Drug Price Reforms: The New F1–F2 Bifurcation

Abstract

Significant changes to the Pharmaceutical Benefits Scheme (PBS) are underway. The Australian Parliament recently passed the National Health Amendment (Pharmaceutical Benefits Scheme) Act 2007. At the core of this Act are new sections (85AB and 85AC) to the National Health Act 1953. These had the effect of dividing, from 1 August 2007, the PBS into two separate formularies – F1 for single brand, mostly patented, medicines and F2 for multiple brand, mostly generic, medicines.

These complex changes aim to 'recognise the importance of world-class life-enhancing drugs to patients', protect patients from higher costs and get better value from market competition among brands of generic drugs. The changes may allow PBS and patient savings through lower priced generics, but their impact on the price of patented medicines is uncertain in our view.

Keywords: Cost-effectiveness, generic medicines, PBS, pharmaceutical regulation

JEL Classification: D46, I18, H41, M37, K31, L65, O34, O31