Australians’ medicines are about to become cheaper. Why would Trump target them?

Australians pay some of the lowest medicine prices in the world for a reason: our Pharmaceutical Benefits Scheme caps essential medicine costs for the individual, while the government is the main purchaser and negotiates the best price.

This week, the Albanese government said it would make medicines even cheaper. The Coalition pledged to follow suit. But complaints from pharmaceutical companies in the United States have thrown a spotlight on our system for pricing medicines and whether it could be threatened by the Trump administration in its next round of tariffs.

US President Donald Trump and Commerce Secretary Howard Lutnick.Credit: Bloomberg

What is the PBS and how does it make medicine prices cheaper for Australians?

The Pharmaceutical Benefits Scheme (PBS) is the part of Australia’s health system that deals with medicines. Its key purpose is making medicines affordable for everyone. There were 227 million scripts dispensed to Australians under the PBS last year.

The scheme works by listing hundreds of medicines on the PBS schedule. Medicines on this list are then subsidised by the government. That means the government pays drug companies the full price of the medicine – which can sometimes be thousands of dollars – but Australians with a doctor’s prescription for that medicine only pay a flat fee for each script.

Currently, the flat fee for concession cardholders is $7.70. For everybody else with a Medicare card, the maximum cost for PBS medicines is $31.60 a script. However, that will be lowered to $25 next year, under an Albanese government election pledge this week that has been matched by the Coalition. There is also a PBS safety net of $277.20 for concession cardholders and $1,694 for general patients, which is the maximum any Australian will pay in one calendar year for their PBS medicines.

There were 930 medicines across 5,164 brands listed on the scheme last financial year, with the government spending $17.7 billion on the supply of those medicines, or 91.6 per cent of the cost. Australian patients contributed $1.6 billion, or the remaining 8.4 per cent.

Drug companies must apply to be included on the scheme to the Pharmaceutical Benefits Advisory Committee (PBAC) – the expert body that advises the government – with a package of evidence that demonstrates their product’s safety, efficacy and cost-effectiveness compared to other treatments.

The committee then tells the government whether it should subsidise that treatment for certain purposes. This process often involves price negotiations, with drug companies and the government going back and forth to secure the best deal for Australian taxpayers.

This is where US pharmaceutical giants take issue with the scheme.

Why do US companies have a problem with the PBS?

The big pharmaceutical companies don’t like the way that Australia controls prices for their products as it delivers a hit to their potential profits.

They also say the PBS takes too long to go through its process of deciding to approve medicines, and in doing so, delays the arrival of their product on Australian pharmacy shelves. They argue this amounts to being denied market access.

The US pharmaceutical giants’ peak industry lobby group – Pharmaceutical Research and Manufacturers of America, known as PhRMA – wrote to the Trump administration this month with a formal complaint, this masthead revealed on Wednesday.

PhRMA member companies include medical industry giants Johnson & Johnson, Pfizer, Eli Lilly, Merck & Co, Bristol Myers Squibb, Novo Nordisk, CSL and Amgen. They said that Australia, as well as other countries, had discriminatory and egregious pricing policies that “threaten billions of dollars in lost sales and undermine American competitiveness, jobs and exports”.

Their complaint devoted an entire section to Australia, blaming the PBAC for putting barriers in the way of American exports.

“PBAC conducts biased health technology assessments that compare innovative medicines to the lowest-cost comparator,” the submission says. “Australia creates unnecessary data requirements and other administrative hurdles to secure PBS listing, causing significant delays.”

Their complaint has been lodged with the US administration just as President Donald Trump is planning to impose reciprocal tariffs on dozens of countries from April 2, targeting countries have either tariff or non-tariff barriers that the US opposes.

And it’s a problem for Australia because the US industry sees the PBS as a “non-tariff barrier” that restricts trade by denying market access and setting prices that limit profits. This puts us in the firing line.

What happens next? Can Trump take away cheaper medicines?

Health Minister Mark Butler batted away the threat in interviews on Thursday. “The American industry may well want the US administration to try to encourage us to do less of that price reduction. That obviously taps into the profits that very profitable industry makes. But we’re simply not going to do it,” he said.

“I want to make it absolutely clear it’s simply not up for negotiation from our point of view. It shouldn’t be a surprise, I guess, that Big Pharma want to sell their medicines at top dollar. But we want to make them cheaper... We see the PBS as a critical pillar to what we proudly think is one of the best healthcare systems on the planet. We’re simply not going to negotiate around it.”

Health Minister Mark Butler says Australia will never negotiate away cheaper medicines. Credit: Alex Ellinghausen

The Coalition’s home affairs spokesperson, James Paterson, also said the opposition would defend the scheme. “The PBS is sacrosanct, and it is bipartisan, and it is not on the table for any negotiations with the United States,” he said.

Paterson said there had been an attempt to open up the PBS in free trade negotiations between former Australian prime minister John Howard and former US president George Bush. “And John Howard put it off the table and said that it couldn’t be touched and it wouldn’t be touched. And we’ve defended it in government, and we will continue to defend it in government.”

But even if the US can’t touch the PBS, it could come after other Australian industries in retaliation. Trump could levy duties on Australia’s pharmaceutical exports to the US, or target another sensitive industry such as wine, or a levy across all imports from Australia.

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