Pharmac funding: How it works - and the changes its critics want

Pharmac is the body charged with deciding which drugs are going to be funded in New Zealand. Photo / 123rf

Pharmac will again be thrust into the spotlight tomorrow when New Zealanders rally at Parliament calling for a whole slew of new drugs to be funded. Lucy Bennett reports on the fight over what the Government drug-buying agency pays for.

Pharmac is at the centre of a storm. There are the sufferers, their families and support groups who say the medicines they want funding for could cure or prolong lives.

It's a powerful argument - and eight petitions are before the Government covering a large number of new and emerging medicines which people want to be funded.

There are drug companies, which spend millions of dollars developing cutting edge medicines and want to recoup as much of their expenses and make a profit before the patent comes off and the drugs can be replicated at a cheaper price.

The district health boards, which almost entirely fund Pharmac from their own budgets, are under financial pressure themselves. What they give to Pharmac won't go on other areas of the health system.

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A Crown entity, Pharmac is the body charged with deciding which drugs are going to be funded in New Zealand. It is also responsible for procuring them.

The pharmaceuticals include vaccines, chemist prescriptions, drugs given in hospitals and ongoing treatments for such diseases as cancer.

It also decides on and procures some medical devices, the term given to the consumables used in health, and is expected to soon take over the management of all medical devices used in the health sector.

It is Health Minister David Clark who determines Pharmac's budget.

Health Minister David Clark is the minister responsible for Pharmac. Photo / Mark Mitchell

Last year it increased by more than $100 million to sit close to $1 billion a year after it was decided that Pharmac would take over DHB budgets for purchasing hospital medicines.

Setting the Pharmac budget is done by DHBs getting together and deciding what they would like to budget for all medicines. That budget bid then goes to the minister who can either tell them it needs to be less, agrees with it or wants it to go up. If the Pharmac budget needs to be increased, it comes from the DHBs' budgets.

Similarly, if Pharmac receives a "cash injection", the Government may not spell it out but it too comes from the DHBs.

It's a fraught area. Depending on whose point of view it is, the Pharmac model is either the envy of the world or outdated.

It's possible it's both.

New Zealand's spend on pharmaceuticals is very low compared to other countries. It is close to the bottom of 20 OECD countries in spending per capita and as a percentage of GDP. New Zealand spends about 0.4 per cent of GDP on pharmaceuticals. That compares with close to 2.5 per cent in Greece, Hungary and the Slovak Republic.

Pharmac says that is part of its secret to success. With a fixed budget and a smaller amount of money to play with, drugs companies know they can't wring any more out of Pharmac during negotiations.

Pharmac also has a rigorous approval process. Drugs must be registered with Medsafe, New Zealand's pharmaceutical and medical device safety regulator and safety authority.

An application then goes to Pharmac where it is referred to its pharmacology and therapeutics advisory committee (Ptac) for review on whether the drug should be funded.

It goes onto a waiting list, joining about 100 other drugs, before Pharmac makes a decision.

The criticism is that for new drugs on the cutting edge of medicine, the wait is too long and the outcome too precarious for people whose hopes are pinned on gaining access to them.

That's the argument from Kiwis behind the petitions coming to Parliament on Tuesday and those who have brought petitions already under consideration by the health select committee.

The committee is currently considering the petitions calling for funding for two drugs, Ibrance and Kadcyla, which women with advanced breast cancer say could slow the progression of the disease.

Another petition has called for a review of Pharmac, calling it outdated. The committee has voted against holding its own inquiry into Pharmac but its chairwoman, Labour MP Louisa Wall, has suggested an independent review might be more appropriate.

It has led Prime Minister Jacinda Ardern, whose mother has battled breast cancer to direct Clark to do more work on a potential scheme that would pay for from a separate funding stream early access to new drugs.

That would circumvent the Pharmac process and its inevitable dilemma over what drugs to fund with a fixed budget, and the long processing time.

Pharmac has recently announced changes to the way it processes applications in a bid to be more transparent and hasten the application process.