OBJECTIVES: Specialty drugs are high-cost drugs for treating complex chronic conditions, such as cancer and autoimmune disorders. Most are biologics, and they provide highly targeted treatment for which there are few other viable treatment options, but at prices that are substantially higher than traditional medications. This study examines how Australia funds specialty pharmaceuticals under its publicly funded, national drug coverage system. METHODS: Review of the literature and analysis of prescription volume and expenditures (2010-2011). RESULTS: Inherent in all decisions on coverage of new health technologies is uncertainty, arising from the absence of complete information about comparative (long-term) effectiveness, incremental cost-effectiveness, adoption and diffusion, and economic impact. Uncertainty is more pronounced for specialty drugs due, in part, to their high cost. In response, Australia created a Complex Authority Required Highly Specialized Drugs Program under the Pharmaceutical Benefits Scheme to fund and deliver specialty drugs. This program currently includes 34 drugs (e.g. adalimumab, etanercept, imatinib). Subsidized access to these drugs is restricted to subsets of patients who must show evidence of the clinical need (e.g. pathology report to confirm the diagnosis) and whose condition is inadequately controlled by existing, less expensive therapies. For continued access to many of these agents, patients must also demonstrate adequate clinical improvement; clinical outcomes are evaluated according to predetermined quantifiable criteria. Because of the availability of multiple effective agents for a single clinical indication (e.g. rheumatoid arthritis), Australia was the first country to establish an ‘interchangeability rule’ under a publicly funded system that allowed eligible patients to trial an alternate medicine without the need to re-qualify against the initial criteria. Analysis is underway to assess the current status of this program, including uptake and economic impacts. CONCLUSIONS: Australia has created an innovative funding approach to balance the benefits, risks, and costs of specialty pharmaceuticals.