Proposal to modify the transition between funded brands in the Schedule

Medicines

Consultation Closed

PHARMAC is seeking feedback on a proposal to simplify the transition period for changes made to community medicines by removing the referencing pricing period during brand changes.

What we’re proposing

Background

PHARMAC’s role is to get the best health we can from our budget. We can do this by making savings on medicines we already fund and reinvesting those into more medicines for more people.

When we do make changes to medicines as a result of the Annual Tender or a Request for Proposal, there is a period when both the incumbent brand and the new brand are available.

The proposal

We are proposing to simplify this transition period for changes made to community medicines, by removing the referencing pricing period during brand changes.

This change would also align the transition arrangements in the community and DHB hospitals during a brand change by increasing the transition time in DHB hospitals to five months.  

We are seeking your feedback on this proposal. In particular, we would like information on how this change would impact the supply chain, how it would be managed and who it would affect.

Consultation closes at 5 pm on Friday, 10 August 2018 and feedback can be emailed to Heather Milne at heather.milne@pharmac.govt.nz

The proposed new transition period is detailed in Figure 1 below.

Current and proposed brand change transition periods

What would this affect?

The proposal would result in the removal of reference pricing during brand changes, and an increase in time during which both brands are fully funded.

We expect the following benefits:

  • Wholesalers would be less likely to be left with excess stock at the end of the transition period as both brands would be listed with full subsidy for longer.
  • Suppliers would be less likely to experience losses through left-over stock at the end of the transition, as currently they must account for how much of the market will continue to use their product during the second transition period (during reference pricing).
  • Patients and pharmacies would no longer need to cover the residual cost of continuing use of the outgoing brand during reference pricing and would be less likely to have left over stock at the end of the transition period.

Who we think will be interested

  • Suppliers and wholesalers
  • Community and hospital pharmacies and pharmacists
  • Patients and their families

About brand switches

Through competitive procurement PHARMAC introduces regular brand switches to the market, namely through the Annual Tender and other procurement activity such as Requests for Proposals. For a period of time, both the outgoing and new brand are subsidised, allowing wholesalers and pharmacies to gradually shift between the two brands, something that we refer to as the transition period.

The community and hospital markets currently have different transition arrangements. In the hospital market, both brands are listed for two months, following which the outgoing brand is delisted and Hospital Supply Status begins.

In the community there are currently two transition periods. The first transition period involves both brands being subsidised for two months at their original prices, following this the second transition period begins which involves subsidising the outgoing brand at the same level as the incoming brand through the use of reference pricing. This can result in the outgoing brand becoming partially subsidised. After this second transition period the outgoing product is delisted and Sole Subsidised Supply begins.

For the avoidance of doubt, PHARMAC would retain the ability to apply reference pricing to products outside of competitive processes – i.e. PHARMAC could apply reference pricing to categories of medicines as has happened previously.

Why we're proposing this

PHARMAC has being looking at ways to help improve the efficiency of the pharmaceutical supply chain. Improving how we implement brand switches is one way we can help improve the efficiency of transitions through the reduction of wastage.

Reference pricing in competitive processes was designed to help to gradually shift the market from one brand to another however it does not ensure the full clearance of existing stock from the chain which results in wastage and an inefficient system for PHARMAC’s wider stakeholders.

Suppliers under Tender contracts are expected to maintain adequate stock levels that correlate to at least two months’ supply (in some circumstances more). This means that outgoing suppliers may not sell through all of their stock within the first transition period and therefore suppliers, wholesalers and/or pharmacies are likely to be left with excess stock of the outgoing brand.  

By removing reference pricing and maintaining a full subsidy for the outgoing product for a longer period of time, we would move towards a system that is more unified, efficient and reduces wastage.

Details about our proposal

We propose to implement a single transition arrangement for the Annual Tender or other competitive processes across the community and hospital markets. This would result in both the outgoing and new brands being fully subsidised for a period of five months.

If this proposal is accepted, it would be implemented in time for the next Annual Tender. The 2018/19 Invitation to Tender will be released in November 2018, with the Draft Tender contract being released in early August 2018. The draft Tender contract will include two options for the transition period terms; one for the status quo and one for if the transition periods were to be changed.

The earliest the single transition arrangement would take effect would be for decisions with a transition starting 1 July 2019.

Note that any outstanding decisions from previous tenders would continue to be implemented as under the current arrangements.

To provide your feedback on this proposal

Send us an email: heather.milne@pharmac.govt.nz by 5 pm, Friday 10 August 2018.

Feedback we receive is subject to the Official Information Act 1982 (OIA) and we will consider any request to have information withheld in accordance with our obligations under the OIA. Anyone providing feedback, whether on their own account or on behalf of an organisation, and whether in a personal or professional capacity, should be aware that the content of their feedback and their identity may need to be disclosed in response to an OIA request.

We are not able to treat any part of your feedback as confidential unless you specifically request that we do, and then only to the extent permissible under the OIA and other relevant laws and requirements. If you would like us to withhold any commercially sensitive, confidential proprietary, or personal information included in your submission, please clearly state this in your submission and identify the relevant sections of your submission that you would like it withheld. PHARMAC will give due consideration to any such request.