Editorial: National faces hard choices on Pharmac

Pharmac's initial refusal to fund the breast cancer drug Herceptin was confronted by a public campaign. Photo / Glenn Jeffrey

The drawing up of free-trade agreements is always an exercise in compromise. Sometimes, unpalatable concessions have to be made with an eye on the bigger picture.

New Zealand will not be spared its share of quandaries as it seeks a free-trade pact with the United States or in the current negotiations to extend its agreement with Singapore, Chile and Brunei to include the US, Vietnam, Peru and Australia.

At the forefront of American concerns will be two issues - the strength of our dairying industry and the role played by Pharmac, the Government's drug-buying agency.

The US farming lobby will want little conceded, while American pharmaceutical companies want Pharmac's role drastically reduced.

The drug companies say an end to New Zealand's anti-competitive drug-funding system would give its people quicker access to new and expensive medicines.

At the moment, Pharmac decides which drugs the government health system will give to patients, and negotiates the prices with pharmaceutical companies.

For some classes of drugs, it will pay for only one medicine after running a "sole supply" tender.

The system undoubtedly restricts drug choices and delays the arrival of some new medicines, as illustrated by controversies in the past few years over the likes of the breast cancer drug Herceptin. As is the way with anti-competitive practices, it is also distortionary.

Yet Pharmac has been a notable success since its introduction by a previous National government in 1993. It has lived up to the hopes of its architects by helping to manage ever-escalating health costs.

In part, this has been achieved by halting the lobbying of pharmaceutical companies for a slice of the government's drug spending.

These multinationals had become adept at seizing on the sufferers of any ailment to press for funding of their products. All such approaches exerted an emotional pull. It was hard for the government to gauge their relative merit or, indeed, resist them.

Pharmac took those decisions out of government hands. When it makes funding decisions, it must consider the overall public good, as well as the finite sum of money at its disposal.

In the case of Herceptin, it was confronted by a public campaign mounted by the drug's manufacturer, Roche, and the Breast Cancer Advocacy Coalition.

Pharmac stuck to its guns and reconfirmed that it would fund the drug for only nine weeks because it was not convinced of the benefit or cost-effectiveness of a longer period of treatment.

Subsequently, the Government bowed to the pressure and extended funding of the drug to a year.

This episode illustrated the upshot of Pharmac being relieved of most of its powers. It is a situation of which the Government seems aware, despite its stance over Herceptin.

Trade Minister Tim Groser has described Pharmac as "an outstandingly successful public institution", which has saved taxpayers hundreds of millions of dollars. The estimated savings in a five-year period are enough to have built the Starship hospital.

Mr Groser has also said that, as the principal economic adviser at the Ministry of Foreign Affairs and Trade, he had negotiated with the US on Pharmac 10 years ago and had seen no need to make concessions.

That is reassuring. But the issue will doubtless be raised again, as New Zealand covets a free-trade agreement with the US. Hard choices will have to be made.

The Government has already bowed to pressure and allowed some slippage in Pharmac's integrity. With the taxpayer uppermost in its mind, it should hesitate before venturing further down that path.