On April 1, the prices of 75 medicines supplied through Australia's Pharmaceutical Benefits Scheme (PBS) will be reduced by an average of 28.7%, saving the government an estimated A$1.9 billion over four years.

The price cuts are related to the price disclosure policy agreed between the industry and the government and will range from 82.7% to 10.5%. They represent the biggest single reduction in PBS history, says the Generic Medicines industry Association (GMiA).

The price disclosure policy, which is designed to claw back discounts on generics, will drive important savings to the PBS, says the GMiA, while industry group Medicines Australia, which represents the research-based drugmakers, coments that the price cuts, coupled with the recent Mid-Year Economic and Fiscal Outlook (MYEFO) forecasts of lower-than-expected PBS spending, "effectively removes the case for further PBS reform."

Medicines Australia chief executive Brendan Shaw said the price cuts would cause significant commercial difficulty for many firms. "Some companies have taken price cuts of more than 70% for a single medicine, and absorbing reductions of that magnitude is obviously challenging," he said.

But the industry has agreed to the reductions in order to create "the financial headroom that allows the government to bring the latest medicines onto the PBS whilst keeping expenditure under control," he said, and added that the April 1 cuts "should lead to price reductions on medicines for patients as well as the government."

The Health Department has said that customers will pay less for 63 drugs in 171 different formulations, and also less for a further 126 branded products, whose premiums will be reduced.

Dr Shaw also pointed out that companies will have a short period in which to ask for a review if they believe a price reduction has been incorrectly calculated.

The system of mandatory price disclosure requires generic drugmakers to report the discounted price at which they are selling medicines in the market, thereby revealing the products' true prices to both the government and to pharmacies, notes the Consumers Health Forum (CHF), which has applauded the government "for making medicines more affordable and saving taxpayers millions of dollars," and is calling for the measure to be a starting point for further reforms.

"This demonstrates that if we make the arrangements with pharmaceutical companies and pharmacists more transparent, health consumers and Australian taxpayers will be better off," she said.

The CHF is backing calls for a Senate inquiry into the five-year, A$15 billion Community Pharmacy Agreement (CPA) between the government and the Pharmacy Guild of Australia, which covers arrangements including how much pharmacists are paid for dispensing subsidised medicines. 

The Guild, which represents over 5,000 pharmacy owners, has come under fire this year following revelations that it had entered into agreements with some drugmakers to encourage consumers to buy their products - including the notorious "Coke with fries" arrangement with supplements manufacturer Blackmores. That deal was withdrawn following a public outcry.

The inquiry has been called for the Australian Greens, who say that such financial deals "have the potential to compromise healthcare advice and allow commercial interests to override the integrity of the healthcare system."

"We need an inquiry into the agreement and how the interests of taxpayers, consumers and pharmacists themselves should be better represented in the negotiation process," says party spokesman Richard Di Natale.

Health Minister Nicola Roxon acknowledges that there are problems in the system, but has said she is not prepared to break the current CPA, which only began in June 2010.

However, says Ms Bennett: "anyone looking at this latest data would have to question to future arrangements for ongoing subsidies to pharmacy owners under the next Guild/Government Agreement."