Important events in 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% in some years 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.
PHARMAC's first task was to organise the range of subsidised medicines (the Drug Tariff ) 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 so-called “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. 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, multiproduct agreements and tendering.
For more information on these strategies, see Medicines and medical devices contract negotiation
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) yet represents around 20 percent of total drug cost. The annual tender generates around $40 -$50 million in savings each year.
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.
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.
PHARMAC's role in managing demand for medicines is called ‘Access and Optimal Use’, and is managed by an experienced team of PHARMAC staff. Campaigns, with a number of resources available from our website, include:
We also have a Māori Responsiveness Strategy and Pacific Responsiveness Strategy which seek to address inequalities in medicines access, amongst other goals.
In 2010 the Government published the Ministerial Review Group report (external link) , recommending a wider role for PHARMAC in managing hospital medicines and medical devices. The Government acted on these recommendations and supported an expanded role for PHARMAC in May 2010, building on the change in functions originally agreed to in 2001.
The move towards assuming management of all medicines used in hospitals, and medical devices, are long-term projects that will involve working with District Health Boards, senior clinicians, and medical and patient interest groups in coming years.
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 about three times the amount of medicines that could be bought with the same money in 1993. Since 2000, PHARMAC has saved more than $5 billion against 1999 prices.
The number of prescriptions being subsidised is growing at a faster rate than the money used to purchase them.
Last updated: 18 January 2018