The PBS is under fire from US
drug giants. There’s not much they can do.
The drug companies have bought both American political parties. They have not bought Australia.
 |
PhRMA’s headquarters in Washington DC
America’s pharmaceutical giants do not love the
Pharmaceutical Benefits Scheme. It costs them money.
They’ve tried for decades to hobble the PBS or to knock the
scheme over altogether. Each time they’ve failed. Now, with Donald Trump in the
White House, they’re trying again.
Every year the US Trade Representative issues a report,
called a “Special 301”, to target challenges to American trade and intellectual
property. A 243-page submission from the drug companies’ lobby group, PhRMA,
targets 20 countries which it claims engage in bad behaviour.
Australia is on the list but we’re far from alone. China has
a category of its own, right on top. Then follows a “priority list” of 14
countries including Canada, India, Russia, Mexico and Indonesia.
Just five are on the lowest-priority “watch list”:
Australia, Egypt, the European Union, Saudi Arabia and Taiwan.
Only ten pages of this huge document are devoted to us. They
follow a well-worn catalogue of complaints, mostly around the PBS using its
market power to secure lower prices for drugs than these companies are
accustomed to in America. They rely heavily, yet again, on their own
interpretations of clauses in the Australia-US Free Trade Agreement, which came
into force in 2005.
There’s not much they can do to enforce their wishes.
If they thought Australia had breached that agreement, the
Americans could seek adjudication from the World Trade Organisation – except
that successive US administrations have wrecked the system.
The WTO’s Appellate Body is the highest
tribunal of world trade. Serious disputes between countries end up here. It
has – or had – seven members, each serving four-year terms with an option of
one four-year extension. Its rules specify a quorum of three members: without
that minimum number, it cannot hear appeals.
Barack Obama began the process of destruction by blocking
the appointment of one member. Trump continued to block any new appointments
and by 2019 the world’s peak trade dispute settlement body had ceased to
function. The term of the last member expired in November 2020. Biden went on
blocking all appointments, so the Appellate Body now has no members at all. And
it now seems likely that Trump will withdraw the US from the WTO altogether.
Competition?
On whose terms?
The big drug companies accuse Australia, and much of the
world, of anti-competitive behaviour. But competition has to cut both ways.
The world’s drug giants compete vigorously on marketing,
politicking and dirty tricks. They do not – ever – compete on price. Because
these companies effectively operate as a cartel, any countervailing force must
have roughly equal market power. Enter the PBS.
The PBS dominates the market for prescription drugs to such
an extent that it is a monopsony, the equivalent of a monopoly on the buyer
side. If a company wants its drug to have a serious market in this country, it
has to involve the PBS. And it must work with a scheme that matches its power
and which is required to reach prices that are fair to both sides. This is not
an out-of-control, anti-capitalist outfit. Just the reverse.
The company’s submission is assessed by health economists. That evaluation is then shown to the sponsor for comments. Those comments are considered by an
economic sub-committee before a final vote is taken by the full PBAC. The
National Health Act stipulates that, except in very restricted circumstances,
the Health Minister cannot list a drug that has not been approved by the
committee.
The assessment of cost-effectiveness is based on the
clinical effectiveness of the new drug, compared with an existing standard
therapy. That comparator can be a placebo but, more often, is another drug.
The measure is the cost per quality-adjusted life year, a
standard yardstick of the quality and quantity of life. There’s a dollar
benchmark, but it’s not mechanistically applied. The committee also takes into
account the community’s broader needs.
PhRMA claims, incorrectly, that the PBS is primarily a means
of saving money. That’s true only by comparison with the extortionate prices
being demanded, and paid, by patients in America. According to OECD figures,
Australia spends half as much per head on pharmaceuticals as the US – but most
other countries are similar. We spend a bit less than Canada, Germany and
France, and a bit more than Britain, Spain, the Netherlands and Denmark.
In all those countries, the drug makers are making a very
healthy profit. It’s just not as much as they get in the US.
