PBS ‘not on the table’ in battle for pharmaceutical tariff exemption, despite lobbying
The threat of global 200 per cent tariffs on pharmaceutical products presents a challenge to Australia’s drug subsidy scheme after foreign lobbyists pushed for it to be leveraged in trade negotiations.
US President Donald Trump has threatened to expand his sweeping global trade war by pushing tariffs on pharmaceutical products as high as 200 per cent, raising fears for the future of Australia’s cheap medicines.
The tariff threats follow aggressive lobbying by the US pharmaceutical industry explicitly targeting Australia’s Pharmaceutical Benefits Scheme – with pharmaceutical giants hoping to “leverage ongoing trade negotiations” against the PBS.
Treasurer Jim Chalmers reassured the nation on Wednesday that the PBS was “not on the table” in any bilateral negotiations with the US but markets are nervous and uncertainty is rife.
Tariffs threatened
Mr Trump floated the potential tariff to reporters at a cabinet meeting on Tuesday amid broader discussion of his nation-specific global tariffs, setting a zero-exemption August 1 deadline ahead of the reintroduction of his “Liberation Day” tariffs on July 9.
“We will be announcing something very soon on pharmaceuticals,” he said.
There would be a grace period of up to 1½ years to give companies time to adjust their supply chains, he said, but once instituted the tariff rate could range as high as 200 per cent. It would drastically shift the balance of trade with Australia’s largest pharmaceutical importer, meaning Australia and local companies would find little appetite for their products, while patients remained reliant on American imports.
Lobbyists attack PBS
Australia has been targeted aggressively by the US pharmaceutical lobby since the appointment of the Trump administration over accusations that the PBS has undervalued US products and stymied innovation.
The Pharmaceutical Research and Manufacturers of America (PhRMA) group urged Mr Trump to pull the PBS into tariff negotiations and drive up Australian pharmaceutical prices in the process.
PhRMA said in a January submission to the US trade review that US companies were the “constant target of compulsory licensing and other harmful practices” by Australia and the PBS.
“Biopharmaceutical innovators in the US face a wide array of damaging government pricing policies abroad,” it wrote.
PhRMA’s submission placed Australia and four other jurisdictions, including the EU, on a “watch list” for the Trump administration to consider; a further 19 countries, including Canada, were placed on a “priority watch list”.
“Australia undervalues new innovative medicines by setting prices based on older inferior medicines and generics, and through use of low and outdated monetary thresholds per year of life gained from clinically proven treatments,” PhRMA said more recently.
“In addition, government assessments often restrict access to a small subset of the patient population for which the regulator determines the product to be safe and effective and additionally create considerable patient access delays through unnecessary data requirements and other administrative hurdles.”
Given the relatively small market Australia presents to global pharmaceutical corporations, the competitiveness of negotiations with the Pharmaceutical Benefits Advisory Committee – which evaluates and negotiates which drugs should be on the PBS – has been a point of constant friction.
The Australian pharmaceutical industry
The US makes up about 40 per cent of Australia’s pharmaceutical export share, more than double our next largest customer, New Zealand. Australia is a far bigger pharmaceutical importer than exporter and takes about 20 per cent of its drugs from the US.
A shock to prices bilaterally could up-end deals forged under the PBS and drive up prices for vulnerable patients accessing new treatments outside of the subsidised system.
Medical Technology Association of Australia chief executive Ian Burgess said tariffs would have flow-on effects for Australian research and innovation.
“The MedTech supply chain is global and complex. The impact of US tariffs, including potentially higher cost of inputs, will probably extend across the global MedTech supply chain, including Australia, putting upward pressure on costs,” he told The Australian.
“MTAA is concerned that existing US tariffs may hinder the commercialisation of emerging Australian MedTech, particularly as the US is often a critical first export market. MTAA is actively exploring solutions to help ensure innovative Australian MedTech can compete globally.
“Medical technology is heavily regulated and shifting or adjusting supply chains can be complex and expensive.”
Markets
Shares in Australian biotech giant CSL were down 2.2 per cent to $243.71 on Wednesday.
While CSL has manufacturing facilities in the US, some of its vaccines and blood plasma products are imported into the country and may be hit by the levies unless it is able to get an exemption.
“We are aware of recent remarks by President Trump about potential tariffs on pharmaceuticals. We will continue to monitor the situation closely,” a CSL spokesman told The Australian.
The ASX 200 index slipped 0.6 per cent to 8538.6 points on Wednesday, its lowest daily close in July.
