The past week has seen more ill-informed comparisons between the US and Australian pharmaceutical markets.
Time to break some myths in this special report.
The primary differences between the two countries are scale, total spending, complexity, and dynamism, including speed to fund patient access.
Patient out-of-pocket spending is not a significant difference between Australia and the US, with patients paying roughly the same average co-payments. Still, Australians pay a higher share of their medicine costs, and more indicate affordability as a barrier to access. Medicines in the US are generally at least as affordable as those dispensed under the PBS, based on co-payments.
Payers paying higher prices is not the same as patients paying co-payments.
Australia favours a centralised 'command and control' approach to public health programs. It means a comparatively simple system, enabling centralised control, which many prefer over the plurality of the US health system.
While Australia has a dominant single-payer for pharmaceuticals, albeit with a significant and growing uninsured pharmaceutical market, the US has the complexity and dynamism of multiple government and private payers with a vast and complex supply chain.
Regardless of the differing approaches in each country, the indisputable fact is that every single innovative treatment reimbursed, dispensed and administered in Australia is available because of the commercial returns provided in the US market.
Local commentators often cite the HPV vaccine as Australian. Its extraordinary discovery and early pre-clinical development were conducted in Australia. Its global commercialisation relied on a multinational pharmaceutical company and the potential of the US commercial market.
The point is that the US spends a lot on pharmaceuticals compared to other countries, but it drives global innovation. We benefit from this innovation, both as an economy and a health system, but many challenge the US system's legitimacy. Is that reconcilable?
This is not to argue that the US system is superior, although it undoubtedly is when it comes to innovating and timely access. It is just that any comparison is far more complex than is generally presented in Australia.
The problem evident in recent weeks is that incorrect assertions about the US can pollute a proper debate in Australia about access and affordability to medicines. The discussion in Australia does not need to rely on incorrect criticisms of the US market, on which our health system and patients significantly rely, to enable a meaningful public debate. We should be better than that.
To what extent are incorrect assertions about the US pharmaceutical market designed to prevent a meaningful debate about the PBS?
The typical reflex response.
In Australia, many assert without any credible evidence that our system of funding medicines is superior to that in the US.
These assertions are generally opinions presented as fact, reflecting a view that the government is benevolent.
It goes something like, 'Our PBS is so much better than what they have in the US'. Why? 'Because it is. They pay too much, and patients face high out-of-pocket costs'.
Is that true?
It is not that simple, or entirely accurate, and an objective comparison does not always make for comfortable reading from an Australian perspective, particularly if affordability and access are the measure.
Around 92 per cent of Americans have health insurance via public or private programs.
Around 325 million Americans have health insurance. The country's insurance gap, around 25 million people, is mainly comprised of low-income working-age adults in states with limited availability of Medicaid and other public programs. Around one-fifth of uninsured people in the US reside in Texas, partly reflecting its decision not to adopt the Medicaid Expansion following the Obama administration's 2010 Affordable Care Act and its population of uninsured non-citizens.
Still, the number of uninsured in the US has almost halved since 2010. According to KFF, over half of uninsured people may be eligible for Medicaid or subsidised coverage, but may not be aware of coverage options or may face barriers to enrolling, including affordability.
Australia does not provide insurance for anything close to 100 per cent of people living in the country.
Not all non-permanent resident visa holders in Australia can access Medicare or PBS subsidies, including almost 700,000 international students, who are required to have a limited form of private health insurance that covers some services and products.
In reality, the proportion of people living in Australia not insured by government public health programs may not be that different to the number of people in the US not insured by public or private payers.
Even for those Australians covered by government public health programs, millions are effectively uninsured for significant health costs, including for pharmaceuticals. Government health insurance programs in the US are generally more generous in minimising patient out-of-pocket costs.
The public assertions in Australia often appear to reflect an incorrect understanding of the US market and an incomplete recognition of flaws in the PBS.
One independent Australian federal politician in the past week incorrectly claimed that the cost of a cholesterol-lowering medicine in the US was 100 times more than in Australia. It is typical of the incorrect assertions underpinning the comparisons.
Insured low-cost medicines in the US, primarily generics, are cheaper or around the same price at the point of sale as those dispensed under the PBS, including to concessional patients who pay $7.70 per prescription.
The cost of medicines in the US.
When it comes to cholesterol-lowering medicines, and the recent comparison in Australia, patient co-payments in the US government programs can be very low. Some private US payers charge US$0 co-payments for generic drugs.
Even uninsured patients in the US can buy generic medicines for prices within the range of the current concessional PBS co-payment, or what non-concessional Australian patients would pay under the general co-payment, or privately. Around 97 per cent of the prescriptions dispensed to uninsured Americans, most of whom are working-age adults, are low-cost generics.
The published US prices quoted in Australia are regularly sourced from websites promoting insurance. They use the claimed published price as a reason for choosing their insurance. These published prices are not credible.
According to an IQVIA analysis, for all US insurance programs, "...the average amount paid out-of-pocket per retail prescription has dropped from [US]$10.33 in 2015 to [US]$9.81 in 2020, primarily reflecting lower generic costs."
According to the 2019-20 PBS Expenditure and Prescriptions report produced by Australia's Department of Health, Disability and Ageing, the average out-of-pocket cost patients paid for their medicines, including PBS subsidised and under co-payment, was around $9.70.
These systems are not so different.
There is variability in the US between the multiple payer programs. Some private payers use co-payments for pharmaceuticals, and some use annual deductibles, which require patients to spend a set amount before switching to co-payments. Private payers often give people a choice. These differences lead to variability in the patient experience, which makes people in Australia uncomfortable.
Yet, how is it different to Australia, where patients experience significant variability?
Access to medicines in Australia can depend on a person's condition and the government's willingness to do anything about it.
