Figures from the Grattan Institute Health think-tank has found Australia’s Pharmaceutical Benefits Scheme pays at least $1.3 billion a year too much for prescription drugs.

Launching the new Grattan Institute report ‘Australia’s bad drug deal’, the group’s programme director, Professor Stephen Duckett, said that in a time of escalating health costs and pressures on the budget, the savings could be made relatively easily if the political will was there.

“To see what can be done [Australia] only need to look at New Zealand, which has capped its drug budget, appointed independent experts to make vital decisions, and taken the politics out of price setting,” Prof Duckett said. He added that New Zealand pays a sixth as much as the PBS for the same drugs.

The report points to Pfizer’s drug Lipitor (atorvastatin) as a key example of this difference. It says that this drug costs the Australian Government and individual patients more than AU$700 million a year.

In its 40mg form, the PBS pays more than $51 for a box of 30 tablets, but in New Zealand, a patient only pays AU$5.80 for a box of 90 tablets.

Just adopting New Zealand prices for atorvastatin would save the PBS more than $1.4 million a day, the report says.

The report’s authors propose three changes to get pharmaceutical prices under control: The first is to establish a truly independent expert board that would manage pharmaceutical pricing within a defined budget.

The second change is to pay far less for generic drugs - in Australia drug companies must cut prices by just 16% when many countries see generics costing 70% - 90% less than their branded equivalence. The report believes that the country should require a price cut of at least 50% to try and regain this balance.

The third and final reform is aimed at encouraging people to use cheaper but similar pharmaceuticals, which could save at least $550 million a year more.

This report comes as the pricing agreement between the Australian Government and drug companies is about expire next year. “Now is the time to make changes that will end Australia’s bad drug deal,” the report concludes.