During the 1980s, prices of medicines were growing so fast that they were threatening the government’s ability to fund new investments in medicines and in other areas of healthcare. That growth was over 20 percent in some years. A response was needed. In 1993 the Pharmaceutical Management Agency (PHARMAC) was created to actively manage government spending on medicines.
PHARMAC’s aim was to introduce price competition to a market where it had not previously existed. Our role was to get the best health outcomes for New Zealanders from within our budget through gaining better value for medicines.
Our first task was to organise the list of funded medicines (the Drug Tariff) into a schedule – the Pharmaceutical Schedule. Clinicians from the Pharmacology and Therapeutics Advisory Committee (PTAC) helped us to sort medicines into therapeutic groups. That allowed us to make more informed judgements about issues affecting each therapeutic group.
The blockbuster drug
The establishment of PHARMAC coincided with the era of the “blockbuster drug” – popular medicines with a patent (selling rights granted to only the inventor for a period of time) that generate high sales. The introduction of these products, like new treatments for heartburn, raised cholesterol, asthma and depression, created significant challenges for medicine funding bodies worldwide.
Price reductions became possible through competition between pharmaceutical companies. Reference pricing, where funding levels for drugs with similar effects are set at the same level, was also used to achieve lower prices. Next innovations such as contractual arrangements, multi-product agreements and tendering arrived.
Tendering for off-patent medicines (generics) was a logical way to promote competition. Tendering is now used extensively, involving more than half of all subsidised medicines (by volume) and around 20 percent of total drug cost. It produces savings in the region of $40 to $50 million each year.
All these procedures continue to make safe and effective treatments available while helping reduce the amount we pay for medicines. They also assist in enabling more New Zealanders to receive funded medicines.
Beyond medicine subsidies
As well as subsidising medicines, we have a strong interest in ensuring they are used well and not underused, overused or misused.
In 1998 PHARMAC ran its first national campaign. Aimed at addressing the inappropriate prescribing of antibiotics for winter colds and flu, ‘Wise Use of Antibiotics’ was an effective way of raising awareness about appropriate use of antibiotics. We also have a role in managing demand for medicines.
Introduced in 2002, our Māori Responsiveness Strategy, Te Whaioranga, seeks to address inequalities in medicines access. The Pacific Responsiveness Strategy provides a framework for PHARMAC to consider inequalities in medicines use for Pacific peoples.
After achievements made managing community medicines, PHARMAC was asked to take on further roles. From 2001, we began assessing and then making funding decisions on cancer medicines used in DHB hospitals. Next came national contracting for the influenza vaccine.
PHARMAC took on management of the national immunisation schedule in 2012, hospital medicines and also began negotiating national contracts for hospital medical devices in 2013. This was following publication of the 2010 Ministerial Review Group report.
PHARMAC’s purchasing power has more than tripled since 1993. This means that we can now subsidise about three times the number of medicines that could be bought with the same money in 1993. For almost 30 years, PHARMAC’s achievements include increasing the number of medicines being funded, increasing the number of patients being treated with funded medicines, and keeping spending within the Combined Pharmaceutical Budget whilst growing the budget at an affordable rate.
We anticipate that the volume of medicines funded will continue to increase each year, and the number of new medicines will also grow. This means that more New Zealanders will receive a wider range of funded medicines while overall cost reduces.