Feds could save billions on drugs: study The federal government could save $1.3 billion each year by demanding drug companies cut the cost of generic medicines, a think tank says. In its report, Australia's Bad Drug Deal, the Grattan Institute also says an independent pharmaceutical agency is needed to drive down costs. Comparing Australia to New Zealand, which has an independent Pharmaceutical Management Agency, it found Australia's wholesale drug prices were, on average, six times higher, and in some cases 20 times more costly. If the federal Pharmaceutical Benefits Scheme (PBS) adopted NZ prices for 62 drugs, it would save $1.1 billion, while an extra $590 million would be saved if substitutions were made for all 73 drugs in its study. The Grattan Institute also found the Commonwealth compared badly with the purchasing practices of states, saying if it adopted the prices paid by Western Australia's public hospitals it would save $750 million a year. If it paid the prices of an unnamed state's public hospitals, it would save almost $1.2 billion a year. The institute's health program director, Stephen Duckett, said the estimates were "very conservative." "We've only looked at 73 drugs; we've only benchmarked against three purchasers; and if you start benchmarking against the whole world, if you start benchmarking across the PBS, there is going to be more savings," Dr Duckett told AAP. The Grattan Institute called for Canberra to set up a NZ-styled pharmaceutical agency by 2014 - when a pricing agreement with drug companies expires - restrained with a budget to help drive down costs. It also wants a price cut of 50 per cent when a drug reaches the end of its patent, and for Australia to benchmark its pharmaceutical costs against the world's lowest prices. The institute said the government required pharmaceutical companies to cut prices by 16 per cent when a patent expired, compared to a mandatory 82 per cent cut for some drugs in Canada. Not being so "timid" on generics pricing would save $1.3 billion a year alone, Dr Duckett said. "We're nowhere near (having) what is tough enough expectations of generic manufacturers," he said. A further measure, encouraging the substitution of cheaper pharmaceuticals, would save another $550 million a year, he said. In one example of the price divide, the PBS paid $51.59 for a 30-tablet pack of Pfizer's Lipitor (for high cholesterol) while in New Zealand, Pfizer's generic equivalent is supplied for $5.80 for a box of 90 tablets. Dr Duckett said politics "are in the wrong place" when it came to the PBS, with the Pharmaceutical Benefits Pricing Authority making its recommendations to the health minister or cabinet for approval. Instead, politicians should first set a budget for an independent pricing agency, which can then negotiate with manufacturers for a better deal. "They can go to the drug manufacturers and say 'Look, we work within a capped budget, we have to be tough in these negotiations, and you've got to come to the party'," Dr Duckett said. The Consumers Health Forum of Australia said the more than billion dollars saved each year could pay for access to "a broader range of drugs that people need." "The report highlights the need for urgent and fundamental change in the lucrative price arrangements the government makes with pharmaceutical companies," the forum's Carol Bennett said.