The celebration by some of Australia's and New Zealand's exceptionalism in pharmaceutical pricing rests on a fundamental misunderstanding of how the systems work and their place in global innovation.
There is no underlying genius to the decision-making because the key is power.
Any reputation for sophistication masks a blunt and straightforward reality. PBS and Pharmac decision-making are based on the exercise of power within attritional price-focused bureaucratic institutional frameworks. The fact is that any technical underpinnings mask systems characterised by immense power asymmetry.
In his 1964 book, The Bureaucratic Phenomenon, French sociologist Michel Crozier developed a theory of bureaucratic power.
Crozier argued that power in bureaucratic institutions flows from formal authority and control over what he called the 'zones of uncertainty'. In these frameworks, rigid rules are ostensibly presented to eliminate discretion. According to Crozier, this rigidity produces ambiguity. Those with authority to interpret or manipulate this rigidity accumulate and exercise power.
Sound familiar?
In the case of PBS, Pharmac, and their health technology assessment (HTA) and pricing processes, companies, patients, and clinicians are bound by rigid procedural frameworks and have almost no direct influence on the rules. Those with the power, such as HTA advisory committees and officials, manipulate within the grey zones of interpretation, presenting outcomes as evidence-driven and based on rigid technical necessities.
Can this manipulation be considered a form of corruption?
Crozier did not suggest framing his theory in terms of corruption. He argued that the asymmetrical exercise of power is simply intrinsic to bureaucratic institutions. Yet, it is not unreasonable to suggest that Crozier's theory could lead to corrupt behaviours because of the ability to manipulate uncertainties.
In critical public health programs, such as the PBS or Pharmac, at what point does institutional manipulation of frameworks constitute corruption? Is it when an outcome is knowingly at the expense of the program's stated goals, including its obligation to provide affordable and timely access to medicines? Or, is that more accurately characterised as a mistake? It could be a fine line, not helped by program goals that are primarily focused on fiscal considerations. Where they relate to access, they are vaguely worded with few, if any, explicit performance measures, which is intentional and perfectly reflects the issues raised by Crozier.
Crozier essentially argued that a bureaucracy is incapable of correcting its behaviour by learning from its mistakes, because they tend to be concealed, denied, or ritualised rather than transparently analysed. He partly attributed this to the fact that rules are often designed to avoid clarity and admitting mistakes.
When was the last time an Australian HTA institutional body admitted a mistake? Anyone?
Crozier proposed solutions to these risks. He recommended that bureaucracies accept the reality that institutions manipulate their frameworks, that it is undesirable, and that power over uncertainty should be dispersed. For programs like PBS and Pharmac, this means equalising power across stakeholders, something governments would instinctively resist in these programs but embrace in others.
Crozier recommended the creation and maintenance of feedback cultures, as well as openness and a willingness to admit mistakes.
Crozier also urged institutions, and this one will hurt some readers heavily invested in the HTA Review, to resist 'big-bang' reform processes. He argued that they belie the reality of bureaucracies that naturally tend to drift back into institutional rigidity.
According to Crozier, bureaucracies tend to use these big-bang processes to avoid addressing substantive issues in favour of redefining them in technical or procedural terms that fit within existing rigid frameworks. Crozier's theory predates the HTA Review by almost 60 years, but it was remarkably prescient for the process. The review has proposed new rules that would only deepen rigidity, not because that is the intent, but as Crozier argued, it is the institutional instinct.
For Crozier, the more a bureaucracy seeks to control change through its rules, the less capable it becomes of recognising when change is necessary, which is ominous for HTA in this country.
The obvious primary risk is that the HTA Review may fail to deliver benefits for patients, including those prioritised by the Albanese Government, in the absence of broader institutional changes. Crozier preferred constant adaptive change processes based on the adoption of his other solutions that addressed issues inherent in bureaucratic institutions.
These power frameworks have consequences.
The tragedy is that these are not victimless, power-based institutional frameworks because patients pay the price in terms of time. Time is a euphemism for suffering, and in some cases, death.
Australian Health Minister Mark Butler has announced the 1 October PBS listing of AstraZeneca's breast cancer therapy TRUQAP (capivasertib). The listing will take effect 512 days after the treatment, which Mr Butler described as "life-changing for thousands", was approved by the TGA. It would have been life-changing on any of those previous 512 days.
Of course, the Australian government's advisory committee and its officials needed the attrition of those 512 days within the bureaucratic institutional framework to exercise the power required to secure the price they wanted.
The uncomfortable truth for these innovation charity cases.
