Why Pharmac Does Not Always Work

By Jim McVeagh 09/03/2010


I see an number of doctors are voicing their concerns of the government interest in a Pharmac-like organisation to take over hospital based purchases. Not without good reason, I might add. The Pharmac model has a major flaw. That flaw is that the model is based on the free availability of cheap “equivalents”.

There is no problem with the Pharmac model when an exact generic equivalent is available. While we may desire Medsafe to be a little faster at investigating generics that appear to be non-equivalent for various reasons (as in the thyroxine debacle), and we may desire that Pharmac should not be quite so willing to take the cheapest equivalent almost without regard to the source, in general, the Pharmac way of doing business does no harm to New Zealanders and keeps our drug bills enviably low. Even here, however, you see a trace of the major flaw in the system. When a generic drug is not the exact equivalent product of the the drug it is replacing, unexpected problems arise. Hands up all those who find Dr Reddy’s Omeprazole not exactly the same stuff as Losec.

The problem is much more obvious when there is actually no equivalent and Pharmac moves into “substitute mode”. Here the decision-making process moves from simple cost-comparisons and attempts to generate clinical protocols. Pharmac starts to dictate not merely the brand that is available but the actual chemical substance, and even the category. Choice is purposefully restrained to ensure that only the cheapest products are used. The flaw is now obvious. It is the attempt to cost the incremental benefits of one drug over another, without reference to appropriate use in real patients.

Let’s use an example. There are two blood pressure tablets A and B that treat blood pressure well but can cause coughing. There is a third product available tablet C that does not, but it is also the weakest (and cheapest) in its category and does not treat blood pressure as well as the other two. Pharmac forces you to be on both A then B (despite the fact that if one causes coughing the other almost certainly will do the same) before it allows you to use C. While you had good blood pressure control on A and B, you are battling with C (but at least you are not coughing. There is a product D on the market which is more powerful AND does not cause coughing, but Pharmac won’t fund that on the basis that 95% of people will be controlled on A, B or C and that the other 5% can use another funded product E – which is another type of drug entirely, with its own special set of side effects.

But wait, there’s more…

Shortly after you get your patient nicely controlled on product C with a little bit of product E, Pharmac decides to purchase a newer cheaper version of C. This version does not work as well in your patient, so you increase E, which causes some side effects. Then Pharmac decides that E will no longer be available (because it has too many side effects) but they will fund a drug F which is a cousin of E (but not the same thing). The patients blood pressure is now uncontrolled so you send him to a physician who used products G and H, stops F and doubles C. After a while you add some product I which Pharmac then changes to a new generic…

Now you know why GPs hate Pharmac.

The problem is that Pharmac’s decisions are based on averages. On average this product is like this one. Unfortunately, people are unique individuals who rarely obey the laws of averages. When measuring the incremental cost of a benefit of a drug, it is not the average benefit that is important, but the benefit in that particular patient. This is not to advocate therapeutic nihilism, but to advocate a freeing of the series of choices that Pharmac provides so that better fits can be made as to what works for a particular person.

In particular, Pharmac needs to set a level of funding for it few chosen drugs but allow people to choose drugs outside of that range but still get the same level of subsidy. It is manifestly unfair that a patient must pay the full price for a drug when another (for who the Pharmac choice works well) gets his drug for free. Pharmac allows doctors to substitute for some generics (usually reluctantly), taking the amount of Pharmac funding for the generic of the brand’s price so that the patient only pays a part charge. This should be the normal model.

In addition, Pharmac should beware of costing an apparently marginal benefit too cheaply. There are often many factors that they do not take into account, simply because it is a complex matter and economists and accountant tend to oversimplify.

This is why we should be careful about using the Pharmac model for purchasing equipment. There is no generic equivalent here; only old, outdated stock. While it is not always necessary to have the latest and greatest technology, obsolescence is extremely rapid in medicine and obsolete equipment can be a massive disadvantage in often unpredictable ways. Only 5 years ago defibrillators were mostly monophasic (delivered a shock in one direction) at that time a massive purchase of monophasic defibrillators would have been sensible, considering the cost of the newer biphasic ones. Large number of studies have shown that resuscitation results are significantly better with biphasic ones. We would have been left with technology that would have disadvantaged thousands of New Zealanders a year, killing hundreds of people (or failing to resuscitate them)

Cost comparisons are dangerous when you do not know exactly what you are comparing, be it an individual patient response or a new technology. The Pharmac Model is not an extensible one and should remain as a costing mechanism for generic equivalents only.

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