Chief Executive's summary
The same benefits PHARMAC has achieved through its pharmaceuticals work is now becoming available through hospital medical devices work, writes Chief Executive Steffan Crausaz
PHARMAC has a strong record of bringing better access to pharmaceuticals for New Zealanders, and making sure this is affordable and sustainable.
As in previous years, over the past year more New Zealanders have been accessing funded pharmaceuticals than ever before. This is the reason PHARMAC exists – to deliver better health outcomes from pharmaceuticals from within the available budget.
This driver is behind everything we do, be it investing in new medicines or work to save on existing ones. New medicines are often the public focus of our work, but our savings transactions also have implications for better medicines access. The savings produced give us greater options for investment, meaning we can fund medicines for less and create opportunities to fund new medicines.
We know in pharmaceuticals, our focus on getting objective clinical advice, economic assessment, negotiation, promoting competition and being careful in our product selection means New Zealand has surety of supply that enables us to access a broad range of modern medicines at some of the lowest prices in the world. This is the long-term benefit of the PHARMAC model that we want to see realised in hospital medical devices too.
Over the past year we have seen our work in hospital medical devices gain some real traction. This is a major shift for PHARMAC, which now has feet firmly planted in both the primary and secondary care sectors of pharmaceutical and device procurement. The potential benefits to the country are huge for medical devices, with a national market of around $1 billion. Our work in the past year has given us greater confidence that the potential benefits from hospital medical devices can deliver real returns to the taxpayer and DHBs. This means PHARMAC is now delivering more to New Zealand than it previously did with its focus primarily on primary care.
There are now about 14,000 hospital medical devices line items listed on the Pharmaceutical Schedule, far outstripping the number of pharmaceuticals listed. Savings so far have been modest, although these haven’t been the primary driver of our work. But this is set to change with a more rapid shift to promoting competition, starting with wound care products.
We’ve been focused in six areas – wound care, sutures, laparoscopic equipment, interventional cardiology, orthopaedic implants (spine and trauma) and sterile wraps. Initially our work has focused on negotiating national contracts that DHBs can use if they wish. DHBs can benefit by making savings on products they are already using, although in some cases it might mean needing to change suppliers.
We’ve always intended that at some point we would introduce an element of competition into devices. Our work in wound care has progressed to the point that a more competitive approach is feasible. So we’ve begun a process to introduce market share procurement to a discrete group of wound care products, as the beginning of our competitive approach for devices.
Market share procurement is a similar approach to what we have in our tender for off-patent medicines. Offer a particular share of the overall market to a supplier for a specified period of time. In this way, we’ve been able to obtain significant savings through the tender over 18 years – more than $600 million.
I don’t doubt that it will be a modest start to our hospital devices competitive process, but let’s not forget that the community tender had small beginnings too – just one product and, curiously enough, it was a device (an asthma spacer).
We’re continuing to think about the shape of our hospital devices work for the future – do we investigate contracting in other categories? Or do we go deeper into the categories where we have already made progress. Whichever way we decide to go, we’ll be making sure we give people with an interest in our devices work plenty of opportunity to have their say, and adjust our work to suit.
I mentioned the long-term benefits of the PHARMAC model, and I believe we have seen this in other ways over the past year. There has been very strong international commentary about medicine pricing, particularly in international clinical journals and now the mainstream media.
Prices of new and even older medicines have been rising at unprecedented levels. In fact, some newcomer companies have built their business by buying up older drugs, then ratcheting up the price of them by several hundred percent.
It’s been interesting to observe this debate from a distance. New Zealand is largely insulated because of a number of factors. Firstly, we’re a small market and can often move swiftly to source alternative products, if prices rise. Secondly, we try to get as many products on the Pharmaceutical Schedule under contracts that lock in certainty of supply at a price that is appropriate for New Zealand. And if suppliers want to increase their prices, we always have the discretion to decide whether to lift the subsidy to match the price.
But most tellingly, our work in promoting competition means that the trend we see for older medicines is falling prices, not rising. The leukaemia drug imatinib is a case in point. While the price in the US has more than doubled to about US$106,000 per year per person, thanks to a competitive process we ran last year there was an 85 percent price reduction that is now yielding savings of $12 million a year in New Zealand.
Another trend we continue to see is a weakening of the evidence base for new products, so we are being asked to make more difficult and expensive decisions based on evidence that is – at best – limited, and in some cases premature. The challenge is how we apply commercial principles to this changing dynamic and find solutions so New Zealanders can continue to gain access to new medicines.
Last updated: 10 December 2015