Pharmac's focus: getting best value

"We are interested in relative cost-effectiveness - i.e. cost-effectiveness of a product compared with other products we could consider for funding at any one time." Photo / Getty Images

The price for one year of life in perfect health for a New Zealand patient turned out to be $35,714 in Pharmac's funding of new medicines in the last financial year.

That is somewhat less than what the equivalent agency in Britain sets as its threshold (20,000-30,000, or $46,086-$69,129) for new drugs, although researchers have found the actual threshold is higher.

Falling in that cost-effectiveness threshold generally requires drugs to be funded in the English system.

In both countries the economic assessment is whether the health intervention will provide one person with a year of life in perfect health - one "quality-adjusted life year" or QALY - for the price. Or perhaps 10 years at one-tenth of perfect health.

But there are differences between the approaches of Pharmac, the NZ agency that decides which drugs will be taxpayer-funded, and Britain's National Institute for Health and Care Excellence (NICE).

When he was NICE chairman, Sir Michael Rawlins told Time magazine its threshold amounted to "how much is life worth".

Pharmac, however, says it does not have a threshold against which it measures applications for drug funding. Its figure of $35,714 comes from seeing what average cost effectiveness per QALY it achieved in 2013/14 with newly funded drugs.

In 2011/12 it was $45,454 per QALY and in 2012/13, $37,037.

"While we do publish our average figure in the annual report, there can be significant 'overs and unders' within it," says Pharmac's director of operations, Sarah Fitt, answering questions for the Herald series "Cancer - the cost of a life".

"We would see a threshold as unnecessarily limiting our ability to reach agreements that enable Pharmac to meet its legislative objective. While we are looking for the best value, this is just one consideration within our decision criteria.

"We are interested in relative cost-effectiveness - i.e. cost-effectiveness of a product compared with other products we could consider for funding at any one time."

Ms Fitt says Pharmac is different from the UK model "in our ability to negotiate multi-product agreements, which can lead to us funding products that provide health gains, but which wouldn't normally be considered cost-effective. NICE must look at these products in isolation. We can look at them in the context of other products offered in a multi-product agreement."

She cites last year's Novartis deal, which included some medicines that might not have been funded if considered alone; they were offset by price cuts on others.

Associate Professor Paul Hansen, an Otago University economist, says Pharmac "would never admit to a threshold, even if they had one, because they don't want their negotiations with drug companies to price up to that threshold".

He says other countries use similar analyses to Pharmac.

"They may put more resources in so they can fund further up the schedule. Anecdotally they are less hard-nosed than Pharmac and perhaps have more political influence and are less transparent."