Squiz Shortcuts - The PBS

Your Shortcut to… The PBS

The Pharmaceutical Benefits Scheme (PBS) provides affordable access to necessary medicines for all Australians. It’s one of the cornerstones of our health system - but as with so many issues in the news at the moment, all roads lead to US President Donald Trump… So in this Squiz Shortcut, we get you across:

• where the scheme fits

• how it works

• and the issues bubbling under the surface of the US-Australia alliance 

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Squiz the Shortcut

I’ve always wondered how the PBS works
Like a lot of things, we think it’s got lost in the ‘assumed knowledge’ pile… We’re going to explain what the PBS is, but before that, let’s zoom out and take a broader look at our public health system, which operates with 3 pillars.

What are they?
One is a public hospital system where all Australians can get quality care when they need it for the big medical episodes in their lives. Public hospitals cost about $90 billion a year to run - and it’s mostly shared between states and territories, and the Commonwealth. 

Who pays for it?
Good question. There are regular stoushes because the states want the Commonwealth to pay more of the share… The states pay about 50% of the cost of public hospitals, the Commonwealth a bit more than 40%, and the rest is made up of payments from the health insurers for the treatment of private patients in public hospitals. But long story short - if you’re a public patient at a public hospital, you do not pay anything for your medical treatments. 

Got it… Where does Medicare fit?
That’s pillar 2. Medicare guarantees all Australians access to a wide range of health and hospital services at low or no cost. That’s visits to the GP, other medical services, tests, imaging and scans - they’re all covered by Medicare. 

What does it cost?
It’s set to top $40 billion this year - and that’s a commonwealth responsibility… So, no state and territory support there. 

What’s the third pillar?
That’s the PBS… It’s how the government subsidises the cost of medicines for most medical conditions that are dispensed by pharmacists and used by patients at home.

And you say ‘subsidise’ because these medications aren’t free?
They’re cheap but they’re not free… Most Aussies pay up to $31.60 for most PBS medicines or $7.70 if you have a concession card, and the Australian Government pays the remaining cost. But there is this thing called the PBS Safety Net - so if you spend more than $1,694.00 as a general patient on medical bills (or $277.20 for concession card holders) you can get access to PBS-listed medicines for free. 

The term ‘PBS-listed’ comes up a lot…
That’s because there is an actual list. There are 930 medicines under more than 5,000 brands that receive the subsidy… 

That’s a lot
And there are always calls for more - there have been calls recently by doctors for drugs like Ozempic to be listed on the PBS for the treatment of obesity. That would make it a lot more affordable and accessible for patients thanks to the government subsidy. There’s a lot of lobbying that goes into the listing of drugs…

Why is that?
Because if more patients access the drug, the drug company wins and the doctors can treat patients for their conditions without the financial burden.

So what’s the bill for the PBS?
It’s about $18 billion a year to taxpayers. Just to give you an example of what it means, there’s a drug called Zolgensma that was listed on the PBS to treat little kids with a certain type of spinal muscular atrophy. The condition makes it very difficult for kids to walk, breathe and swallow, and their life expectancy is short. There’s no cure, but Zolgensma is a drug that can help - but it costs $2.5 million, making it the world's most expensive. 

Was it listed for the PBS?
Yep, it was listed in 2022, and now there are about 20 kids who have that condition getting access to that for $31.60. That’s pretty incredible, right? Well, there are a few issues bubbling along that could have implications for the way our PBS works.

What sort of issues?
So this is about President Trump’s America First agenda and the imposition of tariffs on a bunch of products being imported to the US from producers in a bunch of nations. We’ve talked about how our steel and aluminium industries have been hit with a 25% tariff (or tax), which means the price goes up for American consumers.

Go on…
And we’ve also flagged that Aussie farmers are worried - particularly our beef producers - because Trump has promised agricultural tariffs. And it’s also got our pharmaceutical industry worried…

What’s the outlook there? 
Reports say Australia’s pharmaceutical exports, which were worth about $2.2 billion in 2024, could also be hit by US tariffs. It’s our third biggest export category to the US after beef and gold… But the issue is much more complicated than that…. 

How so?
Because some of the world’s largest pharmaceutical companies are American, and they have always had reservations about the PBS… 

What sort of reservations?
When you think about American companies in this political debate, it’s easy to just think about the likes of Apple and Google and Meta. But the pharma businesses like Johnson & Johnson, Eli Lilly, Merck, Pfizer - these are big businesses too… 

What’s that got to do with the price of… medicine?
In Trump’s first term, he blamed the high price of US medicines in part on foreign countries that take advantage of the significant American investment in medical research without paying what he says is their fair share. So there’s that, and our PBS further complicates things.

How so?
The US drug companies are unhappy that they have to negotiate a price for their drugs with the Australian Government rather than how they do it in most other markets, this is with doctors and insurers and groups that run the hospitals. The argument from the Americans is that the PBS is a trade barrier that our government has imposed. 

Please explain
They call it a non-tariff barrier - and that’s why there are concerns that Trump will use these new tariffs he’s imposing as a weapon to influence our government to change the PBS so the drug companies will ultimately be paid more. 

How likely is that to happen?
We’re not there yet, but that’s the concern - and we’re likely to hear more about it.

Onto our Recommendations

Reading: This article from the Sydney Morning Herald gives a good overview of the push by US big pharma companies for the Trump administration to put pressure on the Aussie government by imposing tariffs on our drug exports.

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