Money, drugs
and politicians
The big drug companies, including those in Britain, Europe
and elsewhere, have one overwhelming political priority: to keep prices in the
US sky-high.
High health care costs, and drug costs above all,
supercharge social and economic inequality. Research has shown that over a
quarter of all American adults – disproportionately, Black and Hispanic
Americans – can’t afford the cost.
The Rand Corporation researchers found drugs which are still
under patent cost, on average, 4.22 times as much as they do in the other 33
other developed nations in the study. For generic medicines, the gap is less
but still remarkable: Americans pay over three times as much as consumers in
other countries. And it’s getting worse.
“US health plans and patients paid an estimated $603 billion
[A$905 billion] for prescription drugs in 2022,” they wrote. “Even after
adjusting for general inflation, U.S. retail prescription drug spending
increased by 91% from 2000 to 2020, and spending is expected to further
increase by 5% year-on-year through 2030.”
Americans pay 500% more for an average patented drug as
Australians do. For generics, they pay 63% more.
Despite their reputation, the big drug makers are poor
lobbyists – if, by lobbying, you mean persuasion rather than bullying or
corruption. This is on display in almost any meeting between Australian
regulators and representatives from a company’s head office in America.
Visiting brass lecture and attempt to bully the regulators, while their more
junior Australian representatives, sitting alongside, quietly wince.
Loud-mouthed threats are not an effective tool of
persuasion. In America, they are less reliant on persuasion. Other methods are
available.
A non-profit NGO, Open Secrets, found
pharmaceutical manufacturers and their industry organisations spent US$152
million (A$228 million) on lobbying in 2024 alone. They employed 740 lobbyists,
467 (63%) of whom had previously worked for government.
This is lobbying in depth. The don’t only talk to
politicians but to bureaucrats, consumer representatives and doctors. And along
with the talk goes money, favours, holidays.
Democrats
and Republicans are both culpable
For the 2024 presidential election, the three main
candidates – Kamala Harris, Donald Trump and Robert F Kennedy Jr – raised US$3.5
billion for their campaigns. On top of that, candidates running for the
congress spent over US $10 billion.
That money has to come from somewhere.
Some is from small donors who don’t expect any favours in
return. Most, though, is from large commercial interests and wealthy
individuals who definitely expect something back. And drug makers are among the
most prolific players of all.
Open Secrets calculates that, for the 2024 election, they
gave US $41 million (A$61.5 million) to members of congress and candidates. Of
that, 60% went to Democrats, 39% to Republicans and 1% to independents.
Until relatively recently, the bulk of drug company largesse
went to Republicans. The investment was repaid handsomely, most notably by
George W Bush, whose legislative changes to Medicare in 2003 forbade government
agencies from negotiating prices with manufacturers. They just had to accept
whatever the companies wanted to charge.
Biden, in the Inflation Reduction Act, allowed Medicare to
negotiate prices again – but only on a list of ten drugs. The list has been
expanded to include another 15. In contrast, Australia’s PBS has negotiated
price on all the 930 items on its list.
Senator Bob Casey, Democrat of Pennsylvania, was the top
recipient of drug company cash: US$598,658 (A$951,936) for this election alone.
He is not the biggest recipient of drug industry largesse in recent years,
though. That title goes to his close friend and boss, Joe Biden, who was paid US$9,157,943 (A$13,736,914) between 1990 and
2024.
Barack Obama, Mitt Romney, Bernie Sanders and Chuck Schumer
are all in the top 20 list of drug money recipients.
measures were implemented but none had any material effect on profits, though the president insisted otherwise:
“For the longest time, I've been trying to give Medicare the
power to negotiate prescription drug prices,” Biden said at an election
event for Casey in 2024. “I did that when I was a senator. I worked like
hell. Well, we got it passed by a vote, and, with Bobby's help, we finally took
on Big Pharma.”
Most Americans loathe the drug companies. For many years,
Republican voters had a much more positive view than Democrats of the industry
but that has changed dramatically. The turnaround came with the pandemic, when
the industry made billions by price-gouging customers on life-saving vaccines.
