OBJECTIVES: To develop key performance indicators for the Australian reimbursement system and to facilitate ongoing analysis of the drug funding environment. METHODS: This study involved the establishment of a relational database that captured all relevant data over a 14-year period. This included details of the Australian Pharmaceutical Benefits Advisory Committee recommendations, listing criteria, product type, pricing, type of economic evaluation, and public expenditure by product type. A series of pricing indexes was also developed. The key performance indicators are in the process of being developed with input from industry and Government. These objectives are consistent with the goals of the Free Trade Agreement between Australia and the USA. RESULTS: The key performance indicators focus on providing the pharmaceutical industry with a mechanism for assessing reward for innovation. They also assess the pattern of new listings and changes in the structure of expenditures under the Australian Pharmaceutical Benefits Scheme. The study shows that the average time from marketing approval to reimbursement is 15 months, that expenditure by government is driven mostly by volume increase for products that have been listed for more than 12 months and not by recent listings or price changes, and that products are more likely to be rejected if they are assessed on a cost-effectiveness basis (42% approved) than on a cost-minimisation basis (88% approved). CONCLUSIONS: This is part of an ongoing effort to develop key performance indicators and to date has been supported by industry and Government. In part, this is a response to the improved levels of transparency and cooperation engendered by the Free Trade Agreement between Australia and the USA.