Pharmaceuticals & Free Trade

A recent paper discusses pharmaceutical policy in Australia and outlines a list of changes to look for in the coming years. The United States and Australia have just embarked on a Free Trade Agreement (AUSFTA) which possesses specific aims to encourage use of American pharmaceuticals in the Australian marketplace

As background, it is critical to note that Australia (unlike the United States) has a publically-funded Pharmaceutical Benefits Scheme which places drugs on a national formulary. In Australia, drugs on the national formulary are the most likely to be prescribed and used (covers 90% of all Australian prescriptions and subsidizes 70% of all prescriptions). However, in order to get on such formulary, specific drugs must demonstrate several specific qualities: safety, quality, efficiency, and cost-effectiveness.

However, critics of Australia’s strategy of pharmaceutical regulation have successfully argued that such policy is antagonistic to innovation. The same argument has been reiterated in the United States; it remains a looming reason why the pharmaceutical industry is unhampered by federal cost-control measures (a notable exception is the Veterans Heath Administration). Now, AUSFTA has created a natural experiment. Will Australia be able to maintain cost containment for pharmaceuticals in light of opening its formulary to American manufacturers? Will the goal of equal access to pharmaceuticals continue for Australian citizens? Will American drugs that have now become “on-formulary” see increased market share?

Commentary:

Cross national comparisons are always interesting in that different countries answer the same problem in different ways. In the United States, pharmaceutical spending is controlled by differential pricing (market controls). In Australia, the same issue is answered by governmental formularies (price controls). In the coming years, we will see how the AUSFTA influences the pharmaceutical landscape down under.

Journal of Public Health Policy (2008) 29, 106–120.

By:

Cedric K. Dark, MD, MPH