Pharmaceutical Benefits Scheme (PBS) Country Comparison

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Health Economics


In the modern world, prescription drugs are considered as a central part of the treatment. Simultaneously, the prescription drugs are so expensive in most of the first world countries that it is almost impossible for a large proportion of consumers to buy them without subsidies or price control from their respective governments. The healthcare systems differ widely among the first world countries. Three different types of healthcare systems were identified to exist in these countries. For example, in USA, the health care system is predominantly private while in UK it is predominantly public and in Ireland it is truly mixed. But the consistent feature of all these governments is that they provide subsidies on the cost of the medications at least to certain groups of the population. Governments around the world employ various methods to contain the costs of the pharmaceutical drugs like price and profit control applied to the pharmaceutical companies, fully or partially subsidized systems with patient co-payments, reference price lists and drawing up of a list of reimbursable drugs etc. Many countries offer this subsidy only on medications which form part of a reimbursable medication list.

Effectiveness of PBS in comparison to schemes in other countries

Pharmaceutical Benefits Scheme (PBS) is the Australian government initiative to provide subsidised prescription medicines to the Australian residents and the visitors from foreign countries which have reciprocal Health Care Agreements with Australia. PBS was first introduced in 1948 and the main aim of this programme is to provide reliable and affordable access to a wide range of necessary medications (Department of Health 2014). PBS is governed by the National Health Act 1953. It is estimated that that the drugs subsidised through the Pharmaceutical Benefit Scheme costs the patients and government more than $ 9 billion a year (Australian Institute of Health and Welfare 2012b). In this paper, the Pharmaceutical Benefit Scheme is compared with other comparable government sponsored schemes that are currently prevalent in first world countries like New Zealand, Canada, United Kingdom and Netherlands.

In New Zealand, the Pharmaceutical Management Agency (PHARMAC) established in 1993 is the government agency that has the authority to make decisions on what medications can be subsidized to the public by the local health boards. Both countries through an established process review the comparative cost effectiveness of all the new drugs before deciding whether or not to include them in the list of subsidized medications. This process is undertaken by the Pharmaceutical Benefits Advisory Committee (PBAC) in Australia, and the Pharmacology and Therapeutics Advisory Committee in New Zealand (PTAC). While both the Australian and New Zealand governments provide the universal subsidy schemes to make the commonly used drugs more affordable and accessible and the health outcomes are likely to be similar, they differ mainly in strategies employed for expenditure management resulting in significant difference in expenditure (Morgan S & Booth K, 2010). For example, they differ significantly in patient co-payments. While both the countries charge less for the vulnerable patient population, the general patients in Australia pay A$ 36.90 for each item which is approximately three times higher than their counterparts in New Zealand who pay up to NZ$15, depending on source of primary care. This raises the important question as to whether an average Australian patient can afford them in spite of subsidizing the drugs.

This difference in general patient co-payments may also reflect differences in the management of the benefit schemes – a subsidy system laid atop an otherwise free market in Australia versus a contracting system for managing purchases in the New Zealand market. The PHARMAC is legislated to not spend more than a capped national medicine budget and relies heavily on a wide range of commercial tools including reference pricing, tendering for off-patent drugs, confidential rebates to suppliers and multi product agreements to purchase medicines (Pharmaceutical Management Agency 2014). In contrast, the Australian Government allows the expansion of the PBS budget in order to accommodate as many new medicines as can demonstrate clinical importance, clear evidence of effectiveness, affordability, cost-effectiveness and gives importance to deeds of agreement containing risk sharing arrangements with the pharmaceutical companies to contain PBS costs (Harris et al. 2008).

As a result of the capped budgeting system in New Zealand and its obligation to stay within the allocated budget, the PHARMAC is restricted to include fewer new medications to its New Zealand Pharmaceutical Schedule. On the other hand, PBS has an expanded access to new drugs and hence there was an increase in the monetary opportunity cost in the last decade. For example, as of 2009, the number of subsidized top drug types available in the five leading drug classes (ACE inhibitors (including combinations), calcium channel blockers, proton pump inhibitors, HMG Co A reductase inhibitors (statins), and selective serotonin reuptake inhibitors) is 35 on the Pharmaceutical Benefits Scheme, whereas 23 were listed by PHARMAC.

In Canada, the national healthcare system is Medicare. It is federally funded and provides services to all the Canadian residents and accounts for 70% of their healthcare system expenditure. The remaining 30 % is covered by the patient co-payments, private insurance companies. Around 62% of the Canadian population are covered by the private medical insurance for their prescription medications mostly offered by their employer. Whether a Canadian pays the full amount or a percentage co-payment depends on their access to private health insurance, provincial drug benefits schemes and federal programs. In Australia, the prices determined to be paid through the PBS to the pharmaceutical companies are controlled by the reference pricing of the comparable alternatives. But in Canada the reference pricing is compared to the prices of drugs in the seven comparator first world countries only (The Scottish Government, 2006).

United Kingdom has a universal health care system and is free for the whole population. However there are charges for some services like prescription medications. While Australia and New Zealand has a positive medication list on which they provide subsidies, UK is one among few countries in the world that has a negative drug list which means that most medications are reimbursable except few which are non-beneficial and needs to be prescribed only under certain circumstances (The Scottish Government, 2006). Therefore, the National Institute for Health and Clinical Excellence (NICE) has a free hand to concentrate its attention on controversial medi­cines. UK through their National Health Service (NHS) system charges a flat rate patient co-payment on all their prescription medications. In 2002, co-payments across the UK amounted to 6% of the total NHS drugs bill, the rest being paid by the government ((The Scottish Government, 2006)).

