Choice architecture and the PBS.

I've been thinking about how Australia's pharmaceutical benefit scheme could be made more efficient. The current system has been effective in driving down prices by forcing the pharmaceutical giants to deal with a government control monosony that assesses the benefit of new drugs compared to other drugs currently available.

 However, even with this system, once a drug has been approved there is no incentive for health consumers to choose lower priced drugs as they are all heavily subsidised. Therefore the pharmaceutical industry has every incentive to heavily market their drugs to doctors who prescribe their products. Whether a drug costs the taxpayer are large amount or a small amount makes no difference to the consumer. So what is a potential way to decrease the cost to the taxpayer?

First, I would rule out abolishing the PBS and subsidies. Affordable medication is a socially desirable outcome. However, not all medications need to be subsidised equally. Differentiated pricing with a choice architecture system which gives the consumer the pros and cons of different medications could be developed, putting more power in the hands of the consumer and away from the medical profession. The consumer could then decide themselves if they want to try an older less expensive medication and weight the difference in side effects with any cost savings. Currently the consumer has no such incentive and plays little part in decision regarding the medications they take. Already many women are choosing to take more modern versions of the pill that are not covered under PBS deciding the increased expense is is exceed by the benefits of these medications. There has been some argument that this discriminates against poorer women who's only option is taking the cheaper version of the pill. A differentiated system could subsidies more newer medications with an increased cost to the consumer, thus increase choice for all.