[Ip-health] Australia FTA & drugs: CPATH testimony

[Ellen Shaffer]

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[ Picked text/plain from multipart/alternative ]
CPATH has submitted the following testimony raising concerns that the
pending US-Australia Free Trade Agreement would stymie efforts for
affordable drugs.  We'd be glad to send you a copy in Word format on
request.  Comments always welcome.  Best, Ellen Shaffer

CPATH Center for Policy Analysis on Trade and Health
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Bringing a Public Health Voice to Trade and Sustainable Development




Testimony to the Ways and Means Committee
U.S. House of Representatives

US-Australia Free Trade Agreement:

Implications for Prescription Drug Prices in the US and Australia

June 22, 2004





Center for Policy Analysis on Trade and Health
CPATH

Joseph E. Brenner, MA
Ellen R. Shaffer, PhD MPH












CPATH w Ellen R. Shaffer and Joseph Brenner, Directors w 98 Seal Rock
Drive, San Francisco, CA 94121 USA
phone: 415-933-6204 w fax: 415-831-4091   email: cpath@cpath.org
w  www.cpath.org


Testimony to the Ways and Means Committee, U.S. House of Representatives
US-Australia Free Trade Agreement:
Implications for Prescription Drug Prices in the US and Australia
June 22, 2004

EXECUTIVE SUMMARY
Provisions of the US-Australia Free Trade Agreement (FTA) could result in
higher prescription drug prices for U.S. and Australian consumers.  The
Agreement could block legislation authorizing reimportation of less
expensive drugs into the U.S.  New requirements for independent review of
federal agency decisions about listing and pricing for drugs could lead to
higher drug prices for the Medicaid program and for Veterans Administration
health services, and necessitate changes to US law and current
practices.  The vagueness of key provisions places these important programs
at risk. These concerns should be addressed, and Congress should ensure
that U.S. consumers, including veterans and Medicaid beneficiaries, are
adequately protected, in these areas:

1. The Agreement could block reimportation of less expensive drugs from
other countries, including future legislation that would authorize such
=93parallel importation,=94 preempting Congressional debate.

2. Vulnerable populations served by Medicaid and Medicare could face higher
drug prices. These programs would have to establish an undefined
=93independent review process=94 for any recommendations or determinations
regarding =93listing new pharmaceuticals or indications for reimbursement
purposes, or for setting the amount of reimbursement for
pharmaceuticals.=94  This could delay or alter decisions about providing
drugs and establishing affordable prices. It could require changes to
current U.S. law.  It is unclear how this requirement would apply to
private companies that administer the new Medicare Part D.

3. Veterans could face higher drug prices.  Federal programs such as the
Veterans Administration, and possibly state programs, would also have to
provide new review processes for drug listing and pricing decisions.
Technical standards that guide drug purchasing decisions could not be
=93unnecessary obstacles to trade,=94 but these terms are not defined. Thes=
e
provisions are different from current practice. They can delay procurement
decisions, and allow companies to pressure agencies for higher prices.

4. The many vague provisions of the Agreement will be interpreted and
enforced by international dispute panels, which are not guided by or
subject to U.S. law.   Government agencies that appeal the many unclear
provisions of the Agreement after it is enacted have no guarantee of
prevailing. Trade panels can impose financial sanctions to achieve complian=
ce.



5. Many Australian health professional associations oppose the FTA, and
have stated that it will raise drug prices in Australia, which are
currently closely controlled. The U.S. pharmaceutical industry claims that
it is necessary to raise drug prices in Australia and other developed
countries, to fund innovation in research, and eventually lower drug prices
in the U.S. Public funding for research and development in the U.S.
reflects concern for innovation, and patent laws that protect products from
competition for 20 years permit drug companies to recoup their investments.
But the 15% of revenues the industry spends on research increasingly
focuses on copycat drugs that present little if any additional therapeutic
value, while treatments for important health conditions are not explored.
Prices are unaffordable for many. Companies are obliged to respond to
shareholder expectations for the highest possible profits, and the
industry=92s return on revenue is already among the highest in the U.S. It =
is
unclear how higher profit levels could lead the industry to offer more
affordable prices. The crisis in the industry=92s complex business model wi=
ll
not be successfully resolved by undermining price controls abroad.


