The decision to put Viagra on the Pharmaceutical Benefits Scheme list has been welcomed by some and condemned by others. Pfizer, the makers of Viagra – the wonder drug to treat erectile dysfunction – had already applied twice to have the drug list and failed. Third time lucky. This time, though, the company sought its listing for only a certain range of conditions, including diabetes and those with spinal-cord injuries.
A listing can make a huge difference in the number of people who take up the drug, and therefore the profits of the company with the patent on the drug. The scheme has had huge benefits for patients needing drugs at a reasonable cost. Under the scheme a person pays $22.40 for a prescription – $3.60 for pensioners, and the rest is paid for by the government. The other great benefit of the scheme is that the Pharmaceutical Benefits Advisory Committee can negotiate with the drug company over the price that the drug will be supplied to the scheme. It has meant that the scheme in effect buys for all Australian consumers using economies of scale and purchasing power to lower price. Classical economic theoreticians would be horrified. Too bad. Classical economics is for widgets, not drugs that save lives or affect the quality of life.
That said, there is a danger that with the increasing ingenuity of drug companies, costs will blow out at more and more drugs are invented. For example, Viagra might cost the scheme as much as $100 million a year. The scheme is now costing about $4 billion a year. But it might cost society even more if people opt not to take appropriate prescription drugs just because of the cost and then get ill and become a greater burden on their families an society.
One of the great benefits of the scheme, however, is that the drug companies have to justify the provision of a subsidy in medical terms before the committee. This is where the case for Viagra has caused such consternation. The concern is that if a subsidy is granted for Viagra there might be less money for other drugs. Viagra is not life-saving, nor even a drug that can make the difference between someone being able to work or not. It is a life-style drug, albeit one of immense psychological importance and importance for quality of life. If it shut out other drugs, there would be cause for concern, but each drug is dealt with by the committee on its merits. The only danger is that the open-ended scheme might hit breaking point.
As that almost inevitably happens, there might be a case for putting drugs into different categories of importance with commensurately different levels of subsidy.