Beyond polite academic and bureaucratic circles, who points to Australia or New Zealand as models for pharmaceutical reimbursement worth emulating? What other comparable countries have adopted either system for reimbursement decision-making, including the PBS that mandates the best price for the government as the sole legal obligation, or Pharmac, which is required to operate under a fixed funding envelope with no allowance for innovation?
The reality is that the trade-off both countries currently accept, cheaper prices in exchange for years of delayed access, is judged too steep by the vast majority of comparable countries.
Patients in Australia and New Zealand effectively rely on the willingness and patience of companies to navigate attritional price-obsessed processes.
As two of the wealthiest nations in the world, are we truly content to be viewed by industry as global innovation charity cases? Some might.
The irony is that Australia and New Zealand only benefit from innovation because others, primarily the US, reject their reimbursement systems. If every country adopted PBS or Pharmac decision-making frameworks, there would be no innovation in healthcare.
This goes to the heart of Crozier's theory and critique of bureaucracies and their institutions. They have a low capacity for self-awareness and learning, which can obviously be a problem when it impacts patients.
Has the US finally had enough, and is it all about to change?
Mr Butler has been correct in playing down any risk to the PBS as a result of US President Donald Trump's announcement on social media that a 100 per cent tariff would be imposed on some pharmaceutical exports from October 1.
Based on the announcement, the tariff will apply to patented pharmaceuticals where the company has not commenced construction of new manufacturing facilities in the US.
Will it even happen?
The announcement triggered some alarm in Australia. CSL produced blood products dominate Australia's pharmaceutical exports to the US. The company downplayed any impact, which appeared to ease investor concerns, with its share price closing down 1.9 per cent on Friday.
Mr Butler said the tariff announcement was disappointing, but that it would not have any impact on the PBS. Mr Butler has publicly expressed concern over the potential impact of the Trump administration's 'Most Favored Nation' (MFN) pharmaceutical pricing policy.
A new global benchmark?
While other countries were dissecting President Trump's latest tariff announcement, what was missed was the quiet release of a new US regulation that could have a far greater impact on access to medicines in this and other countries.
Late last week, the US Department of Health and Human Services posted a notice to a federal website referring to a “proposed rule” and a “global benchmark for efficient drug pricing (GLOBE) model”.
The New York Times reported on the notice but noted that it was unclear exactly what the proposal would entail. Could it be the next step in implementing the previously announced MFN pricing policy?
Is the Government's claim that it will not negotiate changes to the PBS in response to MFN realistic?
Is it plausible to think the Australian Government would not concede on technical aspects of PBS pricing policy if it mitigated the risk of patients losing access to innovative medicines?
Again, this goes to Crozier's theory. It is quite possible that the HTA institution and its supporting bureaucracy would indirectly choose to accept patient suffering and even death over changes that would ensure continued access to medicines. It is not intended as a criticism of the individuals, although they are free to take it that way. They may be institutionally incapable of recognising this as the choice. Or, as Crozier suggested, the instinct to protect institutional power could lead to unintentionally risky and even dangerous behaviours.
The institution might be resistant to or incapable of recognising a changed global reality. We should anticipate this reality, given what Crozier teaches us about bureaucratic institutions, and respond accordingly. That might mean responding outside the institutional framework and its existing power structures.
What matters most is not the bluster of a tariff tweet, but our ability to respond to the emerging architecture of US pharmaceutical pricing reform.
Whether labelled MFN or GLOBE, the principle is the same. The US is signalling that it will use its market dominance to set global benchmarks for pharmaceutical pricing. It has been a long time coming, and maybe overdue.
For countries like Australia and New Zealand, which have long taken pride and even boasted about extracting value through market powers, this presents both a mirror and a warning.
For a start, no complaining from the two countries in response to another Government doing what they have boasted about doing for decades.
If the US presses ahead, the era of quiet Australian and New Zealand exceptionalism on pharmaceutical pricing could be over, and it probably should be over, not least because of the enduring human cost in suffering and lives.
They can adopt a wait-and-see approach, as long as it does not devolve into institutional denial of reality.
The challenge is whether the authority that exercises power within these bureaucratic institutional frameworks is able to recognise and respond adequately to the change.
In Crozier terms, bureaucracies and their institutional frameworks tend not to learn, they ritualise. This could become the greater risk for patients in Australia and New Zealand in the context of global change driven by the US.
The PBS and Pharmac are textbook 'Crozierian' bureaucracies. The fix, particularly in the context of a potential new global pricing reality, is reform that recognises the reality of ritual that dominates centralised bureaucratic institutional power frameworks. The ultimate need is change that forces the institution to finally learn from the people it consistently fails, and they are called patients.