CPATH w Ellen R. Shaffer and Joseph Brenner, Directors w 98 Seal Rock
Drive, San Francisco, CA 94121 USA
phone: 415-933-6204 w fax: 415-831-4091   email: cpath@cpath.org
w  www.cpath.org

US-AUSTRALIA FREE TRADE AGREEMENT: IMPLICATIONS FOR PRESCRIPTION DRUG
PRICES IN THE US AND AUSTRALIA

Provisions Related To Setting Prices For Drugs

Paragraph 17.9.4 of the Agreement could block reimportation of less
expensive medicines from other countries, termed =93parallel importation.=
=94
Additional rules that extend the terms of patents are included in Chapter
17 on Intellectual Property.  The Agreement grants additional rights to
drug patent holders that are likely to delay the entry into market of
competitive generic drugs, and delay the resulting reduction in drug
prices.  These include =93data exclusivity,=94 the right not to release dru=
g
trial data to generic companies.

Annex 2-C, Pharmaceuticals, establishes rules for transparency and for
independent review of decisions for government agencies that create lists
of drugs and set prices for drugs, but do not directly procure them, such
as Medicaid and Medicare.

Agencies that procure drugs directly, including the Veterans
Administration, the Department of Defense, and the Indian Health Service,
are covered by Chapter 15, Government Procurement.

1. The Agreement would block reimportation of less expensive drugs from
other countries.

Chapter 17.9.4 on parallel importation could be used to block reimportation
of lower priced drugs into the U.S from any country. Reportedly other
language in the Agreement prohibiting reimportation was removed
earlier.  However, this provision in the current the version of the
Agreement posted on the U.S. Trade Representative website would have the
same effect:

Each Party shall provide that the exclusive right of the patent owner to
prevent importation of a patented product, or a product that results from a
patented process, without the consent of the patent owner shall not be
limited by the sale or distribution of that product outside its territory,
at least where the patentee has placed restrictions on importation by
contract or other means.

Many members of Congress and the public have expressed interest in
reimportation; this Agreement would preempt a debate on the subject. There
is no provision that allows future laws passed by the U.S. Congress to
supersede this Agreement.  Under particular sections and annexes, each
country is allowed to identify current laws that do not conform with the
Agreement and will remain exempt, and also areas where future domestic
legislation can differ from the Agreement.  There is no reference any
chapter or its related schedules and annexes to excluding parallel
importation of drugs, or to pharmaceuticals.

2. Transparency and independent review requirements for Medicare, Medicaid,
and perhaps others.

Annex 2-C, Pharmaceuticals, applies transparency requirements to =93federal
healthcare authorities [that] operate or maintain procedures for listing
new pharmaceuticals or indications for reimbursement purposes, or for
setting the amount of reimbursement for pharmaceuticals, under its federal
healthcare programs.=94 In the case of the U.S. this would apply to Medicar=
e
and Medicaid, which are both federal programs.  (A claim that Medicaid is
not a federal program because it is administered by states would likely be
referred to an international trade dispute panel if challenged.) It would
also apply to Australia=92s Pharmaceutical Benefits Scheme, which determine=
s
the list of available drugs and negotiates prices.

The independent review process is not defined.  It suggests a
decision-making process =93independent=94 of government authorities, that w=
ill
allow the industry (referred to as =93applicants=94) to go beyond current
adequate negotiation processes, and appeal for higher prices for more
products.


The requirements are stated in Paragraph 2(a) =96 (f), Transparency, listed
below.

