Abstract
It is commonly believed that dispensed prices of
medicines in Australia are substantially lower than
those in other developed countries, particularly the
US. This article reports the results of an analysis
comparing dispensed prices for the most commonly
prescribed and the highest cost items in Australia
with dispensed prices in the US. Although a large
majority of items are less expensive in Australia than
in the US, Australian prices are higher for a substantial
number of products, particularly generic drugs.
This article examines various policies affecting the
pricing of generics in Australia. It is postulated that
the main cause for higher prices for a substantial
number of generic products is the lack of price
competition. This results from government policy
which ensures that a price reduction by one company
is communicated immediately to all competitors
in that market along with an invitation to match
the reduced price. The dominant strategy for all
suppliers is to only reduce their price in response to
a reduction in price by a competitor. The result is a
lack of differentiation in pricing across brands of a
medicine on the Schedule of Pharmaceutical Benefits.
The government could improve the structure of
the generics market and encourage greater competition
by ceasing to disclose competitor firms? offers
to other competitors. The government could conduct
pricing reviews of each generic product relatively
infrequently (eg, only once annually or every 18
months). At the time of the pricing review, the
government would request confidential offers on
price for a generic from all players in the market.
Brands should then all be listed under the Pharmaceutical
Benefits Scheme (PBS) at the offered price.
Prices offered by the individual supplier would apply
until the next pricing review. The PBS would continue
to subsidise up to the price of the lowest priced
brand, with brand premiums applying to all brands
priced higher than the benchmark price. Such an
approach would provide opportunity for players in
the market to capture market share by being the
lowest priced brand.
Cited by
17 articles.
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