How often do we see reports of Australian patients privately paying tens of thousands of dollars for unsubsidised treatments? Deductibles are also a common feature of other parts of Australia's health system, notably private health insurance, which around half of the population pay for, and the out-of-pocket cost of seeing a doctor or accessing a diagnostic can be very high.
An unquestionable strength of Australia's health system is the pharmaceutical supply chain, community pharmacy, and its ability to ensure patient access, once a medicine is listed on the PBS. The irony is that many Australian stakeholders, including some advocates of the country's command and control approach to public health, regularly call for the deregulation of pharmacy. How can they reconcile this position with their opposition to a US-style market-based health system?
An uncomfortable truth, rarely recognised, is that for most Australians, the PBS is a high-cost medicine subsidy program.
The uninsured market in Australia is large because a very significant proportion of prescription medicines are dispensed without any direct payer subsidy.
Around one-third of prescriptions in Australia, currently over 100 million each year, are dispensed under co-payment, meaning without any direct PBS subsidy. In practice, it means that around 80 per cent of PBS prescriptions dispensed to non-concessional patients are uninsured, with patients contributing the entire cost.
It means that around two-thirds of Australians, or 17 million people, are effectively uninsured for the significant majority of drugs they are dispensed. Millions of these people are from low and middle-income families. For these people, the PBS provides a form of insurance for a limited formulary of high-cost prescription medicines. For them, the program is a safety net for high-cost medicines.
Is the PBS fair for middle-income families with children?
When it comes to qualifying for Australia's health concession card and the lower PBS co-payment, low and middle-income families, including those with two adults and two children, do not have the same access rights as a self-funded retiree couple with an income of around $160,000. Is that fair and equitable?
Even with the recent reductions in the general PBS co-payment, the safety net has not been adjusted accordingly, making it more difficult for low and middle-income families to qualify for the lower concessional co-payment.
The reality is that for many low and middle-income Australians, facing comparatively high out-of-pocket costs for medicines, how does their experience differ from that of uninsured Americans?
More patients in Australia identify cost as a barrier to access?
According to Pharmacy Guild research, in recent years, 21 per cent of Australians have been unable to afford a prescription medication due to cost. The negative impact on affordability is widely recognised in Australia, given the bipartisan political commitment to reduce the general PBS patient co-payment, albeit without adjusting the safety net.
According to a 2023 study from the US Centres for Disease Control and Prevention's National Centre for Health Statistics, in 2021, among adults aged 18 to 64 who took prescription medication in the past 12 months, 8.2 per cent did not take medication as prescribed due to cost. Almost 23 per cent of uninsured adult Americans said they did not take medications as prescribed due to cost, approximately the same proportion of Australians reported in the Pharmacy Guild's research.
Despite the debate in Australia, more people in this country identify cost as a barrier to accessing their medicines, presumably because of comparatively high costs for the large number of uninsured prescriptions.
Which system is better in terms of out-of-pocket costs?
It is complex and challenging to say. It is certainly worthy of some more credible comparisons than some of those we have heard in recent weeks.
The fact is that the average out-of-pocket payment for medicines is similar in both countries, but Australians pay a higher total share of the cost of their medication than patients in the US.
The US spends more per capita on prescription medicines than any other country, including Australia. According to the Health System Tracker created by Petersen-KFF, in 2019, the US spent US$1,127 per capita on prescription medicines, compared to US$434 in Australia.
Consumption is one driver of high US expenditure on pharmaceuticals. The average American is dispensed 19 prescription medicines each year. This compares to 13 in Australia, according to the Australian Institute of Health and Welfare.
Yet, patient out-of-pocket costs in the US as a share of total spending are less than in Australia. Australians pay a higher share of prescription medicine costs, 23.5 per cent compared to 14.5 per cent in the US. The higher share of spending in Australia partly reflects the fact that around one-third of prescriptions are uninsured. The contrast is stark and belies public debate on the two systems.
Pricing in the US is more complex.
Differences in payer-funded medicine prices are undoubtedly a significant driver of the gap in per capita spending between the US and Australia. The plurality of the US health system, characterised by access mandates for government programs and competition between private payers, tilts the system in favour of patient access over price. How is that bad?
It is also erroneous for anyone to argue that US-based pharmaceutical companies simply set the price of their medicines. In a way not dissimilar to Australia, they negotiate prices with payers based on a range of complex factors, including prescribing restrictions. In the US, formularly position is the barrier, while in Australia, it is health technology assessment.
A US payer might fund wider insured access by securing an agreement with the pharmaceutical company for a lower price. Sound familiar?
Around 90 per cent of innovative medicines are funded by US government payer programs within one year of FDA approval.
Government payers in the US operate under legislated access mandates and can be quicker to fund access than private payers. This reflects a system that biases in favour of ensuring timely patient access. That sounds less familiar to Australians, where the legislated framework mandates that patient access is subordinate to the best deal for the government.
According to Australia's Health Technology Assessment Review's final report, over two years, not a single medicine providing an additional patient benefit was recommended the first time it was considered for reimbursement. The Department of Health, Disability and Ageing, recently advised Health Minister Mark Butler in its Incoming Government Brief that it takes an average of around 650 days to reimburse a medicine providing an additional patient benefit.
Which system is better?
The Australian uninsured private market for medicines is larger than the US, and out-of-pocket costs are at least comparable on an individual patient basis. Australian patients contribute more as a share of total pharmaceutical spending than patients in the US.
If you want rapid access to an innovation at an affordable price, the answer to which system is better is clear. If affordable access is the objective, the answer is less clear. The point is that, while the pharmaceutical market in the US is far more complex, comparisons that dominate the debate in Australia are generally overly-simplistic and based on incorrect or false assertions.
