The Pharmaceutical Benefits Scheme (PB S), along with Medicare, is a key component of Australia's health system. The PBS is a universal prescription drug scheme of the Commonwealth government, and is considered to be monopsonist because it is the only major drug buyer in Australia. In terms of equity, the PBS provides all Australians who need prescription medicines with access to essential and life saving medicines at affordable prices. It has been reported that Australian drugs are as much as 160 per cent cheaper than those in other countries such as the USA. However, the PB S is one of the fastest growing components of the Australian Health System, and there are concerns for the sustainability of the PBS and the willingness to pay of both the government and consumers. Indeed, there has been an increase in government expenditure on pharmaceutical benefits since the commencement of the programme. The Australian government has implemented several policies aimed at reducing expenditure of the PBS.
Australia is the first country in the world that requires economic evaluation in support of an application for listing a new drug on its pharmaceutical benefits scheme. These requirements are supported by law, and the Pharmaceutical Benefits Advisory Committee (PBAC) must consider the costs and effectiveness when giving its recommendations to the Minister for Health for listing a new pharmaceutical. However, cost-effectiveness requirements are not meant to contain the rising cost of pharmaceuticals, as they mainly address efficacy and efficiency issues. On the other hand, reference pricing is the important policy that is being used in Australia to contain the cost of new medicines. According to this method, the reimbursement price for a clinically equivalent group of medicines is set in relation to the price of the cheapest medicine in the group. Therefore, reference pricing has contributed to decreasing the price of drugs, in particular the "me too " drugs. However, the main drawbacks are that reference pricing allows the prices of the older drugs to remain unchanged, since all therapeutic prices are driven to the same price and also reference pricing cannot be used for the new innovation drugs because of the absence of comparable drugs.