Drugs debate a bitter pill

By FRANCESCA MOLD

The pensioner shuffles into the pharmacy with his prescription for pills that control the burping and terrible heartburn he suffers.

He is happy with the tablets he takes to treat his gastric reflux. They cost only $3 a month and control his condition well.

But the pharmacist tells him the medication he has taken for a number of years is no longer fully subsidised by the Government.

He can still buy it but it will cost him an extra $20 a month on top of the $3 Government charge.

If he wants to change to one of the pills the Government does fully fund, he will have to go back to his doctor and pay a consultation fee for a new prescription.

There is also the risk that a different medication won't be as effective or could have unwanted side-effects.

This man's experience is typical of that of some New Zealanders who end up changing their medication for commercial rather than medical reasons as the result of an attempt to rein in the country's burgeoning drug bill.

Seven years ago, the Government set up an agency called Pharmac to decide on its behalf which medicines should be paid for out of our taxes.

Many other drugs are available on prescription but are not Government-subsidised.

The aim was that New Zealanders should have access to the best drugs at minimal cost.

In its annual review released this week, Pharmac revealed that it had slashed pharmaceutical spending, which had been spiralling out of control.

It had cut the rate of increase from 20 per cent to just 3 per cent.

And it plans to spend $20 million of the $27 million it saved last year on buying new drugs, which will benefit patients.

Pharmac is regarded as a success story among health authorities in other OECD countries.

Australian officials facing a pharmaceutical bill rising 15 per cent a year have sought advice from Pharmac on how it can attack its increasing costs.

But the agency's admirers appear to be outweighed by its critics.

They say the average 10 to 15 per cent annual rise in pharmaceutical spending in OECD nations is acceptable and to a certain degree necessary if countries want their citizens to have access to new and improved medication.

And they say that Pharmac's desire to save money on behalf of the taxpayer is laudable but the obsession with cost sometimes comes at the expense of quality and variety.

They believe it is sometimes necessary to spend more on medication because of the potential to keep people out of hospital, as well as improving and extending their quality of life.

Doctors are among those ready to criticise Pharmac's success.

New Zealand Medical Association chairwoman Dr Pippa MacKay says Pharmac has alienated doctors and the drug industry in its quest to save money.

"They have done what they set out to do, by spreading the money around as much as possible, and in that they have been quite successful, but they alienated everybody in the process.

"They have been extremely aggressive with prescribers and the industry, and it has not been a good environment."

Nick Bosanquet, professor of health policy at London University, says in the New Zealand Medical Journal that the country needs to look at drug therapy as an investment in better health, not as an expenditure "black hole."

He says Pharmac's reduced spending may have led to a rise in costs in other parts of the health system.

Dr Bosanquet also criticises the "uniquely bad" relationship between the Government and the drug industry. A more constructive approach, identifying common interests and meeting halfway, is needed.

Pharmac general manager Wayne McNee says the relationship with drug companies has improved in the past couple of months. He says there has been no active litigation for some time and the groups have held constructive meetings in the past month.

But drug companies point to the fact that they have not received a copy of Pharmac's annual review, despite repeated requests, as an example of the true relationship between the two sides.

Mr McNee says he handed over a copy to one drug company yesterday and is happy to do the same for other organisations.

But Researched Medicines Industry general manager Terrence Aschoff says Pharmac's attitude flies in the face of assurances in recent times that the two agencies "need" each other and should work together.

The industry has a tense history, which includes eight court battles based on challenging Pharmac's right to make decisions on drug supply.

Pharmac either won each case or the litigation was withdrawn.

In Pharmac's review, former chairman Denis Tait describes drug companies as sophisticated lobbyists with their eye on profit.

The review lists the 1999-2000 profits of the largest US pharmaceutical companies, which range from Eli Lilly at $US2.7 billion ($6.7 billion) to Merck & Co at $US5.8 billion.

The value of many pharmaceutical companies is more than twice New Zealand's gross domestic product of about $50 billion.

But drug companies say they have to struggle to maintain financial viability, especially in the New Zealand environment. They also claim to have the best interests of patients at heart and say it is a constant struggle to get medications which would benefit patients approved for Government subsidies.

Before Pharmac was set up, drug companies were able to launch medicines which had been approved for use in New Zealand, and the Government automatically paid for them.

Drug companies say they spend money explaining to doctors the reasons medications are no longer subsidised, suggesting alternative products and telling patients what the change means for their condition.

Much of the battle is over the price paid for drugs and the move to call tenders for the supply of medications, which results in Pharmac's subsidising the drugs it was able to buy for the cheapest price.

This may mean that only one brand of a certain drug is subsidised. If patients want other brands they must pay for them themselves.

It is a complicated process, starting at the point where drug companies apply for a patent on a new medication they have begun working on. The patent lasts 20 years but the firms say that at least half that time is spent on development and safety tests before the product can be registered for use.

It is only when the product comes on to the market that it can begin to recoup the average $1.1 billion spent on developing a drug.

This may allow the company only eight to 10 years to make a profit, because once the patent ends, different versions of the medication, known as generics, flood the market, creating competition.

Pharmac says it has capitalised on generic competition to achieve lower prices.

It has run successful tender rounds for preferred and sole supplier status, which triggered other deals where companies offered significant price reductions.

Pharmac reports achieving a 94 per cent reduction on one medication.

But doctors believe it is important to have a wide range of drugs to choose from in each category.

Not all patients react in the same way to a given drug, so it is important to have a variety.

Dr MacKay says Pharmac consistently places financial concerns ahead of patient welfare. A decision last year that forced more than 80,000 people to change their hypertension medication was nothing more than an uncontrolled experiment in which some people's health suffered.

But Pharmac says all products approved for use in New Zealand meet the same standards for quality and efficacy.

Mr Tait says if doctors realised that generics were just as good as the original patented drugs, millions of dollars could be saved, and distributed to other health needs.

The agency provides evidence that despite its making savings, the level of choice among different medications has not dropped.

In its review, it says it considered 81 new applications for product subsidies and only three were declined.

The agency also reports that since 1994, it has listed 569 new products, expanded access to another 118 but has restricted or delisted 563.

Mr McNee says it wants the best outcome for patients and will make sure the range of products available slowly increases. Pharmac says it is constantly hammered for making savings and is accused of trying to turn pharmaceutical suppliers into paupers.

In fact, the agency's attitude to cost-saving has also been blamed for the down-sizing and departure of drug companies overseas.

But Pharmac says companies are simply merging rather than closing, which is part of the globalisation of the industry.

In the coming months, Pharmac's focus will be diverted to coping with the changes brought about by the Government's health reforms.

It will have to learn to work with district health boards and will have a new responsibility to report directly to Health Minister Annette King.

The agency has also moved to new premises in Wellington, nicknamed "Fortress Pharmac" because of its state-of-the art alarm system, designed to protect the mass of confidential prices and other information received from drug companies, which competitors would love to get their hands on.

Pharmac has also been given a new mission statement, which promises it will provide the best value and health outcomes within its limited funding.

Its performance is expected to be something drug companies, doctors and patients will watch closely.