Paula Lorgelly, Professor of Health Economics, University of Auckland, Waipapa Taumata Rau, Braden Te Ao, Senior Lecturer in Health Economics, University of Auckland, Waipapa Taumata Rau, Richard Edlin, Senior Lecturer in Health Economics, University of
New Zealand’s drug-buying agency Pharmac is currently consulting on a change to how it manages its waiting list for medicines.
This represents one of the stages of Pharmac’s “reset” through which the agency seeks to become more outward-focused and transparent.
The consultation focuses on how Pharmac manages its Options for Investment list – essentially a wish list of what Pharmac would like to fund if it had the budget.
For medicines that have been at the bottom of the list for more than two years, Pharmac wants to decline 20% if there are more than 100 applications on the overall list, or 10% if there are fewer than 100.
A useful analogy is to think of Pharmac’s list like a Christmas wish list. Children put items on it and parents will buy them if they can afford them. Not everything is affordable, and Christmas morning can result in disappointment.
Similarly, Pharmac disappoints patients (and clinicians and industry) by not funding all medicines that are submitted for review.
A never-ending list
Pharmac currently has 123 medicines on the Options for Investment list. The disappointment continues because Pharmac doesn’t tell anyone where these medicines are on the list, for fear of losing their hand at negotiating a better deal with the supplier.
Pharmac keeps unfunded medicines on this list for many years. A 2023 report found applications stay on the list for an average of 5.9 years.
However, after several years, the most effective must-have drugs can change. Relying on assessments from many years ago carries risk, and reducing some of the old listings may have some merit.
But for patients who have been asked to wait for many years, the removal of medicines from the list may come as a bitter blow. Telling your children you can’t afford a toy for Christmas is a harsh truth, but telling them to wait each year and then breaking the news that they were never going to get it seems rather cruel.
Can more money solve the problem?
New Zealand spends less on health than most similar countries.
Recent estimates also suggest New Zealand spends substantially less (4.9%) of its total health expenditure on pharmaceuticals, compared to the average OECD spending of 13.3%.
If Pharmac’s current budget of NZ$1.7 billion were doubled, the agency might be able to clear the current list completely. But this would come at a cost to other parts of the health system.
Pharmac’s budget has increased quickly in recent years, but New Zealand also has a growing waiting list for specialist appointments and elective surgery, capacity issues at hospitals and difficulty attracting and retaining health professionals.
Historically, Pharmac’s ability to keep costs down has allowed New Zealand to do more in these other parts of the health system.
The experience elsewhere is that spending a lot of money on expensive new drugs (as the UK does) has led to a large net reduction in population health. This happened because new cancer and biological drugs are expensive and do not offer the same value in terms of quality-adjusted life years as spending elsewhere in the health system.
It might be better for New Zealand to keep its pharmaceutical spending down and put more effort into improving other parts of the health system.
Clearer expectations on value for money
Another alternative is for Pharmac not to have a list at all, as the list breeds disappointment and frustration. If Pharmac were to set clearer expectations and be willing to say no, that could be avoided.
A better alternative would be for Pharmac to base some of its purchasing decisions on the opportunity cost of spending money elsewhere in the health system.
That is, instead of basing decisions on ministerial demands or becoming more responsive to industry and patient lobbying, Pharmac (or the Ministry of Health) could ask how much health would be gained from spending money on other parts of New Zealand’s system.
Once that is known, Pharmac could commit to providing a similar value for money to that delivered elsewhere by our hospitals, primary care and in public health. Doing this would require research, but this has already been conducted elsewhere and could be replicated here, albeit with some political will.
Otherwise, the danger is that Pharmac resets from running a wish list poorly to a process that’s even worse.
Paula Lorgelly consults to Pharmac and has in the past consulted to the pharmaceutical industry. She has received funding from the Health Research Council, the Ministry of Health and the EuroQol Foundation. Paula is a member of the EuroQol Group which owns the EQ-5D instrument which is widely used in health technology assessments.
Braden Te Ao has consulted Pharmac previously and receives funding from the Health Research Council of New Zealand and the Ministry of Health for various research projects requiring an economic analysis. He currently serves as a director for ProCare Health Ltd and is a member of the Nga Pou Hauora o Tamaki Makaurau Iwi Maori Partnership Board.
Richard Edlin consults to Pharmac and has in the past consulted to the pharmaceutical industry.
