US pharmaceutical companies love the Australian Pharmaceutical Benefits Scheme (PBS). It subsidises their products so that all patients can buy them and ensures a much larger market.
This is not the impression you would get in Australia lately, where reports of lobbying by US Big Pharma have led to fear that the Trump administration would exert pressure on Australia to get rid of the much-treasured PBS.
The subsequent outrage and spirited defence of the PBS reminds people that for 80 years the PBS has provided access to a wide range of life-enhancing medications at very low out-of-pocket cost for consumers.
This contrasts with a country like the US. Studies suggest the retail price of common brand-name drugs in the US is often many times higher than in Australia. Even with with insurance, American patients have average out-of-pocket cost at least four times higher than in Australia.
Take the world’s No.1-selling drug, Humira (adalimumab), used in the treatment of chronic rheumatoid arthritis. Without insurance, the average price in the US is the equivalent of more than A$11,600 per month. Meanwhile in Australia, the PBS pays less than A$2015, and a patient currently pays no more than A$31.16.
The Pharmaceutical Benefits Scheme (PBS) subsidises a range of medicines so Australians can have access to cheaper medicines and not face price gouging from big overseas pharmaceutical companies. More work is promised to keep medicine costs down. https://t.co/Ryt3wFkOw1 pic.twitter.com/8Dcbd87y8q
— ANMF - Australian Nursing Midwifery Federation (@anmf_federal) March 20, 2025
Why Big Pharma supports the PBS
The reason why pharmaceutical companies love the PBS almost as much as Australians do is that it provides brand-name prescription drugs at a very low cost to consumers.
By allowing patients to use these therapies, no matter their ability to pay, the scheme not only benefits patients, but underpins a large, secure and profitable market for producers. It does so by paying the companies the difference between the low cost that consumers pay out of pocket and the price the companies are prepared to accept.
Of course, assurance of demand is one thing, but the pharmaceutical companies would always prefer a higher price for their products. The current clamour is in essence a way to put pressure on the government through the PBS to stump up more money and pay higher prices for more new drugs.
It is the Australian taxpayer who would have to foot the bill, making it harder to add new therapies to the scheme.
US Big Pharma’s argument is that they’re not getting a high enough price for new drugs (and not soon enough). They argue that the resources and time in research, development and marketing for a successful new therapy means that the drug needs a high price and strong sales enabled by years of patent protection that restrict competition.
They can and do extend those patents, blocking competition from more affordable alternatives. They argue that if Australia and other countries negotiate lower prices, then they’ll need to charge US consumers and insurers more.
In the US healthcare system, public agencies, long banned from negotiating prices, have far less bargaining power than their counterparts in countries such as Australia and Canada.
Under the Biden administration’s Inflation Reduction Act there were moves to imitate the approach in Australia and Canada – negotiating prices based on the value to patients rather than the return on company costs. Naturally, the US companies feared that this move would reduce US prices and lower their return on investment.
The PBS employs a principle of reference pricing – paying similar amounts for drugs that offer comparable health benefits.
If a new drug provides only a modest improvement over an existing treatment, it makes sense to price it only slightly higher. However, pharmaceutical companies reject this approach, arguing that innovation is inherently risky and must be rewarded with blockbuster profits.
This ongoing tension between patient-centred pricing and corporate profitability has fuelled friction for decades, now intensified by a US administration keen on prioritising American business interests.
Is there a real threat to the PBS?
My colleagues correctly argue there is no direct threat to the PBS. While the Trump administration's “America First” policy did not directly target the PBS, trade negotiations could introduce pressure to alter the way Australia decides on drug subsidies.
In past trade deals, Australia has made concessions, such as reducing price competition and expediting new drug approvals.
There is always room for improvement, but the set of principles on which Australia makes decisions on which drugs to subsidise, and by how much, is a model of how government decisions should be made.
Decisions are based on the best evidence of the effectiveness and cost-effectiveness of medicines in improving health. They strike a balance between the community value of patient health gains and the cost to the taxpayer to get the best value for money within our health system. This is not something to be traded away.
Professor Anthony Harris is a past member of the economics sub-committee of the Pharmaceutical Benefits Advisory Committee. He has had contracts with both the Australian government to evaluate company submissions to the PBS, and with pharmaceutical companies to prepare those submissions.
