This is the text extract for Annual Review 2008 - Part 2, browse documents here.

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Pharmaceutical spending – getting more for less

New Zealanders like to compare themselves to people in other countries, and it’s no different with pharmaceuticals. But international comparisons are difficult to make because there are differences between countries that make comparisons problematic. There is often debate around the appropriate level of pharmaceutical spending, and how this should be measured. Figures like OECD averages and the consumer price index (CPI) have been put forward as useful measures to judge New Zealand by.

Purchasing power tripled

Using a Pharmaceutical Price Index (illustrated in the graph below), our purchasing power in real (inflation-adjusted) terms has tripled since 1993. Part of the rationale for creating PHARMAC was to promote competition among pharmaceutical suppliers, and this has occurred in much the same way that is widely accepted in other markets (such as use of negotiation and tendering). When new technologies emerge, these generally become cheaper over time. This is certainly the case with high-tech consumer electronics like digital cameras, DVD players or flat-screen TVs. The same applies to pharmaceuticals, which become subject to competition and price reductions as time goes by. PHARMAC’s use of procompetition strategies have, in some cases, led to price reductions of up to 90%. Cumulative savings exceed $300 million since our tender began.

Simple measures aren’t the answer

Simple measures such as number of medicines funded, expenditure as a percentage of health budget or Gross Domestic Product, or time to fund a medicine are interesting to make comparisons on, but they are not particularly meaningful. For example: • number of medicines funded – this measures `inputs’, but it’s the `outcomes’ that are important. Simply counting the number of medicines funded doesn’t give a picture of the conditions that can be effectively treated and the health gains that result. • expenditure as a proportion of health budget or GDP – different countries have different medicine prices, and funding priorities. Overall, New Zealand’s pharmaceutical prices are low by international standards. • speed of decision making – quick decisions may not be quality decisions. PHARMAC works to ensure all relevant evidence is thoroughly considered, as well as long-term costs and whether the decision is affordable. Usually, medicine funders only get one shot at a decision. Once a medicine is funded, it is difficult to withdraw that funding. What we do know from work conducted in the past year, is that since 1993 PHARMAC’s activity has led to a three-fold increase in our purchasing power.

CPI not the right measure for pharmaceuticals

The Consumer Price Index (CPI) is a recognised measure of price changes, so why not use it to measure pharmaceutical prices? The CPI is a good measure for the overall economy, but a Pharmaceutical Price Index should be used to show trends in pharmaceuticals alone. The CPI is a “headline measure”, taking into account a wide range of goods and services, including pharmaceuticals. Within the CPI there are sub-groups that show increases over time (such as food, housing and transport), and those that show decreases (such as apparel, technology, pharmaceuticals). The price of pharmaceuticals is a contributor to the overall CPI figure, but the historic pattern of pharmaceutical prices has been deflationary, not inflationary. Statistics NZ urges caution in using particular indexes like the CPI: “The CPI is designed to measure the combined price movements of the tens of millions of retail transactions undertaken by people throughout New Zealand in a specified period. Any such statistical indicator is bound to have limitations for particular users and uses. However, the CPI is regarded as a good general measure of the effect of price change on the purchasing power of consumers in general. Before attempting to use the CPI or components of the CPI to measure price change, users should also determine whether the index is the most appropriate for their needs, as it is only one of many measures of price change produced by Statistics New Zealand.” So using the CPI’s growth to argue that pharmaceutical spending should rise is a bit like arguing DVD players should cost more now than they did 10 years ago. And pharmaceuticals are a bit different to other consumer goods – for the most part consumers don’t pay the full price of the medicine, they only pay the co-payment (usually $3). Consumers don’t usually face cost fluctuations of subsidised medicines, so a Consumer Price Index isn’t really relevant to pharmaceuticals. For PHARMAC, increased purchasing power is about constantly trying to get better value for money from whatever level of money we spend. This allows more to be spent on new medicines, and better health outcomes, than would be the case if prices were higher.

