Hands off the PBS! Free Trade Agreements threaten affordable medication in Australia

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The Pharmaceutical Benefits Scheme (PBS) provides low-cost medication, making it a keystone of equitable, affordable healthcare for all. The federal government subsidises prescriptions so that the upfront cost for patients does not put medication out of reach. The scheme includes an annual cap on out-of-pocket expenses to protect those with chronic illnesses.

I see the benefits in my day-to-day work as a family doctor. For instance, new biologic medications that are crucial treatments for patients with Crohn’s disease or crippling rheumatoid arthritis cost the patient around 38 dollars a month, or about ten dollars for those on a pension. Compare this to the $2,000 price tag in the U.S.!


Protesting the profiteers: World AIDS Day 2011 in India. Photo: Don’t Trade Our Lives Away

Pharmaceutical companies, bitterly opposed to the ability of government to restrict the price of medication, have long targeted the PBS.

Free trade agreements are the latest tool undermining the scheme. The Trans Pacific Partnership (TPP), a proposed free trade agreement between 12 countries including the U.S. and Australia, ramps up the attack. The existing Australia-U.S. Free Trade Agreement (AUSTFA), introduced in 2005, has already tipped the scales in favour of big pharma. U.S. President-elect Donald Trump, the king of monopoly capital, has vowed to stop the TPP going ahead. But even if he cans the TPP, the free trade threat to the PBS will remain.

Big pharma reaps big profits. Among the 1% of the super-rich who plunder the world, pharmaceutical companies are its princes. They are also among the most adept at pressuring governments and using free trade agreements. In 2015 U.S. multinational Pfizer, the third largest pharmaceutical company in the world, had a total revenue of $52 billion. After marketing and research expenses, this amounted to a tidy profit of $22 billion—a profit margin of 43%.

While the total profit is enormous (larger than the GDP of some countries), it is striking how much is spent on sales and marketing rather than on producing new medication. What is also notable is the profit margin, which is 3-4 times that for many other industries.

The current stage of capitalism is marked by large monopoly corporations like pharmaceutical companies that control sections of the market and fix prices to maximise profit. Now that most of the world has been divided among capitalism’s leading imperialist powers, governments are enlisted to enable corporations to maximise profit in a world in which the rate of profit declines (mind you the amount of profit rises obscenely).

Consider the World Trade Organization (WTO), the supranational enforcer of neoliberalism. Countries belonging to the WTO control 90% of world trade and have implemented 79 trade agreements since 2010. During this time, the global 1% has amassed 50% of the planet’s wealth.

Pharmaceutical companies are major advocates of “free trade.” They can charge what they want without any restriction placed on prices by government regulation. Others pay the price.

The North American Free Trade Agreement (NAFTA) that encompasses Canada, U.S. and Mexico has had disastrous effects for workers with millions of job losses, flat-lining of wages and removal of even the most basic of protections for Mexican workers. Big pharma has used NAFTA to restrict the efforts of the Canadian government to allow cheaper medication into the country, a feat the industry wants to repeat in Australia.

Steady erosion of the PBS. The idea of affordable medication for all through a government-subsidised scheme first got traction in 1944. The initial scheme was established by the Chifley Labor government, which aimed to create a system modelled on the British National Health Service. Under public pressure from a community traumatised by a decade-and-a-half of depression and war, governments used the proceeds of the post-war boom for welfare measures. Conservative political groups aligned with the medical profession fought tooth-and-nail against it.

Initially medications were free, but the conservative Menzies government introduced a copayment for most patients in 1960. The scheme has been under attack ever since, with pensioners required to make a copayment since 1990. Now pharmaceutical companies and their government backers are taking up the cudgel to further undermine the PBS.

The scheme is based on the government, a bulk buyer of medication for the public, arguing for the cheapest price. Medications are assessed on the basis of cost and effectiveness. In other words, does the medication do what it is meant to do, and does it provide any advantage over existing medication? The price paid to pharmaceutical companies for new medications was determined by a process called drug referencing, in which the price was set according to the lowest priced similar drug. Obviously, this works out at less than if the company sold the medication in an unregulated market, as it does in the U.S.

