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In his visit to the White House next month, Anthony Albanese is expected to come under pressure to weaken the Pharmaceutical Benefits Scheme that Donald Trump considers unfair to American drug companies. By Jason Koutsoukis.

The battle to defend the PBS against Donald Trump

Minister for Health Mark Butler.

Credit: AAP Image / Mick Tsikas

At a private dinner in Sydney last month, Health Minister Mark Butler sat down with executives from Johnson & Johnson.

A suite of industry issues were on the agenda. Instead, according to one industry source, Butler spent almost the entire evening on a single topic: Donald Trump’s May 12 executive order on prescription drug pricing, which told 17 of the world’s largest pharmaceutical companies to lower drug prices for Americans by Monday, September 29.

“The dinner went for two hours, and Butler spent an hour and 55 minutes asking about ‘most favoured nation’ and how it could impact Australia,” the source tells The Saturday Paper.

Trump’s executive order is effectively a direction to drug manufacturers to stop charging Americans higher prices and allowing steep discounts for other wealthy nations such as Australia, the United Kingdom, Germany and Japan – countries the Trump administration believes are freeloading on American-financed innovation.

“Basically, Trump’s executive order is a reference pricing policy, which sets the US price for public programs against the lowest price in a group of countries,” a United States industry source tells The Saturday Paper.

“Australia is one of the two or three countries most likely to set the price in the United States,” the source says, pointing to a GDP-per-capita adjustment that helps determine global drug pricing.

The intensity of Butler’s questioning at the dinner with Johnson & Johnson betrayed both his anxiety about that September 29 deadline and his effort to come to grips with a Trump directive that could reset the cost of new medicines in Australia. If manufacturers recalibrate their global pricing to protect US revenues, then Australia’s Pharmaceutical Benefits Scheme (PBS) could come under strain. Under the scheme, the federal government negotiates prices for particular drugs with the manufacturers in order to keep costs low for Australian consumers.

Fears for the PBS sharpened in August, when the US administration circulated a list of 18 countries to form the “most favoured nation” basket for reference pricing. Australia topped the list, alongside major European markets, Japan, South Korea and the UK.

For Canberra, this was confirmation of what industry sources had warned. Australian prices – already among the lowest in the developed world – could be used as the benchmark for the US, magnifying the risk that companies might delay drug launches here or withdraw products entirely to shield their American revenues.

The threat is not of an immediate collapse to the PBS but a gradual erosion. Trump’s order has exposed the uncomfortable reality that the PBS, long hailed as a model of universal access, is also a system dependent on the goodwill of multinational companies whose biggest market lies elsewhere.

The release of the basket of countries followed a letter signed by 18 Republican senators to US Trade Representative Jamieson Greer and Secretary of Commerce Howard Lutnick, urging the administration to use trade negotiations to dismantle foreign price controls on medicines.

For Butler, the risk is immediate: higher prices for new drugs and longer delays to access. For Anthony Albanese, the political stakes are larger still.

When the prime minister visits the White House next month, Australia’s pharmaceuticals subsidies are expected to be on the agenda.

“We take it very, very seriously, it’s a huge focus for us,” a US industry source tells The Saturday Paper. “And while some governments hope it’ll go away because it didn’t get over the line during the first Trump administration, the administration has learned from the past.”

If Butler’s private dinner revealed the depth of his unease, his public comments have confirmed it.

In media interviews, he has acknowledged that most-favoured-nation pricing could set off “knock-on effects” globally, given the US accounts for about 70 per cent of pharmaceutical profits. He has promised to defend the PBS, pointing to the cut in patient co-payments from $31.60 to $25 that will apply from January 1 as proof of Labor’s commitment to affordability.

“We’re very confident about the integrity of the PBS … It is one of the critical pillars of our healthcare system. If anything, we’re determined to make medicines even cheaper,” Butler told ABC Adelaide last week. “You’re right to say that the US administration appears determined to cut the price of medicines in their own country. Now, we’ve been trying to understand what impact that might have on Australia. I know the Europeans, and the British, and the Japanese and many other developed countries are doing the same.

“I’m also having discussions with the pharmaceutical industry very regularly just to understand what impact that might have on access to medicines here in Australia, because we are absolutely determined to make sure that those key elements of our medicine system, access to the best medicines in the world at affordable prices, continues.”

Medicines Australia, the peak local pharmaceutical industry body, has been warning its members that Trump’s order is already starting to affect access to new medicines.

“Pressure from international reference pricing means companies are already making decisions around their current portfolios,” chief executive Elizabeth de Somer tells The Saturday Paper. “It will impact what’s available here and whether people get the medicines they need. Australia is lagging behind other countries in terms of when medicines are coming, [and] successive changes to the National Health Act (the primary legislation that governs the PBS) have continued to undervalue new medicines.”

The Albanese government is currently exploring pragmatic workarounds.