The Gallup Poll found Republican support fell from 45% in 2019 to 13% in 2023.
.png)
It makes little difference. Both parties continue to make
noises about drug prices but do nothing that will upset their sponsors.
It is questionable whether the American system really was
“government of the people, by the people, and for the people” even in 1863 when
Abraham Lincoln, the former railroad lawyer, delivered his address at
Gettysburg. It is emphatically not true now.
The American political system is not owned by the people.
It, and the politicians who inhabit it, are owned by corporate interests – Big
Pharma prominent among them.
What can
they do to us?
Not much, or they would already have done it.
Few countries, if any, will sacrifice their health systems
to some of the richest companies in the world. Any Australian government to do
so could expect to lose the following election, and heavily.
It would be theoretically possible, though practically
implausible, for them to stop selling their products to us. But that would hit
their bottom line badly.
The value of Australia’s prescription drugs market has been estimated
at A$22.4 billion (US$14 billion) for 2025 and is forecast to increase by 6.25%
a year to reach A$30.3 billion (US$ 19.01 billion) by 2030. The American share
of that is substantial.
If that supply was stopped, it would create a health
emergency which the Australian government would have to address immediately.
Two main techniques would be available: compulsory licenses and parallel
imports.
With compulsory licensing, a country can authorise another
manufacturer to make and supply a patented medicine, against the wishes of the
patent owner and, probably, with the owner receiving no payment.
Parallel importation means bringing in those necessary
products from a third country which still has access to them.
Australia has signed agreements not to use either of these
measures in normal times, but in an emergency would be permitted to do so even
under WTO rules – to the extent that the WTO matters any more.
Cutting off supply would not work.
PhRMA and its members successfully opposed it in the courts,
which found the measure would require the congress to approve legislation. But the
America First Policy Institute, a right-wing think-tank with close ties to the
Trump administration, is strongly advocating that the measure should
be revived.
“The MFN Model would limit how much Medicare and Medicaid
spend on certain high-cost drugs based on the drug’s lowest price in other
wealthy countries,” they wrote. “The countries selected to calculate the MFN
price would be countries within the OECD with a GDP per capita that is at least
60 percent of America’s GDP per capita.
“Drug manufacturers would face a choice under the MFN Model:
Raise their prices in other countries so they can maintain their prices in the
United States or lower their American prices to match the lowest price they
offer other countries. These incentives would encourage drug manufacturers to
reduce or even terminate the discounts they offer other countries and lead
these countries to contribute more funding to pharmaceutical innovation.”
As the drug makers realised, the system would hit their
profits hard. It would be reasonably possible for a US government to force
prices down domestically, but other countries could be expected to hold their
ground. The MFT Model assumes manufacturers have almost total control over the
prices they receive around the world. They do not.
Trump has promised an across-the-board tariff of 25% on all
pharmaceutical imports. That would increase the already high price of a large
range of essential drugs, including those for cancer, rheumatoid arthritis,
schizophrenia, as well as vaccines for Covid-19, mpox and cervical cancer.
The stated aim of the tariff policy is to force companies to
relocate their overseas factories to the US. But building new factories is a
long-term process. It would take years for US-based manufacturing to replace
the imports. Anyway, Trump will be gone in four years, so the companies could
decide to wait things out.
Nor would it deliver the promised jobs bonanza. These plants
are highly automated. They are capital, not labour, intensive.
PhRMA is not keen on the tariffs which target medicines,
including those made in Australia. Who do you think owns the factories?
In fact, the measure would be economically important for
only one Australian company, CSL. Its blood products comprise a large part of
the A$1.06 billion in annual drug exports to America. Overall, though, it would
not hurt this country: our exports comprise only 0.4% of America’s pharmaceutical
imports.
The drug giants control policy in the United States because they own the congress and the presidency. They do not own the Australian parliament. Our PBS is not going anywhere.