Government neglecting millions of dollars worth of savings

When you walk into a pharmacy, you are granted a choice. “Generic” or “brand-name” your pharmacist will ask. The word ‘generic’ often entails a negative connotation. In a pharmacy, however, that definition must be ignored.

By requesting a generic medicine in America, half a million dollars can be saved each day, states a new report from the Generic Pharmaceutical Association. In Australia, generic medicines are responsible for only 40% of filled prescriptions on the Pharmaceutical Benefits Scheme (PBS), meaning Australia has the potential for greater savings. Proposals are currently being put to the government to further lower the cost of generic drugs.

A generic medicine is simply a drug identical, or bio-equivalent to the original pharmaceutical. Generics are made once the patent protection expires on the brand-name pharmaceutical. They go through extensive testing by the Therapeutic Goods Administration, and only qualify for sales once proved they generate the same effect on the body as their brand-name counterparts.

The PBS cost the economy, for the year ending 30 June 2011 $8,872.7 million, compared with $8,391.7 million for the previous year, says a report released by the PBS. This is a 5.7% increase. However, 77% of this expenditure on was directed towards concessional cardholders. This raises an important statistic for the government of the day.

For pensioners and concession holders, the PBS subsidises generic and expensive brand name drugs to the same price, of $5.80. There is no incentive for such individuals to choose a generic.  If Australia adopted a system similar to America’s, in which generic medicines are discounted, significant economic saving could be made. And Australians are in favour of this.  It’s a topic in the public debate.

An online survey published in September 2012 by the Generic Medicines Industry Association (GMiA) revealed that 75% of Australians believe that the Government should offer a price discount to consumers who choose generic medicines. 89% of Australians identify generics as ‘a product I know and trust’. This research demonstrates the community support for the discounting of generic medicines.

According to Dr Martin Cross, the Chairman of the GMiA, the findings should be used to frame prospective policy considerations. “The community should use a generic medicine whenever possible, as generic medicines drive affordability of medicines for the consumer, the taxpayer and the economy. This helps ensure the sustainability of the PBS,” he said.

A spokesman for Health Minister Tanya Plibersek told the Sydney Morning Herald that the government was interested in reducing the price of drugs for consumers. As 95% of drugs purchased in Australia are through the PBS, the government has considerable market power. Any change to policy “would require extensive market testing and industry consultation before the government could say if it would bring about the best outcome for consumers” the spokesman said. A request to interview the Minister failed to eventuate, and the Shadow Minister for Health, Mr Peter Dutton, ignored any opportunity to comment.

An American Government report shows that health care spending reached $2.6 trillion in 2010. This translates to 18% of America’s GDP. Against this framework of escalating costs, the use of lower cost generic pharmaceuticals remains an important part of holding down the rate of healthcare spending. Generic pharmaceuticals have saved the U.S approximately $1.07 trillion over 10 years, between, 2002 and 2011. $192.8 billion of these savings came from just 2011.

America, similar to Australia, has an aging population. As an affluent country, Australians will survive into old age in greater numbers than ever before. On average, men live to 77 years, and women to the age of 83. This is a positive sign of social and economic progress that is often met with grim expectations of escalating health costs. Australia’s baby boomers are just beginning to receive age pensions, and concession cards. This means that health costs will proliferate. In order to bend the cost curve of their health care system, generic pharmaceuticals must be considered a key political issue.

Michelle King, a senior lecturer from Griffith University reveals the difficulty in comparing the American and Australian pharmaceutical systems. “24% of families with a chronically ill patient in the US end up in bankruptcy,” she said. “There are economic savings in choosing a generic, but they are savings upon prices Australian citizens can’t comprehend.“

“In the United States, you pay the complete price. As a customer you have no way of driving the price down, similar to buying a private prescription. Generic substitution is therefore driven by the customer, allowing greater economic savings. The differential between brand and generic is so big. In Australia, however, we have a monopsony. The single buyer for PBS listed pharmaceuticals is the government, which allows them to set the price. Generally speaking, the prices of drugs in Australia are incredibly lower.” It appears that Australians are looking for prices to further decrease, however.

An experiment conducted at a Brisbane city pharmacy revealed that approximately 72% of 55+ year-olds opt for premium price pharmaceuticals. This reveals the opportunity for great savings. Many customers still aren’t convinced.

Jamie Corrigan, a student and concession cardholder chooses brand pharmaceuticals over generic brands, opting to pay the extra co-payment for the drug. “I just prefer to get the brand name drug. I feel it’s more trustworthy,” she said. Consumers like Ms Corrigan are ignoring the opportunity to save money.

The generic market remains to be a lucrative business. However, there are savings to be made that would go towards reducing the considerable and increasing costs of health care faced by Australia. The time to act is now.

– Harriet Tatham

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