PHARMAC's approach to hospital devices
Eventually PHARMAC will make choices about which hospital medical devices can be used. We're taking a phased approach to this, which means moving forward in a carefully planned way.
Transcript of the video
PHARMAC is internationally recognised for delivering value for the New Zealand health system in medicines. In more recent years our work has expanded to medical devices in hospitals. How much value is that work delivering and what does it mean for New Zealanders?
PHARMAC has started work in hospitals by taking responsibility for national contracting of hospital medical devices, to help hospitals get the best value from their spending, freeing up money to invest in other services for New Zealanders.
We’re working to standardise medical devices across DHBs, create nationally-consistent access, and reduce costs for DHBs.
Our work is helping DHBs save money and that is good for the health system overall.
The first savings have come from PHARMAC getting lower prices for the same high-quality products that DHBs are already using.
But the real savings will come from encouraging more competition amongst suppliers to provide quality products at lower costs in return for a share of the market across DHBs.
To make sure we are achieving this, we work with many groups to get all the information we need to make the best possible decisions.
We’re talking with other government agencies, DHB executives, procurement and technical staff, and the medical device companies, so that our changes are supported.
We've already made progress negotiating contracts for more than $100 million of hospital equipment DHBs use. We've negotiated 5-year savings of more than $40 million and started moving towards getting even better value for the medical devices the DHBs use.
The early savings the DHBs are already enjoying are similar to the percentage savings PHARMAC made in the early days of medicines funding in the community and in hospitals.
That's on top of the $6 billion PHARMAC has saved New Zealand over 10 years in its management of our community medicine spending, and $161 million in both hospital medicines and devices in the last 4 years.
Getting more health for New Zealanders' money - it's what PHARMAC does.
So you and your family can live longer and healthier lives.
Our approach involves:
- Engaging with clinicians and the wider health sector to help inform how we will do things. We will continue to develop and enhance our relationships with the large and varied group of people who interact with hospital medical devices, the 20 DHBs and their agent New Zealand Health Partnerships(external link).
- Constructing competitive environments that lead to prices falling, and establishing elements of active management over time.
- Contracting for products and organising procurement activity to increase competition amongst suppliers for DHB markets.
- Taking a strategic category-management approach this may include activity that may not provide significant immediate savings, but provides the critical base upon which future, more substantial savings are driven.
- Supporting DHBs and their staff through any changes, making transitions as smooth as possible for everyone.
Over the next decade, different categories of hospital medical devices will move into more mature levels of PHARMAC management. The diagram below provides a simplified, indicative guide to the process that categories of hospital medical devices may follow. PHARMAC will continue to support DHBs through any changes.
Our initial work starts with negotiating national contracts with suppliers to set national prices on items that DHBs are already purchasing. The aim of this work is to build both a catalogue, and understanding, of medical devices so that we can mature our approach and deliver greater benefits over time. National contracts also offer some early savings for the sector on products DHBs are already using.
In this phase, DHBs can continue to make choices about which products and brands they purchase. When purchasing brands that are under PHARMAC contract, DHBs must use the PHARMAC national agreements pricing and contract conditions.
We’re seeking to bring suppliers into a category that in some cases may not provide significant immediate savings, but provides the critical base upon which future, more substantial savings are driven.
All contracts are represented as listings on Section H Addendum of the Pharmaceutical Schedule and usage is governed by the Rules within the Schedule.
In this stage of work, PHARMAC introduces competition.
- We negotiate agreements with suppliers that guarantee them an assured portion of the market in return for quality products at competitive pricing. This is known as Hospital Supply Status.
- Where PHARMAC has these types of agreements in place, DHBs must purchase those brands, if using those products.
- This same approach is used with community and hospital medicines.
Six types of wound care products currently have market share agreements. We supported DHBs on implementing these changes for 1 July 2017. There's more detail about the decision in our notification letter.
Read a transcript of this video
Our hospital medical devices work has reached an important milestone, with PHARMAC approving the first contracts that guarantee market share to suppliers. The agreements give suppliers a guaranteed portion of the market for a small group of wound care products. The decision has several benefits. DHBs will pay less for the same quality products, with average savings of 22%. That’s about $3 million over five years. That adds to the $25 million of value we’ve created for DHBs through our national procurement of hospital medical devices. This is a critical landmark, and we want to set a strong foundation for further market share agreements. So we’ll be working together with DHB staff to support this change. Because of its importance, we’ve put an enormous amount of time into engaging with DHB staff and managers, clinical staff and suppliers. I’d like to thank people who have provided input to us throughout this process – your feedback has helped us make the best decision we can. There’s a lot more detail on our website, you can go here to find out more.
In the more mature management stages, PHARMAC will influence all the drivers of expenditure on clinical products - volume, price/whole of life cost, and technology growth.
Under a mature management approach PHARMAC will use its capabilities to:
- Select new technologies that offer the best health outcomes, whilst restricting uptake of others.
- Use its role in determining what will be funded to increase the value for money from new technologies, even where competition is limited.
- Ensure suppliers of substitutable products compete with each other on quality, price and supply terms in an effort to reach market-efficient terms.
- Ensure value is capable of being retained or deployed by the funder, rather than diverted in the supply chain.
Last updated: 18 October 2018