The Pharmaceutical Benefits Scheme (PBS) has long been regarded as one of Australia’s most significant public policy achievements. However, a report published by Medicines Australia puts a spotlight on the PBS' capacity to keep pace with global medical innovation.[1]
The report finds that Australians are now waiting an average of 3.6 years for access to medicines that are available in comparable countries, and increasingly, some of those medicines are not being launched in Australia (at all). The report also found that 43% of Australians have been prescribed medicines that are not listed on the PBS.
The Twin Threat
The report identifies two interacting forces that together are said to amount to a "twin threat".
The first threat is a set of longstanding domestic structural weaknesses:
- Falling levels of government investment: Australia spends 0.26% of GDP per capita on innovative medicines compared to an average of 0.31% across other high-income countries and 0.34% in the European Union. Net investment in innovative medicines has declined as a share of GDP, from 0.26% in 2015–16 to 0.20% in 2024–25, and as a share of the health budget from 6.2% to 4.1%.
- Reimbursement processes for new medicines: The time from regulatory approval to PBS listing is long (over 600 days). Only around 30% of 179 first-in-class medicines reviewed by the report had been PBS funded in Australia. An analysis of 472 new molecular entities registered in 20 OECD countries between 2016 and 2021 found that Australia only launched 91, 26.4% fewer than the OECD average of 123.6.
The second threat is said to be the recent shift in United States (US) medicines pricing policy, principally through the Most Favoured Nation (MFN) policy, which effectively caps US prices to benchmarks against comparable nations.
The MFN policy, which was originally articulated during President Trump's first term on the basis that Americans were subsidising global research and development through disproportionately high domestic prices, has become a permanent fixture of US policy. Its consequences are already being felt: an analysis found that European launches of new medicines fell by 35% in the ten months following the US policy change.
Australia's comparatively lower pricing of innovative medicines under the PBS has the potential to make it less likely that pharmaceutical companies will launch new medicines in Australia given the potential for Australian prices to be referenced in other markets (including the US) where MFN policies apply.
Key domestic policy mechanisms that undervalue innovation
The Medicines Australia report identifies several mechanisms within the Australian system that are said to be systematically undervaluing innovative medicines, both before and after PBS listing:
Questionable comparators: When submitting a proposal to the Pharmaceutical Benefits Advisory Committee (PBAC), a pharmaceutical company must propose an existing medicine as a comparator. The report found that PBAC is placing disproportionate weight on lowest cost comparators, effectively comparing new medicines against older, cheaper products in a manner that suppresses the assessed value of innovative medicines.
An outdated discount rate: The PBAC set a base discount rate of 5% in 1990. This rate has not changed despite other countries (including Canada, from which the rate was originally drawn) recommending lower rates.
Unwillingness to pay: The Incremental Cost-Effectiveness Ratio (ICER)[2] is a major consideration when the PBAC makes a recommendation about whether to fund new medicines. Australia's ICER threshold sits below the international average.
Mandatory and flow-on price reductions: Statutory price reductions have been applied to medicines listed on the PBS for over 20 years. These price reductions continue for the life of listed products.
How other countries are responding
While the report emphasises that Australia is not alone in facing these pressures, it also found that other countries have responded. For example:
- As part of a US–UK Economic Prosperity Deal, the United Kingdom (UK) agreed to double spending on new medicines as a share of GDP from 0.3% in 2026 to 0.6% by 2036. The UK also recently increased its ICER threshold (from below to above Australia’s) for the first time in over 20 years due to effects of the US MFN policy.
- Ireland announced a Framework Agreement with an additional €200 million in spending on medicines and a commitment to a 180-day reimbursement timeline.
- Italy committed to a €1.2 billion increase in the pharmaceutical budget.
- South Korea announced its first drug pricing reform in 13 years.
- Sweden launched a major investigation into overhauling its reimbursement system.
Where to from here?
The current Strategic Agreement between the Australian Government and Medicines Australia (which sets out medicines access and savings measures in the PBS) is due to expire in 2027, with negotiations expected to recommence later in 2026. While this is a critical opportunity for PBS reform, the report points out that none of the 50 recommendations from the 2024 Health Technology Assessment Policy and Methods Review[3] (which included recommendations to reduce patient wait times and accelerate access to new innovative therapies) have been implemented.
The forthcoming Strategic Agreement negotiations will be closely watched by all stakeholders.
Medicines Australia report titled ‘Access Denied: The Twin Threat to Innovative Medicines Availability in Australia and the Impact on Patient Access’ available here.
The ICER is how the PBAC evaluates the cost and health benefits of a new medicine (to assess if a new medicine offers good value for money). ICER is calculated as the ratio of additional costs to additional health gains.
The review examined Australia’s current approach to assessing health technologies including the evaluation of safety, clinical and cost effectiveness of medicines and medical devices. The final report is available here.
