The envy of nations
PHARMAC’s ability to secure some of the world’s lowest prices for a wide range of prescribed pharmaceuticals has seen a steady stream of public health providers and health economists beat a path to its door in Wellington.
The most intense interest has come from those tasked with managing health budgets in high-income countries with a similar standard of living to New Zealand. In an article in the journal PharmacoEconomics in October 2014, University of Otago public health expert Robin Gauld reflected on PHARMAC’s progress following its 20th anniversary.
“In comparative terms, New Zealand pays the lowest prices amongst high-income countries for a list of 30 ‘most prescribed’ medicines – around one-third of the costs for the USA and 70 percent of Australian and British prices,” he wrote.
“There are numerous examples of individual New Zealand pharmaceutical prices and patient co-payment amounts that other countries and their citizens might only dream of.”
So why haven’t other countries been able to replicate PHARMAC’s uniquely successful model?
“We were in the right place at the right time, in a political environment where we could do it,” says founding PHARMAC staff member Reinhard Pauls.
The health reforms of the early 1990s had sought to contain burgeoning health costs and, in particular, the double digit annual growth in spending on pharmaceuticals. The political will was there to let PHARMAC get to work to help make the health budget go further.
But New Zealand also had the advantage of not having a strong pharmaceutical manufacturing industry in need of protection. Those large companies that were here were mainly marketing products made overseas, or in some cases producing generic drugs.
“I think of Switzerland, where I grew up, which has a massive pharmaceutical industry, which can levy a huge amount of political pressure,” says Pauls.
The same goes for numerous large countries, including the United States, the United Kingdom, Germany, France and Australia – where PHARMAC often sources pharmaceuticals from.
“We all sit in our own political economies; they’ve ended up in a different place from us,” notes founding PHARMAC general manager David Moore.
“The only group that has been able to be as effective as PHARMAC is the Veterans Affairs in America, where they directly purchase their pharmaceuticals; they are very clever about it.”
“We were in the right place at the right time, in a political environment where we could do it.” - Reinhard Pauls.
Throughout its history, PHARMAC has been active on the international stage, sharing insights into its processes.
“We set up a sovereign buyers’ club back in 1995, an opportunity to get together with the Canadians, and invite the Australians over. In those days, pharmacoeconomics was a new word and there was a lot of co-development of approaches,” says Moore.
Pauls remembers the frosty reception he often received from pharmaceutical company representatives at international conferences.
“The looks I got were not amusing. The pharmaceutical industry was very much afraid that this contagion would spread.”
“The main lesson from PHARMAC for other systems is that it is possible to manage drug spending within a public budget while improving access to subsidised medicines,” wrote Jacqueline Cummings and colleagues from Victoria University, Wellington, in the British Medical Journal in June 2010, mirroring independent commentary in journals around the world drawing attention to PHARMAC’s impressive track record.
But the authors noted that the PHARMAC model had attracted valid criticism.
Some wonder at PHARMAC’s exemption from the Commerce Act, which effectively allows it to engage in activity that would be considered anti-competitive in the private sector. Changes in reference-priced drugs have often seen large numbers of patients forced to change their medication and there is also criticism that New Zealand patients miss out on early access to innovative drugs.
But no system is perfect and PHARMAC is widely regarded as having struck a good balance, while faced with numerous constraints.
“PHARMAC’s utilitarian approach of providing the greatest good for the greatest number within its budget has worked well,” concludes Gauld in PharmacoEconomics, “with the caveat that some New Zealanders miss out on or have delayed access to medicines available in other countries.”
The aspect of PHARMAC’s success that people speak of most admirably is its ability to continue with its model intact, through changes in government.
“Look around the world. Who has been able to replicate it? Nobody. It is just too contentious,” says former chief executive Steffan Crausaz.
“If we lose it, we will never get it back again.”
Last updated: 13 September 2018