medicines
The PBS works by negotiating lower prices for medicines with suppliers, making medications more affordable for Australians. Pixabay

U.S. pharmaceutical companies have strongly criticized Australia's AU$18 billion Pharmaceutical Benefits Scheme (PBS), calling for President Donald Trump to impose punitive tariffs on the country.

The pharmaceutical industry argues that PBS, which subsidizes medicines for millions of Australians, has hurt American exports and devalued U.S. innovations in medicine, the Sydney Morning Herald reported.

PBS explained

The PBS works by negotiating lower prices for medicines with suppliers, making medications more affordable for Australians. The scheme also focuses on listing the most cost-effective versions of medicines when multiple options are available, ABC News reported.

The PBS cost taxpayers AU$17.7 billion in the last financial year and made 930 different medicines more affordable. Thanks to the program, Australians can access life-saving drugs at AU$31.60 per prescription, which would normally cost thousands of dollars. It is also possible after the government negotiates with pharmaceutical companies to get the best possible price for taxpayers.

The Pharmaceutical Benefits Advisory Committee (PBAC) plays a central role in making these decisions, currently covering around 900 medicines.

US pharma industry lobbies for action

On March 11, a formal complaint was submitted to the U.S. Trade Representative Jamieson Greer, urging the Trump administration to take strong action against Australia's "damaging pricing policies."

The complaint labels the PBS as "egregious and discriminatory" and claims that it cuts prices on medicines, limiting opportunities for American pharmaceutical companies to sell their products in Australia.

"Egregious and discriminatory pricing policies in several markets including Australia, Canada, the European Union, Japan and Korea undervalue American innovation, threaten billions of dollars in lost sales and undermine American competitiveness, jobs and exports," the formal submission from the Pharmaceutical Research and Manufacturers of America, known as PhRMA, stated.

The U.S. industry argued that such policies have led to billions of dollars in lost sales, hurting American exporters.

The letter claimed that the PBS system failed to recognize the value of innovation, instead promoting cheaper generic drugs over higher-priced brand-name medicines, which they say damages U.S. businesses.

"PBAC conducts biased health technology assessments that compare innovative medicines to the lowest-cost comparator," the submission pointed out, adding that it penalized U.S. companies.

The group has specifically criticized the PBAC for putting up barriers to U.S. exports by prioritizing cheaper alternatives. The industry group represents major pharmaceutical companies like Pfizer, Merck, and Johnson & Johnson, among others.

PhRMA has been a major supporter of President Trump, with several members meeting him at Mar-a-Lago in December, or donating $1 million to his inauguration in January.

Potential impact on Australian exports

The conflict over the PBS comes at a time when pharmaceutical products are the third-largest category in Australia's exports to the U.S., behind beef and gold.

A tariff on Australian pharmaceutical exports could impact companies like CSL, a major exporter of plasma to the US. CSL is a member of PhRMA but also benefits from the PBS in Australia.

Australia responds to U.S. criticism

The Australian government has strongly dismissed the idea of altering the PBS in any trade negotiations with the U.S.

"There's no way we're going to change the PBS because of advocacy of any other country," Health Minister Mark Butler said.

Trade Minister Don Farrell has stated that he has not heard any concerns from the U.S. government regarding the PBS and referred to the issue as "speculation."

"There will be absolutely nothing that the Americans can do to impact on our health system or the PBS system," he said. "And we certainly would not contemplate doing anything at any stage that makes our health system more expensive."

However, there are concerns that tensions over the PBS could lead to retaliatory tariffs on Australian pharmaceutical exports, which are valued at AU$1.2 billion in 2023.