(a) ensure that consideration of all formal proposals for listing are
completed within a specified time;
(b) disclose procedural rules, methodologies, principles, and guidelines
used to assess a proposal;
(c) afford applicants timely opportunities to provide comments at relevant
points in the process;
(d) provide applicants with detailed written information regarding the
basis for recommendations or determinations regarding the listing of new
pharmaceuticals or for setting the amount of reimbursement by federal
healthcare authorities;
(e) provide written information to the public regarding its recommendations
or determinations, while protecting information considered to be
confidential under the Party=92s law; and
(f) make available an independent review process that may be invoked at the
request of an applicant directly affected by a recommendation or determinat=
ion.

Questions:

2a. Since international trade law and trade panels govern this Agreement,
and since the independent review process is not clearly defined, how can
agencies assure that they will retain the final authority to assure
appropriate lists and affordable prices for their vulnerable populations?

2b. For U.S. federal health care authorities that do not currently comply
with paragraphs (a) =96 (f) above, what legislative or regulatory change
would be required for compliance?

2c. Since international trade law and trade panels govern this Agreement,
how can agencies be certain regarding whether they are covered by this
provision?

3. Technical specifications and independent review requirements for federal
and state health care agencies that establish formularies and engage in
procurement of pharmaceuticals: VA, DoD, IHS

Government programs that directly procure drugs, including the Veterans
Administration and Department of Defense, are covered by requirements to
establish technical standards and independent review for drug purchases in
Chapter 15 on Government Procurement.  Specifically, Article 15.6 states
that technical specifications cannot have the =93purpose or effect of
creating unnecessary obstacles to trade.=94 (See relevant provisions in
Attachment #1.)

Article 15.11 describes the two levels of independent review that
government procurement bodies must make available in the case of challenges
to their decisions.  This goes beyond the requirements of the World Trade
Organization=92s Government Procurement Agreement, to which the U.S. is a
party. The differences are detailed in Attachment #2 below.

A footnote in Annex 2-C states: =93Pharmaceutical formulary development and
management shall be considered to be an aspect of government procurement of
pharmaceutical products for federal healthcare agencies that engage in
government procurement. Government procurement of pharmaceutical products
shall be governed by Chapter 15 (Government Procurement) and not the
provisions of this Annex.=94

The second sentence of the footnote refers broadly to =93Government
procurement of pharmaceutical products,=94 and does not limit the applicati=
on
merely to federal agency activity.  This suggests that state drug formulary
programs could be subject to the Agreement.

Question 3a. Since international trade law and trade panels govern this
Agreement, how can the VA and other agencies be assured that technical
standards for setting formularies and prices will be considered acceptable,
and do not constitute unnecessary obstacles to trade?

Question 3b. How can the VA and other agencies assure that they will retain
the final authority to determine lists and prices of drugs, in the interest
of assuring appropriate lists and affordable prices, and that =93independen=
t=94
review panels will not assume this authority?

Question 3c. What is the complete list of federal and state health care
agencies in the U.S. that engage in pharmaceutical formulary development
and management?

Question 3d. Of these government health care agencies, to what degree do
current procurement methods differ from the provisions of Chapter 15 of the
US-Australia FTA?  (See Attachment #1.) What legislative and/or regulatory
change(s) would be required to ensure compliance with the provisions of
Chapter 15?

4. Trade agreements are interpreted by international panels which are not
guided by or subject to U.S. law.  Several provisions of the Agreement are
ambiguous, including the definitions of the kinds of agencies covered,
technical specifications, and independent review.  The Government
Procurement section (see above), for example, requires countries to prove
that technical specifications on which they base their decisions do not
have the =93purpose or effect of creating unnecessary obstacles to trade.=
=94
Countries involved in trade disputes have frequently been surprised at the
types of technical standards that trade dispute panels find acceptable.
Government agencies that appeal these provisions in the event of a
challenge, including by asserting that they are exempt, have no guarantee
of prevailing.

5. The FTA is intended to lead to higher drug prices in Australia. It is
not clear that this will be likely to lower drug prices in the US.

