Saving money, saving lives
PHARMAC marked its first decade of operation with an impressive statistic – over $2 billion in cumulative savings through the policies it employed to get the best deal for New Zealand pharmaceutical users.
The use of reference pricing, tendering, bundled deals and savvy contracting underpinned the savings.
But PHARMAC’s increasingly sophisticated grasp of health economics was also integral to making the case for better value pharmaceutical deals and to the fundamental task of delivering the best health outcomes to New Zealanders on a limited budget.
One of the economic evaluations used by PHARMAC to assess whether to fund a pharmaceutical is the ‘quality adjusted life year’ . This estimates the years of life remaining for a patient following a treatment, weighted with a quality of life score that reflects their ability to carry out activities of daily life, free from pain and mental disturbance.
“Using health economics to look at the ‘quality adjusted life year ’ advantage in terms of the New Zealand economy was fundamentally important to arguing with pharmaceutical companies that they were over-pricing the product in terms of the value to New Zealand,” says Sharon Kletchko, currently Quality Risk and Clinical Governance Director at the Lakes District Health Board, with a long association with PHARMAC’s Pharmacology and Therapeutics Advisory Committee.
New Zealand is known as a ‘medium rich’ country in health economics terms, but pharmaceutical companies were charging rich prices for access to its medicines. The equation wasn’t adding up.
“For New Zealand to pay rich costs and ever-increasing costs was just not going to work for us,” says Kletchko.
PHARMAC’s arrival in the mid-nineties was “optimum timing” for a reset, adds Kletchko.
“Health economics was always an important part of the agency,” says former PHARMAC chief executive Wayne McNee.
“Over time we built that resource up to have quite a strong analyst team, giving us advice around the cost benefit of funding a medicine. That helped us to prioritise where to put the investment for new medicines.”
A funding decision facing PHARMAC as its 10th anniversary approached illustrated well the tough decision making the agency’s staff had to make on a regular basis.
Against the background of a high-profile campaign to fund imatinib mesylate (Glivec) for a small group of patients, PHARMAC initially declined the funding application.
“Here was a drug that had clear clinical benefits, which represented a significant therapeutic advance for patients with chronic myeloid leukaemia (CML), but which at over $60,000 per patient per year was extremely expensive,” McNee wrote in PHARMAC’s 2003 Annual Review.
Eventually a deal was struck with the drug company to make Glivec available to a larger group of patients at a cost-effective price as part of a wider deal with Novartis involving 11 different products. The move showed that PHARMAC was willing to increase expenditure to achieve health gains. That year, 2003, PHARMAC spent $512.4 million on medicines, an increase of 5.3 percent on the previous year. Leading up to PHARMAC’s creation, the annual increase on medicine expenditure had been closer to 20 percent.
Wrote McNee: “Undoubtedly there will continue to be a tension between the competing demands for funding of new pharmaceuticals, and the constraints of working within a set budget.
“However, PHARMAC will continue to apply the policies it has developed to ensure that the pharmaceutical budget is spent to ensure fair and equitable access to subsidised pharmaceuticals for all New Zealanders.”
A QALY is a measure of the state of health of a person or group in which the benefits, in terms of length of life, are adjusted to reflect the quality of life.
QALYs are calculated by estimating the years of life remaining for a patient following a particular treatment or intervention and weighting each year with a quality-of-life score (on a 0 to 1 scale). It is often measured in terms of the person's ability to carry out the activities of daily life, and freedom from pain and mental disturbance.
Last updated: 13 September 2018