Generic Drugs: International Trends and Policy Developments in Australia

By Lofgren, Hans | Australian Health Review, January 1, 2004 | Go to article overview

Generic Drugs: International Trends and Policy Developments in Australia


Lofgren, Hans, Australian Health Review


Abstract

Public and private third-party payers in many countries encourage or mandate the use of generic drugs. This article examines the development of generics policy in Australia, against the background of a description of international trends in this area, and related experiences of reference pricing programs. The Australian generics market remains underdeveloped due to a historical legacy of small Pharmaceutical Benefits Scheme price differentials between originator brands and generics. It is argued that policy measures open to the Australian government can be conceived as clustering around two different approaches: incremental changes within the existing regulatory framework, or a shift towards a high volume/low price role of generics which would speed up the delivery of substantial cost savings, and could provide enhanced scope for the financing of new, patented drugs.

Introduction

The escalating cost of medicinal drugs is causing increasing concern both in Australia and overseas. In the 2002-2003 budget the Australian government proposed a 30% increase in both patient co-payments and safety net thresholds to transfer more of the costs of the PBS from government to consumers. This initiative was subsequently blocked by the Senate because of concern that it would reduce equity of access to necessary medicines by poorer Australians.

More recently, the government's $24 million 'PBS Community Awareness' advertising campaign noted that, '[t]he cost of the PBS is currently over $4.5 billion a year. And it's increasing rapidly. In the last four years it's gone up by over 60%. If the costs keep rising at this rate the whole scheme may eventually become unsustainable' (Department of Health and Ageing 2003). A commentary on this campaign noted that by focusing solely on patient behaviour and 'waste' the government had lost an opportunity to initiate a balanced and constructive debate about the future viability of the PBS (Doran and Henry 2003). Such a discussion must consider the prices of drugs negotiated under the PBS and in particular the effectiveness of generic drug policy, reference pricing, and other strategies aimed at more cost-effective drug use. These issues are especially topical given recent controversies over the US-Austrahan free traclc agreement. In January 2003, the Pharmaceutical Research and Manufacturers of America (PhRMA) lobbied US trade negotiators to seek Australian government commitments to 'refrain from trade distorting, abusive, or discriminatory price controls such as current PBS "reference pricing" priorities' (Burton 2003).

This paper addresses the role of generics and reference pricing programs in international markets, and the development of generics policy in Australia, and seeks to delineate present challenges.

The essential attribute of generics is that they cost less than theit original brand equivalents. Public and private third-party payers therefore increasingly encourage or mandate the use of generics through measures such as generic prescribing and generic substitution. Reference pricing schemes, taking advantage of the price competition made possible by the market entry of generics, have been introduced, or are under consideration, in many countries. The encouragement of generics through reference-based pricing - now 'one of the preferred strategics for drug expenditure control' (Lopez-Casanovas and Puig-Junoy 2000: 91) - is based on the principle that a drug's benefits should be compared systematically to alternative drug treatments. In Australia, the proportion of Pharmaceutical Benefit Scheme (PBS) scripts filled by generics makes up around 20 percent of the total market and it is expected that this share will continue to grow.

Policy in this area is fraught with contention arising inescapably from the fact that generic drugs - and indeed products with similar therapeutic effects - invite cost comparisons and make substitution possible. …

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