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Escalating drug costs have become a prominent public issue in Australia in recent times with the formerly anonymous PBAC suddenly finding itself in the media spotlight.
With a $700m blowout in PBS spending last year and legal action from drug companies it has obviously been a tough time for the committee with pressures on both sides to control the number of new drugs being added, and to add new drugs or risk treatments being unavailable or unaffordable.

It is interesting to compare the way this problem of spiralling drug costs is being handled in Australia, compared to other countries overseas. In Australia we have seen drugs removed from the PBS (Rhinocort and friends, Caverject) and many expensive treatments having applications rejected. The government is negotiating to reduce the wholesaler's markup, which may possibly have flow through effects onto community pharmacists' margins.

Argentina, itself in the grip of economic chaos without the problems of drug expenditure has announced a plan which resembles Australia's PBS in some ways, with health insurance only covering the cost of the cheapest brand, with patients having to pay extra for the more expensive brands. The major difference in the proposed system there is that all generics are locally made, without the bioequivalence testing required on our PBS. Argentinan doctors and the multinationals are obviously opposed to the plan, as has been seen when similar policies are introduced elsewhere in the world.

California has decided to impose limits on individual patient subsidies (six drugs per month has been proposed), and is threatening to delve into price controls. New York has threatened to reduce pharmacist's reimbursement (although this was averted through political lobbying) but mandatory generic dispensing is likely to be introduced for their Medicaid program. Texas has moved to fix pharmacist's margins to 15% on average wholesale price.

It appears that pharmacist's markups are one popular area for authorities controlling reimbursement to target as a way of reducing costs. Few other businesses are as dependant on a markup fixed by an external body for their profitability and survival. The threat to reduce margins in New York could have closed 1000 pharmacies according to an article in this month's issue of Drug Topics (http://www.drugtopics.com). So pharmacists face a choice between increasing reliance on political lobbying and attachment to the PBS system, or finding alternative higher margin activities to subsidise lower margins in the dispensary.

The continuing negotiation and debate around the introduction of the PBS into the public hospital system will place further pressure on retail pharmacies which will face increased competition for PBS prescription trade for hospital outpatients. The Federal Government could save considerably by increasing the proportion of PBS items dispensed through hospitals as the margins are reduced. If this would have a flow on effect into the community pharmacy arrangements with the PBS remains to be seen.

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