“Companies have come to us and said could we talk about a higher list price, while keeping the confidential price the same, as a way to get Trump off our back,” one government adviser tells The Saturday Paper.

At the same time, they point to Australia’s tiny market share as a possible buffer against whatever concerted action the Trump administration follows through with: “We’re 1 per cent of the global market. Pharma companies get 50 to 70 per cent of their global sales from the US alone. So, of course, they’ll focus there if squeezed.”

Reform of the health technology assessment process is another lever the Albanese government can pull.

Since the early 1990s, new medicines have had to clear what health economists call the “fourth hurdle”. Before a drug can be subsidised through the PBS, it must clear a Pharmaceutical Benefits Advisory Committee assessment. The PBAC requires not only evidence of safety, quality and efficacy – the first three hurdles – but proof that it represents value for money.

That demand for cost-effectiveness data has made Australia a pioneer, forcing companies to demonstrate therapeutic advantage and discouraging the automatic price inflation that bedevils less structured systems.

This month, Butler announced consultations to trial new, streamlined assessments of medicines, and the start of rolling revisions to guidelines governing the PBAC. That signals ambition not just to defend the PBS but also to modernise it in real time, aiming to satisfy both industry and patients before benchmark pressure from abroad takes hold.

“In Australia we pay for value,” says Adam Elshaug, a professor of health policy at the University of Melbourne. “That is, what benefits the medicine offers patients. If that’s high, we pay more. If it’s lower, then we pay less. And we take the word ‘innovation’ seriously – new, improved, impactful.

“Whereas in the US, ‘innovation’ is often misrepresented as something that may have aspects of novelty but lacks other criteria we look to for value,” Elshaug says.

He strongly rejects the argument that Australia should be prepared to pay more. “We already pay based on our rigorous assessments of the value proposition each medicine offers for patients and taxpayers. Innovative, effective medicines receive fair prices based on market principles.”

Industry sees a different problem. “Australia chooses the lowest-cost comparator when assessing a new medicine,” one source says. “That could be an inferior medicine, an old generic … but it anchors the price pretty low.”

Elizabeth de Somer also believes the rules are outdated: “They haven’t modernised the system to cope with some of the transformational scientific advances. Implementation has been too slow.”

While the so-called “fourth hurdle” has delivered some spectacular successes, such as the cut-price listing of hepatitis C antivirals, which allowed tens of thousands of Australians to be treated rapidly, it has also produced flashpoints, such as PBAC’s initial rejection of Avastin for breast cancer.

“People assume that when they get a script they’re getting the best medicine. But there may be a better medicine that isn’t available here,” says de Somer. She points to treatments for narcolepsy, a debilitating sleep disorder: “There are four medicines that are the global standard of care – none of them are available in Australia. Patients are stuck with old treatments.”

The anxiety in Canberra is not only about prices. A Productivity Commission study published in April last year noted that almost all of the health system’s efficiency gains in recent years have come from new medicines and technologies, particularly when it comes to cancer treatment.

“Over the long term, the risk is that some companies would say Australia won’t necessarily be a first-tier launch country,” one Australian pharmaceutical company executive tells The Saturday Paper. “Only 28 per cent of the past decade’s new active substances are sold in Australia,” they add. “Those that do arrive on the PBS come almost three years after the US and about two years after Germany.”

In Washington, the debate itself is split. On one side, a Congressional Research Service analysis in June cast doubt on whether Trump’s executive order can even be enforced. On the other, pharmaceutical industry advocates argue that the US, with 38 per cent of global GDP, ends up shouldering 60 per cent of spending on new medicines.

“It’s a bit like defence spending … everyone’s chipping in based on capacity. The problem is, Australia isn’t chipping in as much, and patients are missing out as a result,” says the US industry source.

In Canberra, the Albanese government frames the PBS as a model of value for money and equitable access. In Washington, Trump and his allies – backed by industry lobbyists – portray it as a free-rider system that undermines the incentives needed to develop new medicines.

“I don’t agree that a foreign nation should tell the Australian government how to run Australia. The PBS is a cornerstone of our social compact,” says de Somer.

She also cautions against complacency with regard to potential US actions, however. “We believe the government is taking it seriously because it is a real threat to access and to the attractiveness of Australia,” she says. “But unless we invest more, Australians will keep missing out.”

All of this sets the stage for Albanese’s October visit to the White House. On paper, the agenda will focus on defence, AUKUS and critical minerals. In the corridors of the West Wing, Trump’s most-favoured-nation drug order is expected to surface as well.

“It hasn’t come up yet, so this seems like the opportunity for it to be raised,” says de Somer.

The test for Albanese will be whether he can hold the line on defending a cherished national institution. He will need to convince Trump that Australia’s bargain on medicines – the same bargain that has delivered cheaper drugs to millions – is not a free ride but a fair share.

This article was first published in the print edition of The Saturday Paper on September 27, 2025 as "Drug trials".

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