Showing posts with label pharmaceuticals. Show all posts
Showing posts with label pharmaceuticals. Show all posts

Wednesday, December 4, 2013

How patients and taxpayers lose out to chemists

Sometimes the good news just doesn't get through. Did you know, for instance, that the prices of three widely used medicines fell from the start of this month, meaning more than 850,000 Australians will be paying less? As federal Health Minister Peter Dutton announced, this is happening because of a wise policy instituted by the Howard government in 2007.

The saving on the most frequently prescribed medication on the pharmaceutical benefits scheme - the anti-cholesterol drug atorvastatin (known as Lipitor before its patent expired) - will range between $5.58 and $12.51 a script, depending on which brand the chemist gives you.

For olanzapine - used for schizophrenia and bipolar disorder - the saving will be up to $6.69 a script. For venlafaxine - used for major depressive disorders - the saving will be $7.03 to $10.60 a script.

But Dutton is too modest. He didn't mention that the wholesale prices of four other drugs have also fallen, reducing the cost to the taxpayer but not the direct cost to patients.

The pharmaceutical scheme requires patients to make a co-payment of up to $36.10 a script (or up to $5.90 for people with concession cards), with the government paying any amount above the co-payment. So the more the price falls below $36.10, the greater the direct saving to patients.

There's just one problem with all this good news. As Dr Stephen Duckett points out in a report for the Grattan Institute, it's not nearly as good as it should be. The price cuts the government has extracted from the drug companies still leave Australian taxpayers and patients paying about 14 times more for those seven medicines than are paid in New Zealand, Britain and parts of Canada.

Duckett - a hugely experienced health economist - estimates that, had our government driven a deal as tough as other governments, patients would be paying less for all seven of them, not just three. The out-of-pocket saving would average about $21 a drug.

Take atorvastatin (a medicine close to my heart; as close as my blood vessels, in fact). The wholesale price of a box of 30, 40-milligram pills has fallen to $19.32 (the price from the chemist would be a bit higher). The equivalent price in Britain is $2.84 and across the Tasman it's $2.01.

If our price came down that far it wouldn't only be ordinary patients who made savings, pensioners and other concession card holders would too.

Remember, even with our subsidy scheme, plenty of people don't take the pills they should because they find it too expensive. (I'm on seven prescription pills; I can afford it, but plenty of people my age can't.)

There was a time when Australians paid less for medicine than most people in developed economies. Now we pay high prices because John Howard decided to go easy on the international drug companies. In its six years in office Labor did little to remove this rort. Why not? Keep reading.

The change came when a lot of widely used medicines came to the end of their patents. A patent gives its holder a monopoly over production of that drug. It can charge a very high price for the drug, one far above its cost of production.

Governments choose to grant patents and so allow overcharging to encourage companies to incur the high costs and risks of developing new medicines.

But when the patent expires, other companies start producing generic versions (all of them still required to meet standards set by the Therapeutic Goods Administration) at very much lower prices.

Governments in other countries determine the lowest price being charged and that is what they pay when buying for their pharmaceutical subsidy schemes. In Australia, however, we decided to go easy on the drug companies. When the drugs first came off patent, we cut the price by only about 30 per cent.

Then Howard introduced a complicated "price disclosure" system, which has the effect of lowering the prices of generic equivalent drugs very slowly. Presumably, if we wait long enough, prices will get down to where they already are in countries that do a better job of protecting their citizens. In the meantime, our government has required us - as taxpayers and patients - to pay far more for our medicines than we need to.

But why? Well, I don't believe it's because many of the drug companies had their headquarters in Howard's electorate. Nor are many of the pills manufactured in Australia. No, it's because the drug companies cut our chemists in on the deal.

Because so many of their patients trust them, chemists are politically powerful. If any government were to cut too far into the taxpayer subsidy our chemists have long enjoyed, the chemists would go on the war path against that government.

Duckett - who knows where the bodies are buried - estimates we are paying more than $1 billion a year too much for generic drugs, with most of that picked up by the taxpayer.

Soon we will get the midyear economic statement with its cuts in government spending. There will be more cuts in the budget in May. Some will affect you.

Joe Hockey will assure you he had no choice. What he will mean is that he's less afraid of you than your chemist.