Details will be announced next week of an agreement between Australia’s federal government and the pharmaceutical industry which will cut the prices of drugs to the government by A$2 billion and to consumers by A$300 million over a four-year period.

The industry has reportedly agreed to the deal in return for greater certainty about pricing changes in the future – or indeed assurances that there will be no further price cuts, according to local reports.

The details will emerge next week as the federal Labour government led by Prime Minister Kevin Rudd announces its annual budget on Tuesday, and the newly-agreed Fifth Community Pharmacy Agreement, to take effect from July 1, will be made public following the budget announcement.

Meantime, the pharmaceutical industry has been quick to explain that the apparent massive rise in pharmaceutical prices in Australia during the quarter ending March this year is a regular occurrence and the result of government policy, not “undue price rises” by drugmakers. Against a 0.9% increase in the Australian Bureau of Statistics’ Consumer Price Index(CPI) for the period, medicine prices went up a whopping 13.3%.

This increase has to be seen in the context of the December 2009 CPI, when pharmaceutical prices fell 5.3%, said Brendan Shaw, chief executive of industry group Medicines Australia.

“The fall of the pharmaceutical price index throughout the year to December 2009 quarter was largely due to patients reaching the Pharmaceutical Benefits Scheme (PBS) safety net and paying either a reduced co-payment in the case of general patients, or no co-payment in the case of concession card holders,” Dr Shaw explained.

As each calendar year progresses, more people reach the PBS safety net, and on each January 1 the net is reset and consumers resume paying the normal PBS co-payments until they again reach the safety net, he noted, adding that the apparent increase in consumer drug prices in the first quarter of each year actually shows that “the safety net is working.”