The Agreement applies the same requirements for transparency and
independent review, described above, to Australia=92s Pharmaceutical Benefi=
ts
Scheme, including consulting with applicants (which would include
pharmaceutical companies), and providing independent avenues for appealing
decisions about listing and pricing drugs.  It also establishes a Medicines
Working Group, intended to =93promote discussion and mutual understanding o=
f
issues relating to this Annex (except those issues covered in paragraph 4,
including the importance of pharmaceutical research and development to
continued improvement of healthcare outcomes,)=94 consisting of =93official=
s of
federal government agencies responsible for federal healthcare programs and
other appropriate federal government officials.=94



Several U.S. policymakers have stated that it is the explicit intention for
this Agreement to raise drug prices in Australia. A recent submission to
the Australian Senate Select Committee on the US-Australia Free Trade
Agreement presented concerns that these provisions will indeed raise drug
prices there. Relevant sections of this report are reproduced below in
Attachment #3.





Assuring the development of beneficial new drugs, and making them available
at an affordable price, are essential concerns. In the U.S., these concerns
have led to substantial public contributions, in funding and other
resources, for research and development, and to patent laws that protect
products from competition for 20 years to allow drug companies to recoup
their investments. Nevertheless, innovation increasingly focuses on copycat
drugs of uncertain therapeutic value, while treatments for important health
conditions are not explored. Prices are unaffordable for many. It is among
the most profitable industries in the U.S., earning a 19% return on
revenue, or $72.6 billion in profits in 2002.  It is unclear how higher
profit levels could lead the industry to offer more affordable prices in
the U.S. The industry has no track record of voluntarily reducing prices,
without competition following expiration of patents, and is obliged to
respond to shareholder expectations for the highest possible profits. The
current complex business model for the U.S. pharmaceutical industry appears
to be at a crossroads, one that will not likely be successfully navigated
or credibly addressed by undermining price control systems abroad.





SUMMARY




The U.S.-Australia Free Trade Agreement contains a number of provisions
related to pharmaceutical products that are likely to interfere with
current efforts to achieve or maintain affordable prescription drug prices
in the U.S. and in Australia.  The Agreement preempts important rights of
governments.  Resolving international concerns about drug prices and
availability will involve careful consideration of complex issues by a
range of stakeholders.  To the extent that these issues can be usefully
addressed in trade agreements, multilateral settings are likely to be more
productive than bilateral agreements.  The provisions noted should be
reconsidered, and should not serve as a precedent for future agreements.

ATTACHMENT #1: PROVISIONS ON TECHNICAL SPECIFICATIONS AND INDEPENDENT
REVIEW FOR GOVERNMENT PROCUREMENT
ARTICLE 15.6 : INFORMATION ON INTENDED PROCUREMENTS
Technical Specifications
3. A procuring entity may not prepare, adopt, or apply any technical
specification or prescribe any conformity assessment procedure with the
purpose or the effect of creating unnecessary obstacles to trade between
the Parties.
4. In prescribing the technical specifications for the good or service
being procured, a procuring entity shall:
(a) specify the technical specifications, wherever appropriate, in terms of
performance and functional requirements, rather than design or descriptive
characteristics; and
(b) base the technical specifications on international standards, where
such exist and are applicable to the procuring entity, except where the use
of an international standard would fail to meet the procuring entity=92s
program requirements or would impose greater burdens than the use of a
recognized national standard.
5. A procuring entity may not prescribe technical specifications that
require or refer to a particular trademark or trade name, patent,
copyright, design or type, specific origin, producer, or supplier, unless
there is no other sufficiently precise or intelligible way of describing
the procurement requirements and provided that, in such cases, words such
as =93or equivalent=94 are included in the tender documentation.
6. A procuring entity may not seek or accept, in a manner that would have
the effect of precluding competition, advice that may be used in the
preparation or adoption of any technical specification for a specific
procurement from a person that may have a commercial interest in the
procurement.
7. Notwithstanding paragraph 6, a procuring entity may:
(a) conduct market research in developing specifications for a particular
procurement; or
(b) allow a supplier that has been engaged to provide design or consulting
services to participate in procurements related to such services, provided
it would not give the supplier an unfair advantage over other suppliers.