The PBS
The PBS, which subsidises the cost of some drugs, is a nearly $18bn scheme providing 930 different medicines at a universal discount rate to Medicare card holders.
In the 2024 financial year the pharmaceutical industry collectively paid back more than $5.3bn in rebates to the Australian government, nearly 30 per cent of the total cost of the PBS.
While a drug technically will be available nationally after approval by the Therapeutic Goods Administration, it will retail at the price set by its producer, often costing hundreds or thousands of dollars per dose, and is often geographically constrained.
For the federal government to consider subsidising a drug, it must be approved for the PBS.
Drugs included on the PBS are subsidised by the government, with the patient making a capped co-payment. Most of the medications are dispensed by a pharmacist and intended for use by a patient at home.
The role of the PBAC is to recommend which medications should be listed on the PBS, and no new medication can make it on to the list without being recommended by the group.
‘Most Favoured Nation’
Independent of PhRMA lobbying, Mr Trump’s May 12 “Most Favoured Nation” executive order has left a question mark over the future of the PBS.
Under the proposal, the US would refuse to accept medicine prices higher than those overseas, forcing companies to give Americans their best rate or bring foreign prices in line.
It threatens to dissuade companies from marketing in Australia because of competitive domestic price negotiations if it could impede on their US negotiations.
Given the American pharmaceutical industry’s contentious relationship with Australia, it provides further reason for them to avoid selling here altogether – simplifying their American negotiations in the process.
Medicines Australia chief executive Liz de Somer – representing Australia’s pharmaceutical producers –- opposed the institution of tariffs and any threat posed by the Trump administration to Australia’s Pharmaceutical Benefits Scheme.
“We don’t want to overreact to the announcement, but being very clear, the industry in Australia opposes tariffs being applied to pharmaceutical manufacturing,” Ms de Somer said. “I don’t think the American producers actually support tariffs being applied.
“We certainly are concerned most particularly that the Most Favoured Nation policy would possibly have a flow-on effect to whether companies will delay their applications to bring new products to Australia – not only for assessment for quality and safety, but also for reimbursement through the PBS.
“We already have long delays for access to new medicines for patients … and those kinds of policies absolutely could influence decisions about delaying the introduction of new medicines to Australia.”
PBS ‘not on the table’
The PBS was a centrepiece of Anthony Albanese’s election campaign, during which he pledged to reduce the maximum price of all PBS-listed medications from $31.60 to $25 by the end of the year.
The Prime Minister told the National Press Club in June “the Pharmaceutical Benefits Scheme, the media bargaining code, our biosecurity in agriculture – they’re not on the table (for trade negotiations) as far as we’re concerned”.
A former senior public servant familiar with US-Australian pharmaceutical negotiations said the tariffs were not a feasible economic solution to stabilise America’s local pharmaceutical industry given the long timeline it takes for companies to scale up drug production.
“In reality, pharmaceutical companies wouldn’t sell drugs in Australia if they weren’t making profit. They’d walk away,” the former public servant said.
“They talk a lot about innovation, that if you don’t spend money, you don’t get innovation. But money doesn’t buy innovation, money buys R&D and if you’re lucky and you do it right, then you get something innovative.
“An innovative drug is one that actually is more effective or safer or both than the drugs that preceded it, and that is the fundamental principle on which the PBS evaluation process works.
“Can you imagine the reputational damage, if they start saying they’re not supplying the Australians? That would be really good grounds for Australia to seek some serious retaliation.”
The former public servant said drug companies had already begun to stall listing new drugs to the PBS as they waited to see the impact of the “Most Favoured Nation” policy and Mr Trump’s broader pharmaceutical agenda.
Threats to medicine
Before the election of Mr Trump, the PBS was facing accusations of mismanagement over concerns it could not meet demand, had an inflexible administrative style and was leaving patients in limbo because of protracted waiting times on decisions.
The Albanese government conceded it was unfit for purpose, having commissioned three assessments in recent years.
The most recent was the Health Technology Assessment review, which provided 50 possible reforms, including a potential bridging fund to drive affordability during protracted evaluation periods.
From November 2024, an investigative series by The Australian found the PBAC was teetering on the brink of an administrative meltdown.
A series of private communications between the PBS, the Health Department and drug companies whose products were affected showed 45 drug decisions had been pushed from the agenda of a thrice-yearly PBS meeting.
The Health Department estimates the PBAC will require years of work to reform, all the while being battered by a rising rate of submissions routinely beyond capacity.
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