The end of the ‘Pharmac Republic’ is just a quick fix

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We need a long-term Medicines Policy

Image from Pharmac Website

Peter Dunne
Wellington, June 11, 2022

When he announced the government’s response to the recent independent review of PHARMAC, Health Minister Andrew Little boldly declared that “the days of the independent republic of PHARMAC are over.”

His words were warmly welcomed by many patient advocacy groups, tired of battling for years to get timely access at an affordable price to the medicines their clients required. However, he will need to tread very carefully to ensure that his words do not come back to haunt him.

Until the late 1980s, there were few controls on the prices charged by pharmaceutical companies for making their medicines available in New Zealand. The government simply paid the ever-escalating medicines bill, and it was no surprise that, as medicines became more complex and sophisticated, pharmaceutical expenditure got completely out of control.

The history of Pharmac

In 1988 the government took the dramatic temporary step of removing laxatives and antihistamines from the list of fully subsidised medicines. The inevitable ensuing public outcry allowed the government to attempt to frame the public argument that the cost of pharmaceuticals had risen out of control and needed to be reined in, while at the same time ensuring that New Zealanders had reasonable and affordable access to the medicines they needed.

Although the public did not buy the government’s argument, the then Department of Health agreed to appoint an official whose primary task was to negotiate better pricing arrangements with the pharmaceutical companies.

However, that move quickly proved ineffective. So, in 1993, the government established a stand-alone agency, PHARMAC, to determine based on independent clinical assessment the medicines that should be funded, and then to negotiate with suppliers the price to be paid. In its early years, PHARMAC launched what it described internally at the time as a “jihad” against the pharmaceutical companies and their pricing policies, which probably cost New Zealand in terms of medicines availability over the medium term.

PHARMAC not only used its funding policy to determine which medicines would be made available but also negotiated directly with the pharmaceutical companies on pricing. At the same time, PHARMAC’s establishment neatly removed the issue of medicines supply from the sphere of direct political influence. This enabled successive Ministers of Health to say that decisions about medicines availability and funding were made on the best available independent clinical advice, without the involvement of politicians. The government’s role was now limited to setting PHARMAC’s annual funding level.

Peter Dunne (Getty Images)

The changing scenario

Nearly thirty years on, though, creaks were beginning to appear in the PHARMAC model, so a review was timely. With more new and innovative medicines becoming available to treat more conditions, PHARMAC was increasingly struggling to meet the rapidly growing patient demand. Even though funding levels have been sharply increased under the present government, many patient groups still felt they were still missing out, and that New Zealand was slipping behind comparable countries in the provision of medicines.

The changes recommended by the review, most of which have been accepted by the government, have been intended to refocus PHARMAC in a kinder, gentler way, more in tune with the medicines environment of today, than in the 1990s. Hence the Minister’s bravado comment and the general support of the various patient groups for the changes that have been announced.

However, these changes will still mean medicines’ acquisition and supply is a matter of rationing, with PHARMAC and its clinical advisers still determining which patients’ needs and medicines should have greater priority within their funding resources. The demand for new and innovative medicines, which will become ever more expensive as they become more sophisticated, will almost certainly intensify. Unless this government and future governments continue to double the PHARMAC budget every four to five years, which in these straitened financial times seems unlikely, the situation will quickly return to where it was.

Unless, of course, the government’s longer-term plan is to fully fund all medicines that are clinically approved for New Zealand, no matter what their cost or comparative efficacy. There would then be no need for PHARMAC at all, as all that would be required for a medicine to be available in New Zealand would be clinical approval by Medsafe.

The government would be left to just pick up the tab and pay whatever price the pharmaceutical companies demanded. And just like it did in the 1980s, the government’s pharmaceutical bill would quickly balloon out of control.

(Image from Facebook)

The missing link

There are no present signs this is the government’s intention, which means that PHARMAC will continue to play a rationing role, albeit from a higher budget baseline. Inevitably, over time, situations will occur where it is forced to make choices, or where it needs to stand firm in the face of a public clamour for a medicine that may not be justified on efficacy grounds. The public grumbling about PHARMAC will gradually return.

The missing link in all this which has been overlooked in the revamp of the national Medicines Policy has been establishing the optimum range of medicines that should be available in New Zealand, consistent with our national health priorities and the health needs of our population. It would then be for PHARMAC and the government to jointly work out the best way they could be procured and funded, and the relative needs of New Zealanders met fairly and equitably.

Without that, medicines policy looks set to continue to operate in a vacuum, with PHARMAC, however kinder and gentler it may be portrayed, still left to make the hard decisions.

In that environment, proclaiming that “the days of the independent republic of PHARMAC are over” seems set to come back to haunt this Minister and his successors as hollow, inaccurate and simply wrong.

Peter Dunner is a former Minister of the Crown under the Labour and National-led governments from December 1999 to September 2017. He lives in Wellington.

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