ARTICLE 15.11 : DOMESTIC REVIEW OF SUPPLIER CHALLENGES
1. In the event of a complaint by a supplier of a Party that there has been
a breach of the other Party=92s measures implementing this Chapter in the
context of a covered procurement in which the supplier has or had an
interest, the Party of the procuring entity shall encourage the supplier to
seek resolution of its complaint in consultation with the procuring entity.
In such instances the procuring entity shall accord timely and impartial
consideration to any such complaint.
2. Each Party shall maintain at least one impartial administrative or
judicial authority that is independent of its procuring entities to receive
and review challenges that suppliers submit, in accordance with the Party=
=92s
law, relating to a covered procurement. Each Party shall ensure that any
such challenge not prejudice the supplier=92s participation in ongoing or
future procurement activities.
3. Where a body other than an authority referred to in paragraph 2
initially reviews a challenge, the Party shall ensure that the supplier may
appeal the initial decision to an impartial administrative or judicial
authority that is independent of the procuring entity that is the subject
of the challenge.

4. Each Party shall ensure that the authorities referred to in paragraph 2
have the power to take prompt interim measures, pending the resolution of a
challenge, to preserve the supplier=92s opportunity to participate in the
procurement and to ensure that the procuring entities of the Party comply
with its measures implementing this Chapter. Such interim measures may
include, where appropriate, suspending the contract award or the
performance of a contract that has already been awarded.
5. Each Party shall ensure that its review procedures are conducted in
accordance with the following:
(a) a supplier shall be allowed sufficient time to prepare and submit a
written challenge, which in no case shall be less than ten days from the
time when the basis of the complaint became known or reasonably should have
become known to the supplier;
(b) a procuring entity shall respond in writing to a supplier=92s complaint
and provide all relevant documents to the review authority;
(c) a supplier that initiates a complaint shall be provided an opportunity
to reply to the procuring entity=92s response before the review authority
takes a decision on the complaint; and
(d) the review authority shall provide its decision on a supplier=92s
challenge in a timely fashion, in writing, with an explanation of the basis
for the decision.

ATTACHMENT #2: DIFFERENCES BETWEEN WTO GOVERNMENT PROCUREMENT AGREEMENT AND
US-AUSTRALIA FTA ON INDEPENDENT REVIEW
Issue
WTO Government
Procurement Agreement
U.S.-Australia Free Trade Agreement
Difference
Levels of review
Article XX
Challenge Procedures
1. In the event of a complaint by a supplier that there has been a breach
of this Agreement in the
context of a procurement, each Party shall encourage the supplier to seek
resolution of its complaint in
consultation with the procuring entity. In such instances the procuring
entity shall accord impartial and
timely consideration to any such complaint, in a manner that is not
prejudicial to obtaining corrective
measures under the challenge system.

ARTICLE 15.11 : DOMESTIC REVIEW OF SUPPLIER CHALLENGES
1. In the event of a complaint by a supplier of a Party that there has been
a breach of the
other Party=92s measures implementing this Chapter in the context of a
covered procurement in
which the supplier has or had an interest, the Party of the procuring
entity shall encourage the
supplier to seek resolution of its complaint in consultation with the
procuring entity. In such instances the procuring entity shall accord
timely and impartial consideration to any such complaint.

2. Each Party shall maintain at least one impartial administrative or
judicial authority that
is independent of its procuring entities to receive and review challenges
that suppliers submit,
in accordance with the Party=92s law, relating to a covered procurement.
WTO requires impartial review by the procuring entity.

Australia requires a second level of review, and empowers an independent
authority to review the procuring entity=92s decision.

