Andrew Laming (Bowman, Liberal Party) Share this | Hansard source

As many of us look back, decades from now, at what we worked on in this place, we'll often look at one or two achievements of which we're most proud. For me, of course, that moment was 15 years ago this month, when I advanced the proposal for cycles of competitive price referencing to bring the prices of generic drugs down—a policy that was adopted by then health minister Tony Abbott, and then, subsequently, by the Rudd administration and the health minister at the time. And it continues today.

The initial planning for price referencing and generic drug reform saw that there was potentially $1 billion a year to save out of the PBS. At the time, 15 years ago, I wrote that the PBS was designed to deliver drugs affordably. We secured new patent drugs by locking them into an agreed price, globally competitively, and, in return, overseas drug firms gained access to the Australian market four times faster than to many other countries.

But now we see the PBS growing out of control. Fifteen years ago, I noted that $6 billion a year was an outrageous amount, that most of this money was going to foreign drug companies and also that, being uncapped, the PBS was growing four times faster than our GDP. Modelling at the time showed that what the nation spent on drugs would, within a generation, consume one out of every $28 of GDP.

Our PBS was designed back in the 1950s. Though we all adore our PBS, it was out of control 15 years ago. For a common depression medicine, for instance, at the time, in New Zealand, $1.45 was what the government paid; in the UK, it was $4.97 for the same drug. At the time, in Australia, we were paying $33 for a month's supply of that drug, and that was simply because prices, generically, were upwards-sticky, and so, when a patent expired at the end of a 20-year period, you could swamp the market with generics that, effectively, could claim the same clinical impact and, therefore, the same price—potentially, dropping a dollar. There would be very little competition between generics, because many of them were manufactured by the company that had actually made the innovative drug. These big profit margins swirling around in the system allowed cuts for wholesalers and for pharmacies on the way through. You didn't need to be a genius to say that Australia could not afford that to go on forever, but there was significant opposition to the proposal. And I put it to good people at the time. The response was: 'Why is this op-ed coming out now? Why is it being done if, pragmatically, it has been too hard to do up until now?' But it's credit to the then health minister Tony Abbott, who agreed to see me. I took down the Melbourne Ageopinion piece that had come in April 2005. It eventually did run. It provoked a very strong reaction from both the Pharmacy Guild and Medicines Australia, who were concerned that any money taken out of the system may not return. But pharmacists wrote to me personally. 'All the best,' one said, 'for negotiating the guild-government agreement. If everything in your article is plausible, this could well work. It's ultimately a free market. There is too much collusion at the moment.' This was coming from a pharmacist in my own electorate.

As I further refined the PBS model, by the end of 2005 I was approaching key departmental figures and wanting to run it by Medicines Australia, who expressed concern about the elements in the proposal but could also see that there was a compelling argument for it. I noted at the time that GMiA had a proposal that obviously wouldn't be painful for them, but their offers of a one per cent discount for every 10 per cent market share I described as not computing. In addition, we had Health riveted to price referencing, but it didn't appear to work, as they decided. Price referencing needs to be there for innovative new products, but I argued that it couldn't be applied to those that were not. A co-payment discount was the model that I thought would most attract a patient to go and buy a generic drug, which, at the time, was only 19 per cent of the pharmaceutical market. My goal was that generic drugs should be closer to 50, as we see in parts of northern Europe, and that, by saving money on generic expenditure, we could re-divert that back to the innovatives.

Within the government, at the time, of course, industry advisers said to me: 'I think your proposal of saving $850 million a year is too high.' I put it back in the range of $300 million. But I kept at it. My proposal was to save a billion and the Department of Health said—off the record—the savings since 2006 have amounted to $1 billion a year for the public purse and additional hundreds of millions of dollars in out-of-pockets for patients, who can buy generics at the competitive prices that are available in the rest of the world. It was pretty clear that, if we wanted to have more money for innovators, we needed to get generics cheaper the way the rest of the world did. It took a lot of large and special interests but eventually the guild relented, Medicines Australia could see the way forward and, I am proud to say, this is probably one of the biggest social innovation savings from a MP since Federation.

See this speech in context