Behind America's decades-long fight to dismantle the PBS.

Extract from ABC News 

Analysis

By chief business correspondent Ian Verrender

• Topic:Pharmaceutical Industry

2 hours ago

Australians have enjoyed some of the cheapest medicines in the developed world, irking America's big pharma industry. (Supplied: Pexels.com)

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For decades, America's pharmaceutical giants have been plotting to torpedo Australia's Pharmaceuticals Benefits Scheme (PBS).

Twenty years ago, they scored a huge victory when they secured major concessions from the Howard government, as America and Australia negotiated the Australia-US Free Trade Agreement.

Big pharma was at it again during the Obama years when Australia was on the cusp of signing up to the Trans-Pacific Partnership (TPP).

A multilateral trade deal, the TPP was designed to build a regional bloc against China.

Buried in the detail, however, were clauses that quietly entrenched the power of major American corporations.

A naive Donald Trump scuppered that deal in his first term, purely because it was an Obama initiative.

With Trump again in the White House, this time threatening a global trade war, America's pharmaceutical industry lobbyists, having made huge donations to his campaign, have seized upon a golden opportunity.

When oligopoly meets monopsony

Australians have enjoyed some of the cheapest medicines in the developed world, thanks to the PBS.

It's a situation that has long irked the pharma industry, which has courted American politicians and parlayed its huge profits into a well-oiled influence-peddling machine.

But forget all the noise from the pharmaceutical giants about federal government subsidies that for decades have delivered affordable medicines to Australians — the real issue is power.

What is the PBS?

Photo shows Prescriptions

We answer your questions about the Pharmaceutical Benefits Scheme, what drugs are eligible, and how you can get cheaper medication.

In most other nations, the titans of the medicine supply industry rule supreme over their customers by virtue of their size and dominance, exploiting the imbalance.

Here, however, thanks to a referendum voted upon by Australians in 1948, those same big companies have met their match.

Here, they are forced to negotiate with just one, big, powerful buyer — the federal government.

Here, they are forced to deal with medical specialists who delve into their pricing, and question the sometimes huge price discrepancies between almost identical medicines.

If big pharma can unwind Australia's control of the medicines market, they will be able to train their sights on other markets like Canada, the UK and Europe, which similarly provide health benefits to their citizens.

Taking aim at Australia

America's well-oiled pharma lobbying machine doesn't mince words when it comes to Australia.

In a submission to the US government, it describes the PBS as one of the most "egregious and discriminatory" pricing regimes that actively limits prices and earnings.

Calling on the US government to impose punishing tariffs, it claims the scheme "undermines American competitiveness, jobs and exports".

That's something of an overreach.

Labor and Coalition vow PBS will not be bargained over in US trade war

Photo shows Anthony Albanese press conference

Prime Minister Anthony Albanese and Opposition Leader Peter Dutton say the Pharmaceutical Benefits Scheme, a cornerstone of Australia's health system, will never be a negotiating chip in US President Donald Trump's ongoing tariff campaign.

In 2004, when the Free Trade Agreement was being negotiated, then-health minister Tony Abbott was adamant that the proposed changes to the scheme would not impact the cost of medicines.

To an extent, that was correct — but only because taxpayers were forced to pick up the tab.

Ironically, a decade later during his first year as prime minister, Abbott and then-treasurer Joe Hockey brought down a tough budget, largely because of a blow-out in the cost of the PBS.

Prior to the Free Trade Agreement, Australia's PBS negotiators employed a tactic known as "reference pricing".

Single-branded, patented drugs (which usually deliver far bigger profits) were compared in terms of pricing and effectiveness with non-patented medications.

It helped contain prices for the best and latest medications.

Generics, drug shortages and America's missed opportunity

The 2005 FTA all but outlawed "reference pricing".

Instead, two categories of medications were created — one was F1, patented drugs, and the other was F2, lower-cost generic drugs.

While reference pricing, or comparisons, can be employed within the patented category, F1 drugs can't be referenced against much cheaper generics.

And generic manufacturers using the same active ingredient as an F1 drug wishing to enter the Australian market, must warn the patent owner.

What usually happens next is that the patent owner applies to the Federal Court for an injunction, resulting in several years of costly delays, which prejudices generic manufacturers.

As a result, generic drugs have become barely profitable and are now generally manufactured offshore in countries such as India, at huge production levels in order to break even.

One side-effect of this mass-scale production is that a bad batch, or any other problem or outage, often results in mass shortages of generic drugs.

Another gripe from the American pharma giants is that Australia delays the introduction of new medications, as the Pharmaceutical Benefits Advisory Committee deliberates over their effectiveness.

This delay, the US pharma lobby group complains, amounts to a non-tariff barrier and a restriction on trade.

Ironically, some American health officials opposed the changes imposed upon Australia during the free trade negotiations 20 years ago — and were pushing for a similar scheme to the PBS to be implemented in the US.

For a nation at the forefront of medical innovation and drug manufacture, vast numbers of Americans simply can't afford to access to vital medicines.