This provides opportunities to delay procurement decisions.
Issue
WTO Government
Procurement Agreement
U.S.-Australia Free Trade Agreement
Difference
Challenge of procurement decision.
7. Challenge procedures shall provide for:
(a) rapid interim measures to correct breaches of the Agreement and to
preserve action may result in suspension of the procurement
process. However, procedures may provide that overriding adverse
consequences for
the interests concerned, including the public interest, may be taken into
account in
deciding whether such measures should be applied. In such circumstances,
just cause
for not acting shall be provided in writing;
(b) an assessment and a possibility for a decision on the justification of
the challenge;
(c) correction of the breach of the Agreement or compensation for the loss
or damages
suffered, which may be limited to costs for tender preparation or protest.
commercial opportunities. Such

4. Each Party shall ensure that the authorities referred to in paragraph 2
have the power to
take prompt interim measures, pending the resolution of a challenge, to
preserve the supplier=92s
opportunity to participate in the procurement and to ensure that the
procuring entities of the
Party comply with its measures implementing this Chapter. Such interim
measures may
include, where appropriate, suspending the contract award or the
performance of a contract that
has already been awarded.

1. The WTO requires only that interim corrective measures preserve
commercial opportunities generally; US-Australia gives specific rights to
the complaining supplier for interim measures.
2. The WTO calls for procedures that can provide for interim measures (such
as delaying a procurement decision). US-Australia gives that power to the
independent review authority, which is separate from the procuring entity.
3. The WTO has an exception for the public interest; US-Australia has no
such exception.


ATTACHMENT #3: AUSTRALIAN SUBMISSION ON THE FTA AND DRUG PRICES


The FTA  and the PBS




A submission to the Australia Senate Select Committee on the US-Australia
Free Trade Agreement




Professor Peter Drahos, Professor of Law, Australian National University,
peter.drahos@anu.edu.au


Dr Thomas Faunce, Senior Lecturer, Medical School, Lecturer, Law Faculty,
Australian National University,
<mailto:fauncet@law.anu.edu.au>fauncet@law.anu.edu.au














Martyn Goddard, Former consumer member, Pharmaceutical Benefits Advisory
Committee (PBAC), <mailto:martyng@netspace.net.au>martyng@netspace.net.au


Professor David Henry, Professor of Clinical Pharmacology, University of
Newcastle, Former member, PBAC, Former chair, PBAC Economic Sub-Committee,
mddah@mail.newcastle.edu.au




THE PBAC APPEALS PROCEDURE




Under the FTA, Australia has undertaken to =93make available an independent
review process=94 by which a manufacturer can challenge PBS listing decisio=
ns
made by the key committee, the Pharmaceutical Benefits Pricing Authority.





The government has repeatedly promised that this would not be able to set
aside or overturn PBAC decisions. However, the realities of the FTA are
that Australia is likely to face very large sanctions under the dispute
resolution and enforcement sections of the FTA if it does not provide an
appeals process that the US and its drug makers find acceptable. Any
process that does not have the power to reverse decisions, and which merely
returns a submission to the committee for further consideration, will not
represent any advance for the American side or the US companies. According
to several statements from the industry and the American side, an appeals
process without power is not what they think they have secured.


Such a process will seriously compromise the negotiating position of the
PBAC. At present, the committee commissions sophisticated economic
evaluations of each new drug and decides whether the price requested by the
company represents fair value in terms of the health benefits the drug is
likely to provide. If the answer is no, companies must reduce their price
or find new data to justify the price they want. Often, the price comes dow=
n.

If, rather than re-submitting to the PBAC, sponsor companies could go to an
alternative forum to have the PBAC=92s decision overturned or changed, the
committee would find it far more difficult to enforce price discipline on
major drug makers.

DISPUTE RESOLUTION AND ENFORCEMENT

Often, when trade negotiators cannot finalise contentious points of detail,
they produce a text that is deliberately unclear on these matters and that
can be sorted out later. These =93constructive ambiguities=94 abound in tho=
se
elements of the FTA that affect the pharmaceutical market and the PBS.
These ambiguous clauses allow each side to claim a =93win=94 and to secure
endorsement from each nation=92s legislatures. But further consultation and
dispute resolution processes will be put in place to sort these matters out
later, outside of public and parliamentary scrutiny.