To maximise profits, it is in the interest of companies to get the price they want for the drug and then to be able to sell the drug for as long as possible without being challenged by cheaper generic drugs. Pharmaceutical companies rake in big money during the patent period, which is typically 20 years. During this period, non-branded versions of the drug cannot be sold. Therefore, most profits are reaped before the patent expires. The longer the patent period, the more money can be made.

Rule changes under AUSTFA benefited the pharmaceutical industry. The negotiating committees were stacked with industry leaders and their allies. U.S. government representatives were mandated by legislation to seek the elimination of PBS reference pricing. Following these negotiations, drugs available through the PBS were divided into two groups. The first group (F1) consists of high-priced drugs with patents only and the second group consists of generic drugs. F1 drugs were insulated from price cuts and reference pricing, making them more expensive and lucrative for drug companies.

Continuing the trend. The TPP seeks to extend the patent period for new medications. Again, negotiations about pharmaceutical policy were conducted largely by industry representatives. These negotiations, like all elements of the TPP, took place in private, away from any public scrutiny. The TPP includes provisions that will prolong the patent of new drugs for up to an additional 10 years. It will also delay the release of generic drugs in “developing countries.”

India, which is not a party to the TPP, was sued by drug giant Novartis under patent laws for producing low-cost generic HIV medicine for patients who couldn’t otherwise afford treatment. India’s courts found in the government’s favour. Countries like Vietnam, which are a party to the TPP, will be prevented from releasing generic medications and could be sued under the TPP if they do so. Their own legal system will be bypassed.

This will seriously undermine the ability of elected government to provide affordable medication to their population.

These types of measures are common in trade deals. Eli Lilly, a global pharmaceutical giant that markets the psychiatric drug olanzapine, is currently suing the Canadian government under the provisions of the NAFTA over its decision to allow its courts to invalidate the patent of this drug. If the TPP is enacted, there is no doubt that similar provisions will be used.

Trump and free trade. During the recent U.S. election Donald Trump said, “I am going to issue a notification of intent to withdraw from the Trans-Pacific Partnership—a potential disaster for our country.” What Trump followed with should raise alarms for anyone who values the PBS: “instead we will negotiate fair, bilateral trade deals.”

Trump holds large share holdings in many major pharmaceutical firms, including Pfizer, Merck, Celgene and GlaxoSmithKline. We should be under no illusions that he will act against either his own interests or those of his ruling class backers. During the election campaign, in a populist appeal to voters, he said he was in favour of cheaper drugs. When this claim is examined more closely, it appears that he might restrict the price of generic drugs entering the U.S., but there will be no limit on the cost of patented drugs. This looks like a policy straight from the big pharma handbook. Even if big business in the U.S. lets him get away with stopping the TPP, Trump is still in favour of bilateral agreements. AUSTFA, a bilateral free trade agreement, has already dealt a major blow to Australia’s PBS, and there’s more of these deals to come. Whichever way he goes on the TPP, you can be sure that Trump will support the campaign of pharmaceutical companies to maximise their profits and get rid of any obstacle that will stop them from doing so.

Free health care: real innovation. To defend and maintain access to affordable medication, we need to resist and defeat all free trade agreements in whichever country they are enacted. Don’t be fooled by Trump or any other representatives of the ruling class. Despite wrapping trade deals in the language of innovation, this is code for championing the profits of pharmaceutical companies over the health of working people.

Australians must be alert to any effort to further undermine the PBS and Medicare and to organise in workplaces and get on the streets to defend and extend these institutions. Ultimately, there is only one solution. The pharmaceutical industry needs to be nationalised and brought under workers’ control. Then, decisions on life-saving medication will be driven by need and not profit. Billions will not be wasted on advertising and developing drugs of minimal benefit solely to make money. This money can be diverted to funding free, cost-effective medication for all. A truly innovative solution!

Michael Clark works as a GP in Melbourne’s outer east. He welcomes feedback at michael.clark65@gmail.com

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