Proposal to modify the Schedule Rules for hospital pharmaceutical contracts

Medicines Consultation Closed

We are proposing to update the national procurement rules for District Health Board (DHB) hospitals in the General Rules of the Pharmaceutical Schedule.

What we’re proposing

We are proposing to update the national procurement rules for District Health Board (DHB) hospitals in the General Rules of the Pharmaceutical Schedule to support our shift to Principal Supply Status (PSS).

Consultation closes at 5 pm on Friday, 9 July 2021 and feedback can be emailed to

What would the effect be?

This would provide clarity to DHB hospitals about their obligations when purchasing products that have had Principal Supply Status awarded.

Who we think will be interested

  • Hospital Pharmacists
  • Pharmaceutical suppliers

About Principal Supply Status

PHARMAC’s role is to decide which pharmaceuticals are publicly funded for New Zealanders. We have a fixed budget which means we need to make careful and considered funding choices. Every dollar in the budget is used to fund pharmaceuticals and any savings we make are used to fund more medicines for more New Zealanders. We are also responsible for managing national procurement of medicines and medical devices used in DHB hospitals.

One of the key ways that we make savings is by running competitive procurement processes for exclusive or preferential supply through the Pharmaceutical Schedule, meaning that one brand might become the only one subsidised on a prescription and/or the primary brand purchased by DHB hospitals for a period of time.

Starting with 2020/21 Invitation to Tender, we have begun to shift to awarding PSS as a result of these competitive procurement processes, rather than Hospital Supply Status (HSS) in DHB hospitals and Sole Supply Status (SSS) in the community. This change means that PHARMAC will have greater flexibility to respond to the needs of specific groups of patients or individuals who may experience, or are at heightened risk of, adverse clinical outcomes as a result of a brand change for a community pharmaceutical.

PSS has a lot of similarities to HSS, in that it allows alternative brands to be used in limited situations. However, PSS gives PHARMAC more flexibility to decide how use of alternative brands (the Alternative Brand Allowance) is managed, which might be:

Why we’re proposing this

We made the decision last year to adopt Principal Supply Status as our main approach to competitive procurement and gave effect this decision in the 2020/21 Invitation to Tender. We have started to award PSS to certain products, with PSS for these products beginning September 2021.

To complete the shift to PSS, we need to implement new Schedule rules to outline how DHB Hospitals should manage these products, and to clarify the circumstances under which they can buy and use alternative brands.

Details about our proposal

Changes to the Pharmaceutical Schedule rules would be made in two areas:

  • Adding a new rule in Part 9 – National Contracting for Hospital Pharmaceuticals
  • Adding and updating definitions in Part 10 – Definitions

These changes are proposed as follows (additions in bold). Note that numbering for current rules 9.4 and 9.5 would be adjusted a result.

Part 9 – National Contracting for Hospital Pharmaceuticals

9.4  Principal Supply Status (PSS)

9.4.1   If a National Contract Pharmaceutical is listed in Section H of the Schedule as having PSS, DHB Hospitals:

a   are expected to use up any existing stocks of DV Pharmaceuticals during the First Transition Period

b   must not purchase DV Pharmaceuticals in volumes exceeding their usual requirements, or in volumes exceeding those which they reasonably expect to use, within the First Transition Period

c   must ensure that Contract Manufacturers, when manufacturing an extemporaneously compounded product on their behalf, use the National Contract Pharmaceutical with PSS, and

d   must purchase the National Contract Pharmaceutical with PSS except:

i    to the extent that the DHB Hospital may use its discretion to purchase a DV Pharmaceutical within the DV Limit

ii   to the extent that the DHB Hospital may purchase and Give a DV Pharmaceutical in line with any specific restrictions for use of DV Pharmaceuticals specified in the listing of the relevant National Contract Pharmaceutical

iii  if the Pharmaceutical supplier fails to supply that National Contract Pharmaceutical, in which case the relevant DHB Hospital does not have to comply with the DV Limit for that National Contract Pharmaceutical during that period of non-supply (and any such Month(s) included in a period of non-supply will be excluded in any review of the use of DV Pharmaceuticals)

iv  if the DHB Hospital has received approval from PHARMAC to purchase and Give a DV Pharmaceutical in circumstances not otherwise provided for in rule 9.4.1.d.

9.4.2    The DV Limit for any National Contract Pharmaceutical which has PSS is set out in the listing of the relevant National Contract Pharmaceutical in Section H of the Schedule, and may be amended from time to time.

9.4.3    If national use of DV Pharmaceuticals exceeds the Alternative Brand Allowance specified in the applicable National Contract, DHB Hospitals may be required to contribute towards financially compensating the relevant Pharmaceutical supplier, under the terms of the National Contract, based on each DHB Hospital’s contribution towards exceeding that Alternative Brand Allowance.

9.4.4    The terms and conditions of a National Contract shall apply for a National Contract Pharmaceutical which has PSS for a Medical Device. If there is any inconsistency between such a National Contract and these General Rules, for example but not limited to a DV Pharmaceutical or DV Limit, the National Contract shall prevail.


Part 10 – Definitions

Alternative Brand Allowance means, for a particular National Contract Pharmaceutical with PSS, the maximum amount of DV Pharmaceuticals that can be purchased by DHB Hospitals without financial compensation being required to the relevant Pharmaceutical supplier.

DV Limit means:

  1. for a particular National Contract Pharmaceutical with HSS, the national DV Limit or the individual DV Limit.
  2. for a particular National Contract Pharmaceutical with PSS, the individual DV Limit.

DV Pharmaceutical means a “discretionary variance” Pharmaceutical that does not have HSS or PSS but is used in place of one that does. Usually this means it is the same chemical entity, at the same strength, and in the same or a similar presentation or form, as the relevant National Contract Pharmaceutical with HSS or PSS. Where this is not the case, a note will be included with the listing of the relevant Pharmaceutical.

First Transition Period means the period of time after notification that a Hospital Pharmaceutical has been awarded HSS or PSS and before HSS or PSS is implemented.

Principal Supply Status (PSS) means, in relation to a Hospital Pharmaceutical, the status of being the principal brand of the relevant National Contract Pharmaceutical that DHBs are obliged to purchase, subject to any DV Limit or any other provisions outlined in these Rules, for the period of hospital supply, as awarded under an agreement between PHARMAC and the relevant Pharmaceutical supplier.

We note that this proposed rule, and other Schedule rules, would need to be amended in the coming year to reflect forthcoming health sector changes. We expect to consult on any necessary changes in early 2022. We also note that references to Hospital Supply Status in the Schedule rules would be removed once HSS terms in existing contracts have expired.

To provide feedback

Send us an email: by 5 pm, Friday 9 July 2021.

All feedback received before the closing date will be considered by PHARMAC’s Board (or its delegate) prior to making a decision on this proposal.

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