Business Environment Profiles - Australia
Published: 31 January 2025
Federal funding for the Pharmaceutical Benefits Scheme
19 $ billion
8.2 %
This report analyses the total Federal Government funding for the Pharmaceutical Benefits Scheme (PBS). The PBS subsidises the cost of a range of pharmaceutical products for Australian residents. Under the scheme, the government purchases select drugs and charges consumers a flat fee for any drug included in the scheme. A lower fee is available for concession card holders and pensioners. The data for this report is sourced from the Department of Health and is measured in billions of current dollars per financial year.
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IBISWorld forecasts government funding for the PBS to increase by 4.6% in 2024-25, to reach $18.56 billion. Funding for the PBS depends on the volume of drugs that need to be subsidised, the manufacturers' pricing of the drugs and the range of drugs covered under the PBS. The increase in expenditure in 2024-25 will be driven by a freeze on consumer co-payments in 2025. Historically, concessional co-payments have increased in line with CPI on 1 January each year. However, co-payments have been frozen at $31.60 in 2025, while eligible concession card holders will be subject to a $7.70 co-payment for PBS-covered medicines. However, prices for eligible medicines are likely to increase over the year, as inflation remains high, forcing the federal government expenditure upwards.
Government funding for the PBS can be quite volatile due to changes in drug pricing and the share of costs paid by the consumer. This was evident during the reformation of the PBS in 2023, where patient co-payment amounts were reduced from $42.50 to $30.00 for general patients. It was the first reduction in co-payment amounts in 75 years, as the Federal Government sought to ease the cost of living pressures on Australian households. This resulted in a 15.6% surge in federal expenditure on the PBS in 2022-23. On 1 January 2024, co-payment amounts increased at the annual CPI of 5.3% to the current frozen rates. This increase in co-payment amounts caused annual federal government expenditure to increase by 6.2% in 2023-24, a significant reduction in comparison to 2022-23.
Funding for the PBS has expanded to include a number of new and amended listings, which has driven growth over the long term. For example, in mid-2016, five new medicines were added to the PBS for the treatment of Hepatitis C, providing more affordable access to vital high-cost medicines. Over the past five years, public awareness of these additions has increased, driving up federal funding for the PBS. Prescription volume growth has also resulted from rising demand for medicines from Australia's ageing population.
The cost of drugs is highly concentrated and the 10 most expensive drugs (due to high volume and/or high price) cost around $2.5 billion in government funding when taking into account co-payments. Changes to the prices of these drugs contribute to volatility in funding costs. The remaining volatility stems from changes made to the list of drugs and medicinal preparations made available as pharmaceutical benefits, which the Pharmaceutical Benefits Advisory Committee decides. Volatility in drug pricing has generally not affected overall PBS funding, as prescription volumes have continued to rise over the past five years. IBISWorld forecasts federal funding for the PBS to grow by a compound annual rate of 8.2% over the five years through 2024-25.
IBISWorld forecasts government funding for the PBS to reach $19.19 billion in 2025-26, a 3.4% inc...
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