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PHARMAC Information sheet

PHARMAC’s history

During the 1980s medicines prices were increasing at a faster rate than other healthcare spending, and were one of the fastest growing items of Government expenditure. Growth of more than 20% each year meant medicine prices were threatening to crowd out other healthcare funding. A response was needed, and in 1993 the Pharmaceutical Management Agency (PHARMAC) was created to actively manage Government spending on medicines. PHARMAC’s objective was to introduce price competition to a market where it had not previously existed. PHARMAC’s role was, in effect, to get better value for medicines so that the best health outcomes could be achieved from public money spent on medicines.

Early years

PHARMAC’s first task was to organise the range of already subsidised medicines into a cohesive list – the Pharmaceutical Schedule. Considerable input from expert clinicians on PTAC (the Pharmacology and Therapeutics Advisory Committee) was needed to sort medicines into therapeutic groups. Reviews were then undertaken, so that more informed judgements could be made about decisions affecting each therapeutic group. The establishment of PHARMAC coincided with the era of the socalled “blockbuster drug” – medicines that counted their sales in the billions of pills and dollars. The introduction of these products, like new treatments for heartburn, raised cholesterol or depression, created significant challenges for medicines funding bodies worldwide and PHARMAC was no exception. From PHARMAC’s creation, there was potential for price reductions through the introduction of price competition between pharmaceutical companies. A notable achievement is the eventual 96% reduction in the cost of blood pressure-lowering ACE Inhibitors since 1996. Reference pricing, a policy where subsidy levels for drugs with similar effects are set at the same level, was a significant strategy in achieving lower prices. Next came innovations such as contractual arrangements, multi-product agreements and tendering (see Purchasing Medicines for more information on these strategies). Tendering for off-patent medicines (“generics”) was a logical extension of strategies to promote competition. Tendering is now used extensively, involves nearly half of all subsidised medicines (by volume), and has produced cumulative savings of over $300 million. All of these mechanisms help reduce the amount we pay for medicines, generating savings that are able to be used to subsidise more products – increasing New Zealanders’ access to medicines.

Beyond medicine subsidies

As well as subsidising medicines, PHARMAC has a strong interest in ensuring they are used well. This involves ensuring medicines aren’t 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” has been an effective way of raising awareness about appropriate use of antibiotics.

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PHARMAC Information sheet

PHARMAC’s role in managing demand for medicines is called ‘Access and Optimal Use’. Campaigns, with a number of resources available from our website, include: • Wise Use of Antibiotics • One Heart Many Lives • Gut Reaction • Childhood Asthma Management. The Access and Optimal Use team also manages our Māori Responsiveness Strategy, including to help address inequalities in medicines access.

PHARMAC’s record

Taking into account medicine price decreases (including through PHARMAC’s strategies described above), PHARMAC’s purchasing power has tripled since 1993. This means that we can now subsidise $900.0 about three times the amount of medicines that could be bought with the same money in 1993. Getting more for less: The number of prescriptions being subsidised is growing at a faster rate than the money used to purchase them.

$800.0 $700.0 $600.0 $900.0 $800.0 $700.0 $600.0 $500.0 $400.0 $300.0 $200.0 $100.0 $0.0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 $500.0 $400.0 $300.0 $200.0 25.0 $100.0 20.0 $0.0 1993 1994 1995 1996 1997 199815.0 1999 2000 2001 2002 2003 2004 2005 2006 40.0

35.0

30.0

1993

Year ending June 10.0

20

5.0 Drug Cost (after rebates) 0.0 Prescriptions

1993

Year ending June

200620072008

PHARMAC is the Government agency that decides, on behalf of District Health Boards Cost (after rebates) Drug Contacting Us (DHBs), which medicines get subsidised so that they are more affordable for New Call us on 0800 66 00 50 (between 9am and 5pm, Monday to Friday), or on 04 460 4990 Zealanders and available nationally. The subsidies PHARMAC sets are funded from a fixed Prescriptions (between 8am and 5.30pm, Monday to Friday). budget that is part of DHB funding. PHARMAC also promotes the optimal use of medicines, carries out some procurement for DHBs, and manages special access programmes for Write to us at: PHARMAC, PO Box 10 254, Wellington some medicines. – we respond to all letters Information Sheets on various PHARMAC topics are available from our website: Email us at enquiries@pharmac.govt.nz – we respond to all emails www.pharmac.govt.nz/patients/infosheets If you have specific areas of interest (such as consultations, committees or vacancies), visit our website and subscribe to news feeds in the area(s) of interest to you: http://pharmac.govt.nz/feeds