$800 $700 $600 $500 $400 $300 $200 $100 $0

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Nominal Expenditure Real Expenditure CPI adjusted (PPI - pharmaceutical price index adjusted)

Real Expenditure PPI adjusted Real Expenditure CPI & PPI adjusted

2007

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Top 20 most prescribed medicines

Year ending June 2008 Most commonly prescribed subsidised drugs. Note: This does not include non-subsidised prescriptions (i.e. those paid for by the patient or those where the cost falls under the patient co-payment).

Chemical Name paracetamol aspirin simvastatin omeprazole amoxycillin metoprolol succinate amoxycillin clavulanate salbutamol diclofenac sodium cilazapril zopiclone prednisone frusemide bendrofluazide quinapril fluticasone calcium carbonate flucloxacillin sodium thyroxine felodipine Prescriptions 1,760,000 1,280,000 1,170,000 1,100,000 890,000 820,000 800,000 740,000 530,000 510,000 470,000 450,000 440,000 430,000 400,000 410,313 377,527 390,000 380,000 380,000 Main use

pain relief prevents heart attack and stroke (cardiovascular risk) impaired cholesterol (cardiovascular risk) heartburn, stomach ulcers bacterial infections raised blood pressure, heart disease bacterial infections asthma symptoms pain/arthritis raised blood pressure (cardiovascular risk) insomnia steroid treatment for asthma attacks, arthritis etc heart failure raised blood pressure (cardiovascular risk) raised blood pressure, heart disease, diabetes prevents asthma osteoporosis bacterial infections underactive thyroid gland raised blood pressure, heart disease

Staff profiles

Jan Quin, team leader, medical team Jan is PHARMAC’s longest-serving staff member; she’s been working at PHARMAC since mid-1994, with a few stints of maternity leave (Jan has 10 year old twins and a 7 year old). She trained as a nurse, then worked around the world until joining PHARMAC back in its early days. “I’d been a drug company rep, so joining PHARMAC meant I really jumped the fence. PHARMAC was such a small organisation then, so we all had to do a number of roles – and work insane hours.” Having worked in various roles in the organisation, Jan is now a team leader in the medical team, which performs roles like managing the clinical advisory committee PTAC, the Exceptional Circumstances schemes that give people with rare conditions access to unfunded medicines, and managing high-cost medicine panels. Part of the work involves keeping in direct contact with patients receiving some high-cost medicines. “What PHARMAC does, it does well. That’s why the organisation has grown – we’re now buying some of the drugs for the hospitals, and working with healthcare professionals to promote healthy choices. “PHARMAC has really good people, doing a hard job to the best of their ability. I tell people that I’m proud of PHARMAC, although that means I do get harangued occasionally.”

07’ rank 1 2 3 4 5 7 6 8 9 10 16 15 11 12 13 14 17 20 19 18

John Geering, Systems Architect, Schedule Team John Geering trained as a mining engineer, before moving into science and then the world of computers. His current job means ensuring computers can talk to each other and smoothly integrate PHARMAC’s decisions. Part of the Schedule Team, John’s work helps to produce the list of funded medicines (the Pharmaceutical Schedule), which comes out as a book three times a year. But it’s updated more regularly electronically, which is where John comes in. John’s part of PHARMAC’s DNA because he’s one of the longest-serving staff members, having joined in 1995. It wasn’t exactly planned. He came to Wellington in the early 1970s, planning to head off on his OE; instead, his cautious parents persuaded him to take a job.

Annual Inflation

The essentials cost more:

• Petrol • New housing • Electricity

Small mercies?

16.9% 6.1% 6.5% 34.8% 14.9% 21.1%

He’s been working in the capital city ever since; instead of doing his OE, he ended up getting married and now he’s a proud grandfather. And a busy one: tramping with his son, a dedicated gardener (essential with his south-facing garden in Wellington’s hills), and when he’s relaxing he loves tackling cryptic crosswords, sudoku puzzles and the weekly Enigma in New Scientist. But John does have a secret vice – baking bread from scratch, with lots of kneading, which he began as a way of fighting off arthritis, on the ‘use it or lose it’ principle.

