Making tender decisions: How does Pharmac allocate its fixed budget?

Stories Medicines

How does Pharmac decide how to allocate spending? Geraldine MacGibbon explains.

The annual tender is one of several mechanisms Pharmac – Te Pātaka Whaioranga uses to manage how much New Zealand spends on medicines.

As Pharmac works within a fixed budget set by the Government, the annual tender is a key process to help us keep up with the increasing demand for medicines we already fund and secure future supply.

It allows us to release funds, usually between $30 million and $50 million a year, that we can use to fund more medicines for New Zealanders.

Once a year, we invite suppliers to bid to be the leading suppliers of certain medicines. This means they would have exclusive supply for most (at least 95 per cent) of the funded public market.

The opportunity to consider alternative suppliers of a funded medicine comes when a medicine’s patent has expired or when an exclusive supply agreement has ended for an off-patent medicine. When a medicine is no longer under patent, other suppliers can sell a generic version of that medicine, allowing for competition that can lead to significant price reductions.

The tender covers all types of medicines used in the community and hospitals, and we’ve had impressive results in releasing funds across a range of drugs and increasing access to more people.

We also fund new medicines through the tender process.

An example of this is adrenaline auto-injectors, which were included in the 2021/22 annual invitation to tender and subsequently funded through a resulting tender agreement from February 2023. This funding decision has had a huge positive impact on the lives of thousands of New Zealanders.

The annual process starts each July when we release consultation on a draft list of items that are about to come off exclusive supply or off-patent and could be considered for inclusion in the tender.

The list usually includes between 400 and 700 different line items (different presentations of medicines).

The draft list consultation is open for six weeks. We ask clinicians, people who use the medicines, and suppliers what we should consider when reviewing tender bids and product samples. We are keen to understand any support that might be needed if we were to change brands.

We also ask about the appropriateness of including particular medicines in the annual tender process – and it allows suppliers to put forward alternative commercial proposals for the supply of drugs outside of the tender process.

Once the consultation closes, we send the information to our Tender Clinical Advisory Committee, which is made up of doctors, pharmacists, nurses and other clinical specialists, for its input.

We release the final invitation to tender in late October when we invite suppliers to submit their commercial bids. The tender closes in December when we start evaluating the bids.

After an initial assessment, we ask some companies to send us samples of the medicines they’re bidding to provide as the main supplier.

This is where things get much more hands-on.

In February, we hold a two-day committee meeting. Pharmac staff join the committee as they inspect labels, open packages, test creams, taste medicines, shake bottles and discuss what might work best.

Wherever possible, the committee members try to taste-test the products to ensure they are appropriate – for example, that pain relief liquid for children is not too bitter.

The details of the packaging and the physical characteristics of the medicines are important, too. We must ensure pharmacists can clearly see the difference between strengths and people can easily identify which medicine they’re taking.

This is particularly important for people who take several medicines – it matters how the packaging looks, how easy it is to open, and the colour, size and shape of the pills.

Sometimes, the committee will identify usability issues, which we must consider and address as part of the bid assessment.

A crucial step is identifying what information people prescribing, dispensing, and taking the treatments would need to help them understand a potential change in the medicine’s brand. Our goal is to ensure we provide enough support so people can feel reassured during a change.

The final stages of the tender process before decisions are made include:

  • identifying the preferred bidder
  • reviewing the financial impact of awarding the tender
  • analysing the bidder’s supply record.

We need to know if they can guarantee consistent supply.

Tender decisions are spread throughout the year. Pharmac announces decisions on tendered medicines at the end of every month. These include decisions to award a tender to the existing supplier and whether to award a tender to a new supplier (either for a new listing or a brand change).

Many Pharmac staff are involved in the annual tender in one way or another. Everyone who works at Pharmac, or their friends and family, has relied on funded medicines at some stage – they all know how crucial it is to get it right.

The feedback we get from the health sector during the annual tender is worth its weight in gold. We would encourage as many people as possible to offer their views during our consultation – the next one will be in July, so keep an eye out.

This article was published by New Zealand Doctor on 10 April 2024(external link)