Consumers will pay up to 50 per cent less for many common medicines under changes to the Pharmaceutical Benefits Scheme to be announced by Health Minister Sussan Ley on Wednesday.
The changes are also expected to save the budget about $3 billion over five years by encouraging consumers to choose cheaper, identical generic versions of off-patent drugs and less expensive similar drugs.
Ms Ley will introduce legislation to enact the changes on Wednesday after inking five-year deals with the Pharmacy Guild and the Generic Medicines Industry Association. Negotiations with the patented medicines industry, represented by Medicines Australia, were still underway on Tuesday night, but it is understood Ms Ley is determined to also implement changes to how patented drugs are priced, with or without the industry's agreement, given these are the most expensive drugs on the PBS.
Fairfax Media understands that for the first time, the government will demand price reductions on patented drugs for which there is only one brand.
In a change likely to anger big pharma, the price the government pays for these drugs will be cut by 5 per cent after they have been on the PBS for five years.
Prices for off-patent drugs will drop more dramatically due to a change to the process by which the government brings the prices it pays pharmacists for drugs into line with market prices.
Currently, drug prices are brought into line with a weighted average of the price of all brands.
Under the changes, to come into effect from October next year, the premium brand would be removed from these calculations, which will be based on the average of cheaper generic brands.
As a result, the government expects the retail price of the cholesterol-lowering drug rosuvastatin, which currently costs more than $35 a packet, will be cut to just over $18. Under the current arrangements, the retail price of the drug would have been reduced to just under $30.
The price of the anti-depressant venlafaxine would be about $5 a box cheaper as a result of the change, while a box of the heart disease drug clopidogrel would be about $3.60 cheaper.
To encourage greater use of generic drugs, an incentive paid to pharmacists will be retargeted, saving $570 million.
It will also launch a $20 million campaign to educate doctors and patients about the benefits of "biosimilar" drugs, substitute medicines which are not identical to other drugs but have been proven to be as effective and safe.
The government expects greater use of biosimilars to save more than $880 million over five years.
The agreement with the Pharmacy Guild includes an option for pharmacists to discount the patient contribution for PBS drugs by $1 a script, despite the famously powerful Guild opposing the discount, which would have to be absorbed by pharmacists.
The government expects the optional discount to encourage greater competition among pharmacists, and also save the budget about $360 million over five years due to fewer patients qualifying for free or heavily discounted medicines under the PBS safety net.
Across the entire package of PBS changes, the government expects to save $6 billion compared to current policies, but about $3 billion of this will be reinvested in the scheme.
These savings dwarf the $1 billion the government had once hoped to save by increasing PBS patient contributions and safety net thresholds. Ms Ley dumped those changes last week, admitting they had no hope of passing the Senate and were at odds with her ambition to make medicines more affordable.
Ms Ley said both agreements were a "win for consumers" and backed the Government's decision to include consumer groups in the negotiation process for the first time.
"Throughout the Government's negotiations with the entire pharmaceutical supply chain we have had consumers at the core of our negotiations and I think this shines through in the sensible measures we're delivering," she said.
Mark Crotty, the chairman of the Generic Medicines Industry Association said greater use of generic and biosimilar medicines would save money which could be used to pay for newer medicines.
Consumers Health Forum chief executive Leanne Wells said the changes, which also include $1.2 billion for pharmacists to deliver new services to patients, represented "a big step forward."