• Early childhood education • Pharmaceuticals • AV equipment

* Dominion Post 18 Jan 2008 report on Stats New Zealand figures

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Major funding decisions in 2007/08 – new patients, new spending, better health

Each year, PHARMAC invests millions of new dollars in pharmaceuticals and works to ensure these produce better health for New Zealanders. PHARMAC’s major funding decisions in 2007/08 (see table) included adding five new products to the Pharmaceutical Schedule, and widening access to six community and five cancer pharmaceuticals. Further specialist restrictions were removed for 43 chemicals and PHARMAC had to agree to substantial price increases for metoprolol and thyroxine.

Funding Decision Month of implementation Condition treated Estimated no. new patients by 30 June 2008 Estimated no. new patients by 12 months’ implementation

New listings sirolimus Condoms (increased range) (1) ziprasidone exemestane macrogol 3350 July 2007 March 2008 August 2007 August 2007 October 2007 Kidney and other organ transplant rejection Contraception Schizophrenia Breast cancer Problematic severe constipation (e.g. patients with terminal cancer requiring opiate pain relief ) 600 300 2,100 700 400 2,700 100 100

Widening access capecitabine tiotropium bromide benzathine benzylpenicillin - Inj 1.2 mega u per 2 ml (1) ondansetron losartan, losartan with hydrochlorothiazide (1) rizatriptan wafers Removal of specialist restrictions for 43 chemicals (1) Cancer drugs (2) docetaxel (1) trastuzumab oxaliplatin paclitaxel vinorelbine Other thyroxine (3) metoprolol succinate (3) October 2007 December 2007 Thyroid hormone deficiency Raised blood pressure (cardiovascular risk), heart failure July 2007 July 2007 December 2007 December 2007 December 2007 Breast cancer Breast cancer Stage III (Duke’s) colorectal cancer Relapsed germ cell cancer of the testis, relapsed ovarian cancer, node-negative HER2 positive early breast cancer Adjuvant treatment of stage IB-IIIA non-small cell lung cancer n/a 270 600 70 120 n/a 270 800 90 160 July 2007 July 2007 July 2007 Duke’s C colorectal cancer Moderate chronic obstructive pulmonary disease (COPD) Prevention of further rheumatic fever episodes with risks of consequent heart valve and other damage (long acting injection with monthly not daily dosing) Nausea and vomiting, particularly from cancer treatments Renal disease, treatment-resistant raised blood pressure, etc. Acute migraine Various conditions 500 1,000 5,000 1,400 2,000 1,400 2,000

September 2007 June 2008 June 2008

Notes : (1) Insufficent or inconclusive data to provide a reliable estimate; (2) cancer drugs are funded from the Pharmaceutical Cancer Treatment budget, which is held by DHB hospitals (not PHARMAC) (3) Price increases, no additional health gains.

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More people treated

As a result of the decisions in 2007/08 an estimated 11,000 new patients were treated with these subsidised medicines. In the first full year of these decisions being implemented, PHARMAC estimates that there would be 15,000 new patients using these medicines – including 5000 new patients using rizatripan, 2700 new users of tiotropium and around 300 patients accessing trastuzumab for early breast cancer. Total expenditure over 12 months for these decisions is estimated to be between $10 and $15 million, with an additional $5 million spent on price increases for metoprolol and thryroxine.

Staff profiles

Steffan Crausaz, Manager, Funding & Procurement Seven years ago, Steffan moved to New Zealand from Britain with his Zimbabwean wife, Kerry. He graduated as a pharmacist, and worked in the pharmaceutical industry before travelling in Africa. Now he’s a New Zealand citizen, with two Wellington-born children. Steffan joined PHARMAC keen to use his MSc in evidence-based pharmacotherapy. He does so in leading the team that guides PHARMAC’s pharmaceutical funding applications and negotiating agreements with pharmaceutical companies. The work is challenging and multi-faceted. “The funding and procurement team is really the core of PHARMAC’s work. We’re continually looking for areas where we can achieve the best value for the taxpayer dollar, or make a real difference in people’s lives by funding a new medicine. It’s hard work for my team, but it’s very motivating to be in a position where you can guide a medicine through a process that leads to a decision directly affecting people. It can be very rewarding.” But life’s rather different at the weekends. “I spend a lot of time with my young family and I’ve just built a fence! Me! I’m no gardener, and I’m certainly not into Do-It-Yourself. I’m an urban person so I really appreciate Wellington’s environment.

