CHAPTER 1
Pharmac – Background and role New Zealand is unique in creating a management agency that combines clinical, economic and commercial aspects, and decision-making within a fixed budget for pharmaceuticals.7
New Zealand before Pharmac Government subsidies for prescription medicines were foreshadowed in New Zealand’s radical Social Security Act 1938. The subsidies took effect on 5 May, 1941. Kiwis were “entitled to receive, without cost to themselves” all prescribed medicines that conformed to the Act.8 Entitlement was not means tested. This policy choice needs to be seen in the context of a broad ideological move internationally that invoked the cradle-to-grave concept for state welfare. Nor was Australia immune. Its subsidies for medicines date back at least to 1948–49. The ongoing fiscal costs and administrative rationing problems were left for future governments to wrestle with, as they have – with difficulty. Subsidies for prescription medicines are provided for under the New Zealand Public Health and Disability Act 2000. They are available to all, regardless of financial need.9 The purpose statement in the 2000 Act does not identify the problem remedied by subsidies for medical services for people not in financial need. Instead, it requires that several open-ended health-service objectives be pursued “to the extent that they are achievable within the funding provided.” The invidious implication is that to deny an increase in funding is to deny a health benefit.
12 PHARMAC: THE RIGHT PRESCRIPTION?
The reasons for creating Pharmac can be readily inferred from a critical audit in 1992 of the Department of Health’s administration of the subsidies. In this audit, the Controller and Auditor-General documented many administrative failures by the Department of Health to control the price of medicines and their growing use.10 The audit reported that prices for 58 of 74 subsidised medicines in New Zealand were greater than their prices in Australia. For 27 of these 58 medicines, New Zealand prices were over 50% more expensive.11 The formation of Pharmac also needs to be seen in the context of the then government’s drive to improve accountability for the state’s dual roles as a major funder and provider of health services by separating those roles institutionally.12 Four Regional Health Authorities (RHAs) were set up as purchasing agencies. Local health board providers were set up as 23 Crown Health Enterprises. Pharmac was initially a joint venture owned by the four RHAs.13 As part of this change, RHAs were required from the outset to keep within fixed annual budgets for their overall spending. In addition, they took over responsibility from the Department of Health for managing health subsidy spending. That meant Pharmac was required to keep spending within a pre-set annual budget, the CPB. Until then, spending on subsidised pharmaceutical and other health benefits had been open-ended, or ‘demanddriven’ in Treasury terminology. Pharmac’s historical account of its own formation stresses the need to reduce the growth in government spending on prescription medicines.14
