate to occur about the challenges to the system and its sustainability. The relevant issues are discussed in this article to assist that debate.

Aust Health Rev 2004: 28(2): 194-205

THE INCREASING COST of new pharmaceuticals is placing pressure on the health system of all countries, and a process to assess the incremental cost effectiveness of the new agents is essential to ensure that limited resources are spent to the best advantage in a way which maintains the equity of access that must be a fundamental principle of any system for subsidy. This article discusses the mechanisms by which drugs are considered for subsidy as part of the Pharmaceutical Benefits Scheme (PBS).


In recognition of the need for government assistance in the subsidy of pharmaceuticals, Australia established a pharmaceutical benefits scheme for war veterans in 1919. A similar scheme for nonveterans was first proposed in 1944 when the Pharmaceutical Benefits Act (Cwlth) was passed by the Federal Parliament authorising provision of pharmaceutical benefits free of charge to all residents of Australia. The Medical Society of Victoria issued a writ in the High Court, which subsequently ruled that the 1944 Act went beyond the powers of Australia's constitution. This resulted in a change to the Australian Constitution in 1946 to enable the Federal Government to introduce a national subsidised pharmaceutical scheme. This compares to comparable countries such as Canada, where drug subsidy programs are provided by the individual provinces. About 43% of Australians also have private health insurance, and there is a well established private hospital network conducted by both not-for-profit or for-profit organisations. The involvement of private health in the subsidy of pharmaceuticals is limited, although there is increasing pressure on the health funds to become involved in the subsidy of large cost drugs not currently subsidised under the PBS.

The PBS is primarily a community-based system, although direct Federal Government subsidy via a Highly Specialised Drugs program for use in the public (and private hospital) system is also in place (Highly Specialised Drugs Program, Commonwealth of Australia). In the first year of the PBS the list of subsidised drugs consisted of 139 life-saving drugs costing less than AS300000 per annum. In 2004, the Scheme funds about 650 different drugs (in 1600 dosage forms) marketed as nearly 2500 different brands. Over 200 of these drugs have been included on the list as a result of analysis of cost effectiveness, which became a requirement for submissions in 1993 (Mitchell 2002). About 75% of all pharmaceuticals, excluding those provided by statefunded institutions, are funded through the PBS.

National Medicines Policy (NMP)

The cost of the PBS in 2002-03 was about AS5.6 billion and over the past decade has been increasing at an annual rate of between 8% and 20%, a rate many believe is unsustainable. Box 1 shows the growth in PBS expenditure in the period 19912001. Over the last decade PBS expenditure grew by more than 260%. By contrast, the expenditure on medical benefits grew by 73%, expenditure on public hospitals by the Commonwealth government grew by 73%, and overall Commonwealth expenditure grew by 119%. Reflecting these trends, PBS expenditure increased from 9% to 16. …

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