STONE the crows! If Charlie Sheen lived in Australia the Pharmaceutical Benefits Scheme would pay for his barmy blockers, just like the government pays for everybody else’s meds.

The PBS cost Canberra $8.3 billion in 2009-10 and the drug companies are happy to keep coming up with more medicines. While underlying outlays were largely stable last year the cost of prescriptions for new drugs went up by $1.7bn.[i]

It can’t go on, but it will unless the Gillard Government (and the Crows do apologise for this) takes its political medicine and gets growth under control. Which, to its credit it is trying to do, although Health Minister Nicola Roxon is probably pleased her plan got lost among the Sheen silliness and the earthquake in Japan.

Until the budget is back in the black only new drugs that are life savers will qualify for the PBS subsidy. And while cabinet now approves new listings which will cost $10 million or more, in the future ministers will decide on whether any new drug at all qualifies for the PBS. [ii]

Inevitably this upset the industry, with Medicines Australia’s Brendan Shaw being outraged by the obvious:

It seems like cabinet has gone against expert advice for financial reasons. This is what happens when the bean counters in finance make the decisions. [iii]

Got it in one. The Liberals also had a go at slowing the growth in the cost of the PBS when Tony Abbot was health minister. And there will likely be more cuts to come as governments of all persuasions confront the cost of ever more baby boomers determined to consume everything medicine can offer and government can pay for.

But up to now both Labor and Liberal governments have taken the easy option – cutting what the state pays to one of the three expenditure Ps, the pharmaceutical manufactures.  The second group, the public, is massively subsidised and the third P, the pharmacists, is both paid and protected against competition.

In 2006, Mr Abbott cut the price Canberra paid for drugs coming off patent, which was expected to save $580 million in four years and $3bn over a decade. [iv] This was obviously bad for drug companies whose patents were expiring and for manufacturers of generics who might have hoped to clean up if the old price had continued.

But cutting big pharmas profits is not going to upset many electors, making this a painless saving – although not as large a one as the government hoped, estimates of four years savings were reduced to just $103 million. [v]


This is one of the reasons the government is intent on controlling access to new dugs – it is much easier than cutting back on the subsidies individuals expect for their existing prescriptions. Whatever a drug costs, individuals only pay $34.20 (pensioners and the very poor have to shell out $5.60) and there is a ceiling on what people are expected to pay for the medications, $1300 per annum for most of us and $336 for welfare recipients. [vi]


However, pharmacists are the real PBS protected species being paid by the government and again by patients (albeit not much) to dispense drugs. Around half of the cash coming into a typical suburban chemist is said to come from the government via PBS drugs and dispensing fees.[vii]

This makes the industry sensitive to anything government does that cuts chemists’ income and, at the moment, they are upset at the margin they will lose due to the PBS switching to generics.

But, because the Pharmacy Guild (it sounds so much better than chemists’ union) is politically astute and fiercely focused on protecting its own interests, it is a racing certainty that Canberra will not unduly upset them.


There are sound policy reasons for this. Drugs have to be distributed to the public and doing it via university trained, easily regulated retailers is easy. But there are no unanswerable arguments for all sorts of drugs being sold by supermarkets, or by a closely regulated online fulfillment service. Except, that is for the political nous of the chemist lobby (it does not call its members community pharmacies for nothing), which no minister dare take on.

While Canberra has, and a future government with a majority again will, cut pharmacy margins, as it stands drug retailers are protected from a bigger danger to their income-competition. A range of state and federal fiats, ranging from who can own retail chemists (in the main only pharmacists) through restrictions on competition (exclusive territories) to their exclusive authority to dispense PBS drugs, push up the price of pharmacies in the same way rationing increases the cost of taxi plates. [viii]

This is irrational and expensive. It turns highly trained pharmacists into PBS administrators and it protects their small retail businesses.

But just as no minister dares open the taxi industry to competition, for fear of upsetting owners who mistake a government license for an asset they have a right to sell for their own profit, no one wants to take on the pharmacists 


Tony Abbott explained why when health minister:

We’ve got to make sure that your income is sufficient to maintain your businesses. If we lose pharmacists, we lose the PBS. That’s why it’s very important that we keep faith with the Guild and ensure that the pharmacists of Australia can continue to do the marvelous work that they do. But you know pharmacy in the end is not just a business. The reason why pharmacists are so widely respected is because it’s not just another business, like the coffee shop or the fruit grower, pharmacists are health professions and as far as the government is concerned, as far as the Guild is concerned, it’s very important that we are always adding to the professionalism of pharmacists, that we are always trying to help pharmacists to be able to better deploy their professional expertise for the benefit of the health care of the Australian people. [ix]


Politically, pharmacists are almost as untouchable as doctors – and in an industry where expansion is as assured as the ageing of the population. While they may be losing margin on generic drugs for the moment, thanks to the PBS and barriers to new entrants into the industry they know where their cash flow will keep coming from.

[i] Intergenerational Report, 2010 (Commonwealth of Australia 2010) 50,52

[ii] Emma Connors, with Laura Tingle, “Labor curtails cheap medicines,” Australian Financial Review, March 9, Sue Dunlevy and Adam Creswell, “New drug subsidies ‘subject to savings’ “ The Australian, March 10

[iii] James Massola, “Budget cuts to limit new medicines, doctors warn,” The Australian, March 9

[iv] Tony Abbott, Minister for Health and Ageing, “PBS Reform,” November 16 2006

[v] Rebecca de Boer, “Budget Review 2010-2011: Pharmaceuticals and pharmacy @ recovered on March 12

[vi] Australian Government, Department of Health and Ageing, PBS: fees, patient contributions and safety net thresholds @

[vii] Emma Connors, “Bitter pill for pharmacists,” Australian Financial Review January 10

[viii] David Gadiel, Harmacy: the political economy of community pharmacy in Australia (Centre for Independent Studies, 2008) @ recovered on March 12

[ix] Tony Abbott, “Speech notes for Pharmacy Guild National Conference,” March 2 2007 recovered on March 12