Our system of reimbursing medicines is more uniform than in the US, but not uniformly better. Americans gain funded access to new medications much sooner than in Australia. Hundreds of millions of prescriptions are also dispensed to Americans at much lower prices than those dispensed under or around the PBS.
Many people have formed a view of the US health system based on public critiques, which appear to be influenced by television dramas rather than direct experience of the system.
How many reject the US health system simply because they are told it is bad?
To put this in context, virtually every life-changing and life-saving innovation we enjoy in Australia is due to the commercial drivers of America's health system. Even when innovative health technologies are discovered outside the US, including in Australia and New Zealand, it is the American healthcare market that drives their development.
It stands to reason that any move to degrade some of the commercial drivers of America's health system will impact Australia and every other country.
Which system is better?
It may depend on what matters to you. Do you value price over access? If so, the Australian system is the only choice. It would be an odd choice to prioritise securing the best deal over patient well-being and outcomes, but it is the choice this country made almost four decades ago.
The US market for prescription medicines is significantly larger than that of Australia, equivalent to over A$700 billion in 2024, and this figure only accounts for the retail pharmacy market.
Per capita spending on prescription medicines in the US is undoubtedly significantly higher than in Australia and other comparable countries, mainly because 92 per cent of Americans have insurance.
Apparently, according to some, the US spends too much on medicines while at the same time making treatments too difficult to access. It is an absurd and internally contradictory argument. Medicines are highly accessible in the US, which challenges much of the prevailing orthodoxy in countries like Australia.
Pricing is only part of the explanation for why the US spends more on prescription medicines.
Pricing and utilisation in the US are generally higher, partly because more people have chronic conditions, and new medicines are typically funded very quickly for higher upfront prices. Yet supply chain factors are also a significant consideration. According to a 2025 report produced by PhRMA, rebates and direct fees paid to payers, including the government, accounted for 57.8 per cent of new spending on brand medicines between 2022 and 2023.
That is, over half of the spending on new branded medicines is in the supply chain. This is in stark contrast to Australia's highly efficient supply chain.
One of the myths is that biopharmaceutical companies set prices, and US payers accept them without question. It is far more complex than that, as evident by the realities of the supply chain. US payers use every lever at their disposal to manage prices.
Some US federal and state government programs have only recently acquired a limited legal power to negotiate prices. However, the US Department of Veterans Affairs, which provides coverage for around nine million Americans, secures comparatively low medicine prices under a tacit agreement with the industry.
The competitive US payer market drives significant innovation in formularies that benefits patients. Private US payers are very aggressive in promoting the use of generics and biosimilars. Some private payers own generic and biosimilar manufacturers. They use multiple other levers in negotiations with pharmaceutical companies, including differential co-payments, formulary positions, rebates and fees.
US private payers have responded rationally to paying higher prices for newer medicines by paying less for older treatments, including generics and biosimilars, and favouring their use.
In Australia, we demand low prices for new medicines, which often results in delayed patient access, while paying relatively higher prices for biosimilars and not encouraging their use more forcefully.
Which system has it the right way around?
It is about choices. In Australia, the government's choice is to secure the best possible upfront price, regardless of the impact on the patient. Is it the right choice?
Australia's institutionalised PBS pricing and decision-making framework for reimbursing medicines, based entirely on health technology assessment, has arguably proven almost incapable of innovating through markets. The exception is the market-driven price disclosure policy, which delivered $25 billion in savings and downward estimates variations. The stagnant biosimilar policy is emblematic of the system's lack of dynamism and inability to innovate.
What about patient costs? Are they higher in the US? This is the greatest myth.
Of course, uninsured patients in the US, accounting for 8 per cent of the population, can pay high out-of-pocket costs. In Australia, it is less about the number of uninsured individuals than our system of single-payer insurance, the PBS, which delays or fails to fund treatments altogether. In Australia, where decision-making is dominated by a centralised command and control insurer, virtually 100 per cent of people miss out until it secures the best deal for itself.