In Netherlands the health care system is a mixture of both public and private health insurance funding. While the funding for the public health insurance is determined by the Dutch government, the private insurance companies decide the premiums to be paid by residents for their private insurance. People aged 65 or over and people who earn less than a certain income threshold determined by the Dutch Government based on their standards of living are automatically covered by the public health insurance and all others have to take private health insurance (The Scottish Government, 2006). In 2006, the Netherlands government has introduced a reform based on risk equalization which means that a health insurance package is available to all the Dutch residents at affordable prices without being assessed by the insurance companies. Currently the patients pay for the prescription medications on the government prescription list. They pay the excess of the difference between the reference pricing of the drug and the cost of the medication on the shelf. This process in reality attracted payments from the patients on very few drugs. The Dutch government uses both the reference pricing and price ceilings based on the drug prices in their comparator countries.

In countries like UK, New Zealand and Netherlands where the patient co-payments are low had fewer than 3% of the population spending more than 1000$ on the prescription medicines. But in Australia where universal subsidies are provided but have to pay relatively higher co-payments by the general population, about 5% of the total population are reported to be spending 1000$ or more on drugs (Schoen et al. 2007).

Table1. Pharmaceutical Spending per Person and Growth Rates

(Morgan S & Kennedy J 2010)


Total pharmaceutical

spending in U.S. dollars (millions), 2005a

Pharmaceutical spending per capita in inflation-adjusted U.S. dollarsa




Average annual growth rate











United Kingdom










New Zealand





a Figures are inflation-adjusted using domestic GDP deflator and converted to USD$ using purchasing power parities. Missing data were interpolated and U.K. data estimated using government data on Net Ingredient Cost of prescriptions dispensed in the community.

Source: Authors’ calculations based on OECD Health Data 2008.

It is clear from the 2008 Organisation for Economic Cooperation and Development (OECD) health data that Australians are more likely to use the prescription medications in comparison to the residents of the other countries mentioned in the table 1. The percentage of people surveyed who use four or more prescription medications is 17% in Australia which is high in comparison to all the other comparable countries. Despite of the high prescription drug usage, Australia’s total pharmaceutical spending per person is lower than the UK and Canada. But in spite of the high patient co-payments for the general population, total pharmaceutical spending per person is far higher than the New Zealand and Netherlands. Moreover, in the periods between 1995- 2005, pharmaceutical expenditures per capita have grown faster in Australia than in all the other countries mentioned here. Relative to other countries, Australia also pays higher prices for generic drugs and the drugs that are no longer under patent (Morgan S & Kennedy J 2010).


All the countries mentioned in this paper has some form of subsidies on their prescription medications at least offered to certain vulnerable groups of the population. But the comparison clearly shows the amount of money we waste by paying higher prices for the generic drugs. To reduce the costs and increase the effectiveness of the PBS, Australia must establish a truly independent expert board like New Zealand’s PHARMAC. Secondly it should consider paying less for the drugs which can be brought for lower prices because they are off patent and lastly should encourage people to use cheaper version of the same generic drug (Duckett et al. 2013).


  1. Australian Institute of Health and Welfare 2012b, Health expenditure Australia 2010-11, Health and welfare expenditure series no. 47, Cat no. HWE56, Australian Institute of Health and Welfare, viewed 9 march 2014,
  2. Department of Health 2014, Pharmaceutical Benefits Scheme, Explanatory Notes, section 1, Introduction, Department of Health, Canberra, viewed 9 March 2014,
  3. Duckett SJ, Breadon, P., Ginnivan L, Venkataraman P 2013, Australia’s bad drug deal: high pharmaceutical prices, Grattan Institute, Melbourne, viewed 13 March 2014,
  4. Harris AH, Hill SR, Chin G, Li JJ, Walkom E 2008, The role of value for money in public insurance coverage decisions for drugs in Australia: a retrospective analysis 1994-2004, Medical Decision Making, vol. 28, No. 5, pp.713-22.
  5. Morgan S & Booth K 2010, ‘Prescription drug subsidies in Australia and New Zealand’, Australian Prescriber, vol. 33, No. 1, pp.2-4, viewed 11 March 2014,
  6. Morgan S & Kennedy J 2010, Prescription drug accessibility and affordability in the United States and abroad, Issues in International Health Policy, common wealth publications, 1408 vol. 89, pp.1-12, viewed 11 March 2014,
  7. Pharmaceutical Management Agency 2014, Introduction to PHARMAC, Pharmaceutical Management Agency, Wellington, viewed 11 March 2014, .
  8. Schoen C, Osborn R, Doty MM, Bishop M, Peugh J, Murukutla N 2007, Toward Higher-Performance Health Systems: Adults’ Health Care Experiences in Seven Countries, 2007,Health AffairsWeb Exclusive, vol. 26, No 6, w717–w734, viewed 13 March 2014,–Adults-Health-Care-Experiences-in-Seven-Countries–2007.aspx
  9. The Scottish Government 2006, Review of prescription charges in Western Europe, North America and Australasia, The Scottish Government, Edinburgh, viewed 9 March 2014,

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