Health gains from funding decisions

PHARMAC also assesses the health gains obtained through its investments, and measures outcomes in quality adjusted life years (QALYs). QALYs are a standard pharmacoeconomic measure to compare different medicines that do different things.

The funding decisions for the six pharmaceuticals (indication in brackets) below

• trastuzumab/ docetaxel (early breast cancer) • macrogol 3350 (last line oral pharmacotherapy for constipation) • tiotropium (moderate chronic obstructive pulmonary disease (COPD)) • ziprasidone (schizophrenia) • oxalaplatin (stage III (Duke’s C) colorectal cancer) • vinorelbine (adjuvant treatment of stage IB-IIA non small cell lung cancer) are likely to lead to 6600 new patients being treated in the first 12 months after listing. These patients are estimated to gain the equivalent of 1350 full years of extra life (i.e. QALYs) over their lifetime.

Moana Tane, Māori Health Manager, Access & Optimal Use Te Roroa, Ngati Korokoro, Ngati Wharara and Ngati Hine Moana joined PHARMAC in mid-2008, moving from Auckland where she had been working for a Māori heart health NGO, training smoking cessation practitioners. That role meant a lot of travelling, and it was a relief for Moana to “lighten her carbon footprint” with the move to Wellington. With a background in education and community development, Moana spent time living and teaching in Papua New Guinea and the United States. She returned to New Zealand in 2004 to work for her iwi, Te Roroa, as a researcher. This is when she heard about PHARMAC. “I went to One Heart, Many Lives, and I was so impressed by PHARMAC’s activities.” The transition from education into health was a natural one for Moana, bringing her experience working with Māori communities together with a desire to serve her people. As part of the Māori Health and Access & Optimal Use teams, Moana is responsible for the implementaiton of Te Whaioranga, the Māori Responsiveness Strategy Action Plan. The plan aims to identify and address disparities in the way medicines are used by Māori, compared to the broader New Zealand population. In the weekends, Moana finds time to knit (she has a major project currently under way) and to ride her BMW 650 motorcycle.

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Review of expenditure, 2007/08

Expenditure for the year was $635.35 million (0.1% within budget). This equates to a 6%, or $36 million, increase from last year. Prescriptions increased by 7.4% over the same period.

Increases in expenditure over the year were:

• $42 million for underlying volume growth and MoH policies to reduce the cost of doctors visits and prescriptions to patients aged 25-44; • $12 million to relax or remove eligibility criteria on medicines and remove specialist restrictions on prescribing: in effect, making the current list of medicines more accessible to patients; • $21 million spent on funding new medicines this year and growth from funding decisions made over the past two years; and • $5 million spent on supplier price increases for metoprolol (Betaloc) and thyroxine (Eltroxin).

Net Expenditure (millions) $700 Prescriptions (millions) 35 $600 30

$500

25

$400

20

$300

15

$200

10

$100

5

$0 Jul-93 Jul-94 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08

0

Net expenditure

Prescriptions Net Expenditure (millions) $700 $660 $620 $580 $540 $500 Jul-06 Net expenditure Jan-07 Jul-07 Prescriptions Jan-08 Prescriptions (millions) 35 33 31 29 27 25

PHARMAC’s activity in medicines funding is always subject to budgetary pressures and this remained true in 2007/08. However, a complicating factor during the year was a decision by two companies to raise prices on two products with an overall budgetary impact of $5 million. The two medicines – metoprolol (Betaloc) for heart disease and thyroxine (Eltroxin) for thyroid problems – are both used by tens of thousands of New Zealanders. While raising subsidies to match the higher price was a good move for patients, effectively it meant spending more on the same products for no net health gain, and it limited our ability to make other new investments. As a result, some potential investments that PHARMAC had been developing were not able to be implemented. In the 2007/08 financial year PHARMAC made 20 major funding decisions. This included removing prescriber-specific restrictions

Decreases in expenditure over the year were:

• $41 million saved in this year through competitive processes such as Request for Proposals run over the past two years; and • $3 million saved through the annual tender and Alternative Commercial Proposals resulting from it.

on 43 medicines, a move that PHARMAC is committed to as part of its work in removing system frustrations for clinicians and pharmacists. Major decisions included widening access to the respiratory disease treatment tiotropium, and listing the new medicine ziprasidone (an antipsychotic) and rizatriptan (a treatment for migraine). Seven decisions related to cancer medicines.