Which system is better or worse? It depends, but if you are waiting for funded access to a new medicine and you are one of the 92 per cent of Americans with insurance, the US is undoubtedly the better place to be.
Patient contributions in the US are highly variable and complex, based on a combination of deductibles and co-payments, depending on the coverage.
What is true is that for the majority of individual Americans, their prescription medicine co-payment arrangements do not differ significantly from those in Australia. They might even be much lower in billions of cases.
As reported by BioPharmaDispatch yesterday, American patients pay a lower portion of their out-of-pocket prescription medicine costs than those in Australia.
Patient co-payments for US government programs are generally low, typically ranging from US$0.50 to US$3, with some linked to the cost of the medication. They are means-tested, and in some jurisdictions, annual out-of-pocket limits apply. They are also priced to encourage the use of lower-cost medications, sometimes referred to as preferred brands, which are often generics or biosimilars.
Private payers operate similarly to Australia's PBS, but arguably more aggressively.
CVSHealth is the largest US pharmacy benefit manager, with 110 million members, who are dispensed 2.3 billion prescriptions each year. It manages plans for thousands of employers, negotiating tailored premiums, coverage levels, co-payments, and deductibles. It states that the average out-of-pocket cost per 30-day prescription is US$8, equivalent to approximately A$12, and that 69.5 per cent of its members spent less than US$100 out of pocket on prescriptions in a year. It passes on to its members 98 per cent of the rebates paid by manufacturers, and 90 per cent of funded prescriptions were generics or biosimilars.
A 2023 poll by Peterson KFF found that while 82 per cent of American adults agreed that the cost of prescription medicines is unreasonable, 65 per cent said affording their medicines “very” or “somewhat” easy, presumably because they are accessing them via insurance, and co-payments are low.
Some Americans have coverage that requires them to pay a deductible, which may be the first US$1,500 of their annual prescription medicine costs before reverting to co-payments. It might be described as a form of safety net. Australia's health system, notably private health insurers, commonly uses deductibles for inpatient hospital services.
A survey released by the Australian Bureau of Statistics in early 2025 found that 21 per cent of Australians reported being unable to afford a medicine prescription. This was 27 per cent in regional areas.
Are prescription costs more of a problem in Australia than in the US? Arguably, yes, judging by the research and political response.
The Albanese Government has lowered the general PBS co-payment and plans to reduce it further to $25, and frozen the concessional co-payment at $7.70. Safety nets also apply once people or families reach a spending threshold. Over 100 million prescriptions are dispensed with no PBS subsidy, at an average out-of-pocket cost of around $15.
However, if you strip back the PBS by including under co-payment prescriptions that attract no government subsidy, Australians pay an average of around A$10 per prescription, but the range is significant, particularly when a medicine is not reimbursed.
The point is that while Australia provides greater uniformity and claims universality, which is questionable given that one-third of prescription medicines attract no government subsidy, the US delivers consistently lower out-of-pocket costs for more medicines.
Comparisons of the prescription medicine markets in the US and Australia, with one market performing well and the other less so, often mask the complex reality.
The US market is highly competitive, resulting in particular outcomes, including rapid access to innovation and high uptake of generics and biosimilars at very low prices. Payers pay higher prices for new medicines, which are generally funded quickly, but supply chain factors result in more than half of sales revenue being returned to payers as rebates or fees. The vast majority of prescriptions are dispensed to patients with low out-of-pocket costs.
The Australian market is characterised by uniformity, which reflects the cultural underpinning of our health system, meaning that one person's experience of the PBS at one clinic or pharmacy is closely replicated across the country millions of times each day. Yet its decision-making is slow, with patients suffering the consequences, and it lacks dynamism and the ability to innovate. Around one third of dispensed prescriptions receive no subsidy.
Each market has its strengths and weaknesses, but it is worth challenging the myths that characterise so many aspects of the debate on the US market.