When newer isn’t better: We’re paying too much for patented pharmaceuticals.

HSRAANZ President: Jon Karnon

Blog Author - Prof Jon Karnon, University of Adelaide

The government often funds new pharmaceuticals through the Pharmaceutical Benefits Schedule (PBS) that are shown to have the same treatment effect and the same cost as a pharmaceutical already listed on the PBS. Patients are assumed to choose between listed options for the same indication and so such listings should have little impact on government spending.


However, in most cases the earlier listed pharmaceutical comes off patent before the newer pharmaceutical. Off patent pharmaceuticals are subject to competition from generic versions. Under price disclosure, pharmaceutical companies report the price at which medicines are supplied to pharmacies, and the PBS then funds the original pharmaceutical and its generic versions at the average price paid by pharmacies. The price of the on patent newer pharmaceutical remains at the price at which it was originally listed. When the newer pharmaceutical is prescribed under the PBS, the government is now paying more for a treatment that has the same level of effect as a cheaper off patent pharmaceutical.


As an example, denosumab, alendronate, risedronate, strontium and zoledronic acid are all listed on the PBS for the treatment of post-menopausal osteoporotic women. Zoledronic acid was recommended for listing in 2008 on the basis of equivalence of effect with alendronate, whilst denosumab was accepted for listing on the basis of equivalence of effect with zoledronic acid in 2010. Since coming off patent, the price of alendronate has declined by around 65%, whilst the prices of zoledronic acid and denosumab have remained stable. In the financial year 2014/15, the government spent $120 million and $108 million on zoledronic acid and denosumab, respectively.


This paper uses data published since the listing of denosumab in 2010 to analyse the cost-effectiveness of denosumab compared to alendronate over a 10-year time horizon. The quality adjusted life year (QALY) is used to represent the health benefits of treatment, where 1 QALY is equivalent to a year of life spent in perfect health.


The base case results show that the use of on patent denosumab rather than off patent Alendronate costs the government an additional $1,446 per patient, whilst on average patients gain an additional 0.0059 QALYs (or just over 2 days of life in perfect health). This means we would need to treat 169 patients (1/0.0059) to gain the equivalent of one extra QALY, which would cost the government an additional $246,749. For such a common condition, the government would generally pay less than $50,000 to gain the equivalent of an additional QALY.


Current Australian legislation precludes price reviews once a therapy is listed on the PBS (unless requested by a manufacturer), which means many listed pharmaceuticals are no longer providing value for money. To further improve the efficiency and sustainability of the PBS, the Australian government should review listed pharmaceuticals as their comparator comes off patent to reflect the lower price of the comparator as well as any new clinical and economic data.

Karnon J, Shafie AS, Orji N, Usman SK. What are we paying for? A cost-effectiveness analysis of patented denosumab and generic alendronate for postmenopausal osteoporotic women in Australia. Cost Effectiveness and Resource Allocation 2016; 14:11