PHARMAC’s active management and quest for innovative proposals saw a major agreement with the pharmaceutical company Pfizer that included five products, including funding of two new treatments, ziprasidone and exemestane (a treatment for breast cancer), with overall savings of $21 million over five years.

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Antibiotics

A prescriber shift towards narrow-spectrum amoxicillin has continued in 2008. The trend, which is in line with PHARMAC’s 11-year-old Wise Use of Antibiotics Campaign, was first noted in 2007 and has continued in the 2008 financial year. The broader spectrum amoxicillin with clavulanic acid continues to be widely used, but its prescriptions are now outnumbered by narrow spectrum amoxicillin by more than 90,000. With a total of 890,000 prescriptions in the year, amoxicillin is the fifth-most prescribed medicine in New Zealand. The annual antibiotics campaign was again launched in May 2008 with information showing a continued downward trend in people’s expectations of receiving an antibiotic. A survey by Colmar Brunton showed that in the 2007 winter 62% of people expected antibiotics when they visited the doctor about a cold or flu. This compares to 80% who expected antibiotics in a similar survey 10 years ago. Figures also showed an ongoing decrease in the volume of antibiotics prescribed to six to 18-year-olds and under-six-year-olds, with almost 25,000 less prescriptions in this age group during the winter months of 2007 compared with the year before.

Antibacterials

Cost (millions) $14 $12 $10 $8 600 $6 $4 $2 $0 Jun 93 Jun 94 Jun 95 Jun 96 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 97 Jun 98 Jun 08 400 200 0 Prescriptions (000) 1,2 1,0 800

Cost (ex GST) Amoxycillin Cost (ex GST) Amoxycillin Clavulanate

Prescriptions Amoxycillin Prescriptions Amoxycillin Clavulanate

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Asthma/ respiratory

Major decisions:

• Wider access to tiotropium (Spiriva) for COPD • Third brand of salbutamol inhaler (Respigen) funded

Access was widened to the respiratory disease medicine tiotropium (Spiriva) from 1 July 2007. The change means that tiotropium can be subsidised for patients with moderate Chronic Obstructive Pulmonary Disease (COPD) as well as more severe forms of the disease. COPD includes respiratory diseases such as chronic bronchitis and emphysema. The decision was estimated to lead to a doubling of the number of people using tiotropium to 10,000 within five years, and to cost $10 million. This cost is expected to be partly offset by a reduction in the number of people requiring hospital treatment for COPD and complications. The tiotropium access widening followed similar moves with long-acting beta agonist medicines (such as Oxis and Serevent) in recent years, decisions which together provide considerably wider access to medicines to treat respiratory illnesses. PHARMAC has also moved to provide more and wider access to combination inhalers (Symbicort, Seretide), that combine a preventer (such as fluticasone) and long-acting reliever in one inhaler. A trend can now be seen towards combination inhalers for long-term asthma treatment. Prescriptions for the combination inhalers have risen to over 120,000 per year. Seretide, which was funded in 2006, now accounts for 42,000 prescriptions, while prescriptions for its individual components fluticasone and salmeterol have both declined. This underlines the growing preference for combination inhalers. During the 2008 year PHARMAC also moved to introduce a third brand of the salbutamol short-acting reliever inhaler, listing Respigen to add to the Salamol and Ventolin brands that had been previously funded. Salbutamol accounted for some 740,000 prescriptions during the year, making it the eighth-most prescribed medicine in New Zealand.

Asthma

Cost (millions) $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 Jun 93 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 04 Jun 05 Jun 06 Jun 07 Jun 03 Jun 08 Prescriptions (000) 1,0 900 800 700 600 500 400 300 200 100 0

Cost (ex GST) inhaled corticosteroids Cost (ex GST) long-acting beta agonists Cost (ex GST) Other Asthma Cost (ex GST) short-acting beta agonists Prescriptions inhaled corticosteroids Prescriptions long-acting beta agonists Prescriptions Other Asthma Prescriptions short-acting beta agonists