PHARMAC in 1993 assumed the role of deciding which pharmaceuticals would receive government subsidies for use in New Zealand and which wouldn’t. With that decision-making power came great responsibility.
In early 1994 PHARMAC developed the Decision Criteria, which would form a key component of the agency’s Operating Policies and Procedures.
PHARMAC had to balance the needs of patients and communities with its responsibilities to the taxpayer. Decisions about which pharmaceuticals were included on the Pharmaceutical Schedule, and therefore qualified for subsidies, needed to represent good value for money for the health benefit of all New Zealanders.
After extensive consultation, PHARMAC’s Board came up with a list of nine decision criteria. These would include broad defining factors such as the health needs of “all eligible people within New Zealand”, the particular health needs of Māori and Pacific peoples, the availability and suitability of existing medicines and the cost-effectiveness of meeting health needs by funding pharmaceuticals.
PHARMAC also had to take into account pharmaceuticals savings targets agreed with the Regional Health Authorities and the Health Funding Authority, any direct costs to health service users and the Government’s overall priorities for health spending.
“Perhaps the most obvious principle that might be applied to these decisions is to pay only for those treatments that improve health and, within our limited budget, choose the ones that improve health the most,” says health economist Professor Anthony Harris, who has studied PHARMAC’s decision-making processes.
Many countries around the world have taken this approach to funding pharmaceuticals, he adds.
“In general the aim has been to provide medicines at low cost to all, but to choose which medicines to subsidise by assessing their comparative value.
“Value has been taken to mean the cost of achieving a gain in years of life and the quality of life.”
Ultimately funding decisions had to withstand scrutiny from pharmaceutical companies and clinicians, patients and politicians. PHARMAC’s staff and Board always used the Decision Criteria in considering Pharmaceutical Schedule applications.
“It was difficult for a lot of the staff. They were put under huge pressure if PHARMAC decided not to fund something,” - Richard Waddel
“But when a new drug came out, PHARMAC always waited until there was enough evidence to justify funding it or the price came down to justify spending the money,” he adds.
He remembers Board briefing dossiers of 200–300 pages, reflecting the complexity of the applications PHARMAC was tasked with considering.
“There was a huge amount of reading; that was to make sure we made the right decisions. The spend amount you were asked to approve could be $30 million; it could be $500,000.”
The Decision Criteria served PHARMAC well for over two decades. But by 2013 it was clear the criteria needed to be revisited given the changing nature of PHARMAC’s role in the health system and wider responsibilities, including medical devices.
The 2009 ‘Horn Report’, the output of a Ministry of Health commissioned review of the health system, led by former Secretary to the New Zealand Treasury Murray Horn, had recommended a partial restructure of the health system. This included a recommendation for more collaboration among the district health boards and centralisation of some planning and service delivery. Some of the report’s recommendations would influence the future shape and activities of PHARMAC.
That included preparing the agency to take responsibility for areas of funding outside its focus on medicines used in the community and cancer medicines administered in hospitals.
PHARMAC was about to add all subsidised hospital medicines, vaccines and hospital medical devices to its portfolio.
Consultation throughout 2013 and 2014 across New Zealand led to the development of the Factors for Consideration. This was a major change for PHARMAC. Instead of a list of nine decision criteria to consider, PHARMAC would now take a more holistic look at the relevant impact of a decision on the person, on their family, whānau and wider society, and on the broader health system.
The consideration of health disparities among some population groups was made more explicit. After a lengthy period to allow all relevant parties to get up to speed on the Factors for Consideration, these took effect on 1 July 2016.
“This change has been collaborative, and reflects the considerable input of the public to our consultation,” said PHARMAC’s chief executive at the time, Steffan Crausaz.
“We’ve created an approach to decision making that is more easily understood so it’s clear what we take into account when we make our funding decisions.”
The extent of the public consultation and effort put into a smooth transition meant the Factors for Consideration were well received. They remain the key tool in helping PHARMAC achieve its statutory objective of securing the best health outcomes from pharmaceutical treatment from within the funding provided.
Last updated: 13 September 2018