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A political placebo

The Australian

Editorial: A political placebo

5 January 2006

The Government is no friend to the big drug companies

OPPONENTS of the Australia-US free trade agreement are nothing if not obstinate - and opportunist. A year after the deal was done the world has not ended, but they still say catastrophe is imminent, especially for the Pharmaceutical Benefits Scheme. As The Australian reported yesterday, FTA opponents argue that the PBS will be at risk if the Government agrees to US urging to abandon a rule that stops drug companies indefinitely extending patents. According to the critics, pharmaceutical manufacturers want to be able to renew drug patents on the basis of ephemeral alterations. Their plan is to lock out generic competitors, who launch cheap copies of medicines as soon as patents expire. For this to be allowed would be less good than great for greedy drug companies, and very bad for sick Australians, opponents of the FTA argue.

As scary scenarios go, this is a beaut - but you would need to be on the sort of drugs not sold at the chemist to believe it. For a start, the ban on drug companies evergreening their patents found its way into the agreement because of politics, not policy. In August 2004, at the height of the FTA debate, then Labor leader Mark Latham wrong-footed the Government by demanding a specific ban on evergreening in the agreement as his price for supporting the FTA. It was a terrific tactic that made Labor look like it was protecting the interests of ordinary Australians while the Howard Government was more interested in helping US drug companies.

Never mind that the best protection against frivolous patents is the law that is intended to prevent them. Never mind that the FTA did not change the way generic drugs are placed on the Australian market. And never mind that patent law experts suggested Mr Latham’s proposal was impractical and unnecessary. It was great politics that helped Mr Latham out of a hole. While trade reformers in his party supported the trade deal, Labor leftwingers hated it and Mr Latham was looking for a way to placate them. As his diary entry for August 5, 2004, published last year, put it, the anti-evergreening amendment "was a last minute decision to create an internal Party compromise . . . This may be a miracle weapon, more by accident than design".

But now we are told a short-term tactic by a discredited Labor leader is essential to save us from US drug companies manipulating patents to push up the price of medicines that millions of Australians rely on. Nonsense. The PBS, under which a vast range of approved drugs attract a public subsidy, is enormously popular. But as the population ages, demands on the $6 billion program will increase as more and more Australians take more and more expensively subsidised medicines. For the scheme to be sustainable its costs have to be contained. The Government is attempting this by increasing the contribution to the cost of their medicine paid by patients. But doing this involves obvious political risks. The most politically palatable way to keep costs down is to pay drug companies as little as possible for the medicines they make. During last year’s election, the Howard Government unilaterally announced that it would pay manufacturers 12.5 per cent less for generic drugs. And governments around the world marvel at the way Canberra bargains so hard with the giant pharmaceutical manufacturers. There is ample evidence that keeping the US pharmaceutical industry happy is far less important to the Howard Government than ensuring the economically sustainable survival of the PBS. In 2004, Labor’s FTA amendment was a prescription for its own political health. It did not work then and it hardly seems to matter now if this is a script no one sticks to.