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Patients would pay less for prescription medicines - and taxpayers save $1.3 billion a year - if Australia adopted the same tough approach as New Zealand did when negotiating with drug companies, a think tank claims.

Stephen Duckett, former secretary and of the Commonwealth Health Department and now health program head of the Grattan Institute, says Australia's taxpayer-subsidised Pharmaceutical Benefits Scheme is getting a bad deal on drug prices.

A report by the institute says the Federal Government pays on average eight times more for medicines than New Zealand does. For the top 10 selling drugs by volume of prescriptions, the difference is 10 times.

The biggest selling drug in Australia, the cholesterol- lowering atorvastatin, costs the PBS $51.59 for a box of 30 tablets but across the Tasman, generic versions cost $A5.80 for a box of 90 - or less than 4 per cent of the Australian price a pill.

That lower wholesale price would save the PBS $1.4 million a day and also lead to lower prices for patients at the pharmacy, with the cost of a prescription tumbling from the $36.10 maximum co-payment to $14.10.

Even State governments buying drugs to be dispensed in public hospitals are often able to get a better deal than Canberra does from suppliers. If the PBS paid the same price for atorvastatin as a public hospital in Perth, the patient would save $19 a script.

The Federal Government denied taxpayers were being ripped off, saying reforms were making medicines cheaper for patients.