Two such processes are included in this FTA: a consultative Medicines
Working Group, and the overall disputes resolution processes.

The Medicines Working Group will comprise federal officials from each
country. Decisions will effectively be binding on Australia unless the
draconian provisions of the FTA=92s enforcement processes are to be risked.
The Australian parliament is being asked to endorse an agreement that does
not specify what will happen to key elements of one of its central national
health programs, the PBS; and that gives immense power to a non-Australian
group meeting behind closed doors, with no published agenda and no
accountability to the Australian people, parliament or press.

Matters likely to be discussed by the Medicines Working Group include the
PBAC appeals procedure, crucial technical aspects of PBAC economic
evaluations, involvement of companies in PBAC decision-making, whether the
Australian government will still be able to remove drugs from the PBS and
demands

about speed of listing. Most of these matters would potentially diminish
the negotiating position of the PBS in dealing with overseas drug companies
and would lead to higher drug prices.

If Australia does not comply with US demands, or does not change its laws,
regulations and processes to put into effect the FTA and the judgements of
the Medicines Working Group, the disputes resolution and enforcement
processes will come into force. These involve the establishment of
committees and working groups that =93seek the advice of non-governmental
persons or groups=94 =96 a measure that brings the industry and its lobbyis=
ts
directly into the processes of administering and enforcing the FTA.

If Australia is found to be in breach, a fine can be set of up to 50
percent of the value of the benefit Australia is calculated to have gained
by its breach. As some single drugs cost the PBS more than $100 million a
year, these fines are likely to be very large indeed. Ongoing penalties of
up to $US15 million may also be imposed for each instance of each breach.

And =93benefits under the agreement=94 may be suspended. This means the US
could deny Australia any or all of the access achieved under the FTA to its
market for any Australian product, including primary products such as beef
and lamb.

PRESSURES ON THE PBAC

As discussed above, the PBS listing process is a combination of valuation
followed by negotiation, built on objective economic and clinical
evaluation of their products. The PBS does not attempt to gain the lowest
possible price: rather, it attempts to pay what it believes, based on the
evidence of clinical safety and efficacy, is fair and consistent with what
is paid for other medicines. It is a sophisticated and very successful
program that has been copied by other countries. The PBS has provided
Australia with very competitive drug prices. Local branch offices of global
drug companies are under immense power from their overseas head offices to
achieve prices closer to those ruling in the US; therefore, anything that
weakens the power of the PBAC to reject unsatisfactory prices, and to hold
out for better value, will inevitably cause costs to rise and add to the
long-term problems of financial sustainability facing the PBS.

Australia=92s ban on direct-to-consumer advertising of prescription medicin=
es
will become easier for companies to circumvent. This will add to the
pressure on the PBAC to make new drugs available whatever the cost. It will
also increase total cost as patients are induced to switch to new,
expensive drugs from older, cheaper ones or from no drug at all.

Company representatives will become involved in the actual meetings of the
PBAC and its technical sub-committees, and will be able to make personal
sales pitches to the meetings deciding on the value of their products. The
FTA will reinforce companies=92 ability to seek higher prices for
already-listed drugs, but there will be no capacity for the PBS to review
prices downwards if (as often happens) drugs perform less well in the =93re=
al
world=94 of actual clinical use than they did in the original clinical tria=
ls.

The combined pressures of all these measures on the PBAC and its members
will be enormous and extraordinarily difficult to resist. The committee
will effectively be under siege: the number of interests attacking any
negative decision will have multiplied both in number and in strength.
Despite its present powers under the National Health Act, it is difficult
to see how the committee will be able to continue serving the public=92s
interest properly under such conditions.

Ellen R. Shaffer, PhD, MPH, Director
Center for Policy Analysis on Trade and Health (CPATH)
98 Seal Rock Drive
San Francisco, CA 94121-1437

phone: 415-933-6204
email: ershaffer@cpath.org
www.cpath.org
fax: 415-831-4091
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