Prices of drugs are becoming the focus of much debate in the world. It is well known in many countries that the prices of new medicines are one of the major causes for high expenditure on pharmaceuticals. From an economic perspective, the potential reasons for these high prices may be linked to profits that drugs' manufacturers are aiming for and also recouping the loss on research and development (R&D) of new medicines. Nevertheless, it is believed by policy makers that there may be other attributes in medicine itself which could have an impact on the final price of drugs. These attributes are called clinical attributes which include dosage forms, therapeutic efficacy, frequency of use, onset of action, side effects, drug interactions, and the safety of using drugs by elderly people.
This study is aimed at investigating two main issues. First, to examine the effect of the policies that have been applied by the Australian government to prices of drugs that are listed in the pharmaceutical benefits scheme (PBS). Second, to find out most of drugs' attributes that could potentially affect the final prices of drugs. More specifically, this study is intended to examine the effect of different characteristics of anti-ulcer medicines on the final prices of these drugs. The findings show that the Australia's policies have been successful in making prices of drugs in the PBS among the cheapest drug prices in the world. The reasons for that are closely linked to the monopsony power of the government and other policies such as cost effectiveness requirements and reference pricing method. On the other hand, applying hedonic model to the prices of anti-ulcer drugs in the PBS reveals that some of the medicines' characteristics, such as less daily use of a drug, (FR) have a positive impact on the final price of each anti-ulcer drug. This could be a reason• for being proton pump inhibitors (PPI) more expensive than histamine 2 receptors antagonist (H2RA) drugs because PPI medicines are used once per day. However, some characteristics such as drug interactions, (DI) and the safety of using this medicine by the elderly (ELD), show no relation to the final price.