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The authors of the editorial on ‘The challenge of costly drugs’ provided a comprehensive summary of the issues surrounding the funding of high-cost medicines entering the Australian market.1 The proposed idea of an electronic national formulary for all Australian hospitals has merit. However, such a proposal must first address the issues of cost shifting between the federal and state governments and the delivery of health care.

As the authors mentioned, many high-cost medicines only have a role in the hospital setting, and medicines for public hospital patients are funded by state governments. In contrast, medicines listed on the Pharmaceutical Benefits Scheme (PBS) are federally funded. With different funding sources for medicines in different settings, formulary decisions can be influenced by cost‑shifting.2

Pharmacoeconomic evaluation of a new medicine is directly impacted by the funding source.3 If the cost-effectiveness of a new medicine is assessed from the perspective of the state government (for consideration of inclusion on a hospital or state-wide formulary), and the comparator is a PBS-funded medicine, there is bias towards the medicine that is federally funded. If both medicines have comparable efficacy and safety and a comparable price, from the perspective of the state government the PBS-funded medicine will be more cost‑effective.

The authors mentioned that ‘state governments do not fund comprehensive pharmacoeconomic assessment’. Even if funding was available to conduct economic analyses, the high prices and the paucity of evidence for many high-cost medicines in the hospital setting would mean their cost-effectiveness is likely to be high and uncertain. Funding resources to investigate clinical outcomes of high-cost medicines used in public hospitals would be the first step towards clarifying some of the uncertainty with regards to efficacy, and consequently cost-effectiveness.

Nadine Hillock
Public health pharmacist


Charles Denaro and Jennifer Martin, authors of the article, comment:

We thank Nadine Hillock for her letter. At the moment the Australian Government pays states for the use of high-cost medicines in outpatients and day therapy units using a myriad of complex programs. It also pays for medicines listed on the PBS for hospital discharge and outpatient prescriptions in the majority of states that have an agreement with the Commonwealth. So a national formulary for hospitals funded by the Commonwealth cannot be seen as a bridge too far. At the moment numerous state- and Commonwealth-based bureaucrats and pharmacists are consumed with ensuring each side is compliant with these needlessly complex programs. This does nothing to improve the nation’s productivity and wastes precious resources. So while a national formulary will not completely solve cost-shifting, it should substantially reduce the current madness.

We wholeheartedly agree that, when there is limited evidence for the efficacy of high-cost medicines used anywhere, then robust pharmacovigilance is essential. Tying the marketing approval of high-cost medicines with pharmacovigilance programs funded by pharmaceutical companys must be considered whenever there is significant uncertainty over cost-effectiveness. Often high-cost medicines are used off label in hospitals and in this case hard clinical outcomes are not routinely captured or published. Why would we allow a hospital in one part of the country to use a high-cost medicine for a particular off-label indication, when another hospital elsewhere has previously tried it and found it not to be effective? We would advocate for government funding of a national database for high-cost medicines and off-label use.

Nadine Hillock

Public health pharmacist​, Adelaide

Charles Denaro

Director, Department of Internal Medicine and Aged Care Royal Brisbane and Women’s Hospital

Associate professor of Medicine,  University of Queensland

Jennifer Martin

Chair of Clinical Pharmacology,  University of Newcastle

Senior staff specialist, Calvary Mater Newcastle Hospital