Drug pricing policy threatens to push Australia further down the global access ladder

Senator Anne Ruston, Shadow Minister for Health and Aged Care, has criticised the Prime Minister Anthony Albanese for “his failure to secure a meeting with the President of the United States to advance Australia’s interests in relation to possible pharmaceutical tariffs.”

Her warning comes as the uncertainty around the US administration’s “Most-Favored Nation” (MFN) policy reverberates across the pharmaceutical sector. Several Australian companies are already holding calls with global head offices to model potential pricing scenarios and discuss ways to shield confidential government pricing agreements.

The MFN proposal, designed to cut US drug costs by referencing international prices, faces mounting criticism. A new analysis argues the policy is unlikely to deliver sustainable price reductions, drawing on decades of evidence from similar schemes in Europe.

It is well established that the US pays significantly more for branded, on-patent drugs than any other nation. A RAND report across 34 countries found US list prices were, on average, 178% higher than those elsewhere. For brand-name originator drugs, the gap widened to 322%.

But the analysis suggests international reference pricing is a blunt tool. While European countries initially achieved short-term savings, prices quickly converged with those of high-income markets, undermining longer-term affordability.

“Similar to Germany and France, which are the anchor countries for Europe, the United States would become the anchor country for global price referencing,” said author Dr Jens Grueger, The CHOICE Institute, School of Pharmacy, University of Washington, Seattle, USA. “Industry would seek to achieve list prices in designated reference countries within the range of US prices.”

The analysis points to several consequences from Europe’s experience. List prices converged with those of markets such as Germany and France without leading to sustained reductions. Access to new medicines deteriorated, with only 29% of new drugs available and reimbursed across Europe for all approved patients, and 17% having only limited availability.

In addition, countries increasingly turned to confidential agreements, ranging from undisclosed discounts and dynamic price-volume deals to pay-for-performance arrangements and budget caps, which undermined the very transparency such measures were intended to promote.

The implications for Australia are stark. Net spending on the Pharmaceutical Benefits Scheme (PBS) has already declined over the past decade, falling from 14% to 12% of overall health expenditure. When compared with other OECD countries, Australia ranks 25th out of 33 for medicines investment as a proportion of total health expenditure, trailing behind nations such as Japan, Germany, Canada, and Korea. In terms of access to reimbursed new medicines, Australia ranks 16th out of 20 OECD countries.

Industry leaders are weighing how to respond. To protect US revenues, some companies are considering delaying launches in countries within the MFN reference basket – including Australia – or withholding new health technologies altogether. Others may push up list prices while doubling down on confidentiality around net pricing. Pfizer’s CEO Albert Bourla has already flagged some of these options, a sentiment echoed by other major pharma players.

Although the push to lower drug prices in the US is politically compelling, the authors of the analysis urge caution: “Doing so through an international price referencing mechanism is ill advised. A more economically sustainable policy is to develop health technology assessment bodies that formally review comparative clinical benefit and value for money. This approach would recognise and promote innovation as critical to population health.”

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