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Extending the role of PHARMAC

New Zealand
Partner Institute: 
The University of Auckland
Survey no: 
Toni Ashton
Health Policy Issues: 
Pharmaceutical Policy, Benefit Basket
Health technology assessment
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes no yes no no


The role of PHARMAC, the agency which is responsible for managing and procuring pharmaceuticals prescribed in the community in New Zealand, is being extended. PHARMAC is to take over procurement and management of all hospital medicines from the 20 District Health Boards. The government is also proposing that, over time, PHARMAC will become responsible for managing the prioritisation, assessment, standardisation and procurement of selected medical devices.

Purpose of health policy or idea

PHARMAC is a government agency that is responsible for deciding which medicines should be publicly funded. Its primary role to date has been managing the pharmaceutical schedule which covers medicines prescribed in the community. It also decides which pharmaceutical cancer treatments should be funded and negotiates some national pharmaceutical contracts on behalf of the public hospitals.  Following a period of consultation, the Minister of Health has now announced that the role of PHARMAC is to be extended. Initially, PHARMAC will take over the management and procurement of hospital medicines. The Minister of Health has also proposed that over time, PHARMAC will become responsible for managing the prioritisation, assessment, standardisation and procurement of selected medical devices.

The main objective is to contain the costs of hospital medicines and medical devices and to achieve value for money by subjecting these products to a more systematic decision-making process. The policy should also improve regional equity by ensuring that people have access to the same medicines, regardless of where they live.

Main points

Main objectives

  • To contain costs through national procurement processes
  • To reduce regional inequities in access to medicines and medical devices
  • To improve value for money by systematically assessing and prioritising medical devices in the same way as pharmaceuticals

Type of incentives

Because PHARMAC works within a capped budget, it has a strong incentive to achieve value for money.

Groups affected

Pharmac, hospital clinicians, patients

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Characteristics of this policy

Degree of Innovation traditional neutral innovative
Degree of Controversy consensual highly controversial highly controversial
Structural or Systemic Impact marginal neutral fundamental
Public Visibility very low low very high
Transferability strongly system-dependent system-dependent system-neutral

The policy is highly controversial with many clinicians being strongly opposed. Some of these groups are politically quite powerful and could potentially obstruct the implementation process. Although public visilibty is currently low, awareness is likely to increase over time as the proposal is implemented.

Political and economic background

PHARMAC was first established in 1993. Since that time, expenditure on community medicines that are managed by PHARMAC has been increasing at a rate of around 2% per year. In contrast, expenditure on hospital medicines has been increasing at a rate of 8 - 10% annually, while expenditure on medical devices by District Health Boards (DHBs) grew by an estimated 20% in the two years prior to 2008/09 (Minister of Health, 2010). Thus it is widely agreed that the process used by PHARMAC has been successful in controlling pharmaceutical expenditure.

In 2006, the Ministry of Health developed a process to assist DHBs in making decisions about whether medical devices and other new interventions should be available in public hospitals (CHSRP, 2006). However this provided a broad framework only. The 20 DHBs make these decisions individually or collectively but to date, no standarised or systematic process has been used in New Zealand to guide decisions about medical devices.

In August 2009, a Ministerial Review Group (MRG) made a number of recommendations to the Minister of Health for improving the operation and performance of the public health system (see Tenbensel, 2009). These recommendations included a proposal to implement a "PHARMAC-like process for assessing the cost-effectiveness of medical devices and prioritising them for public funding" (Ministerial Review Group, 2009). Following a period of public consultation on the MRG, the Cabinet agreed with the principle that the role of PHARMAC should be extended to hospital medicines and a limited range of medical devices, subject to consultation with the sector overseen by a clinical leader. The specific focus of this consultation process, which took place in early 2010, was on hospital medicines plus three medical devices where PHARMAC already plays some role because they are closely related to medicines delivery: coronary stents, insulin pumps and wound care. A feedback report on the consultation process was submitted to the Minister in May (Sage, 2010). In spite of some widespread concern amongst the clinical community, (see Stakeholder Positions below), the Minister subsequently proposed to the Cabinet that it confirm its "in principle" decision to expand PHARMAC's role. The Minister acknowledged the need to proceed slowly and cautiously, especially with respect to the proposal for PHARMAC to manage medical devices which attracted strong opposition. The first steps will therefore be for PHARMAC to take over assessment, standardisation, prioritisation and procurement of all hospital medicines plus insulin pumps (this being the device for which there was most support from clinicians). The aim is then to develop appropriate mechanisms for extending the process to other medical devices within two to three years.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes no yes no no

Origins of health policy idea

Systematic processes for assessing health technologies have been incorporated into the planning and funding processes of health systems in many countries. However PHARMAC is somewhat unique in that it not only assesses and prioritises expenditure on pharmaceuticals, but it also negotiates prices and manages the procurement of pharmaceuticals within a nominal budget. Other countries (such as the UK) have extended the prinicples of health technology assessment and prioritisation to a much wider range of interventions, including medical devices and public health interventions. The drive to extend PHARMAC's role in New Zealand has come from the central government, largely in response to a perceived need to contain health expenditure.

Initiators of idea/main actors

  • Government
  • Providers: Views of clinicians are mixed, with some support but also some strong opposition (see below)
  • Payers: DHBs are generally supportive of this policy because, while it reduces their autonomy to decide which medicines to buy, they expect that significant cost savings will accrue from centralising the purchasing role.

Approach of idea

The approach of the idea is described as:
renewed: The policy is described as "renewed" because it extends an existing process to a wider range of products.

Stakeholder positions

The consultation process around this proposal has been largely confined to the clinical community. The proposal has not been widely advertised to the public and so it is not possible to report on any potential response from the public.

The consultation process indicated general support by the clinical community for the broad goals of improving national consistency, maximizing cost-effectiveness and reducing duplication within the system. There was also wide recognition of PHARMAC's success in managing expenditure on community medicines. However many concerns were raised by clinicians, especially with respect to the impact that PHARMAC's involvement might have on inhibiting access to new and better technologies. There is a widespread perception amongst clinicians that PHARMAC is too focussed on cost containment and that its decision-making processes are insufficiently transparent, too slow and do not adequately involve clinicians (although this has been improving in recent years).  

Overall there was considerable support for PHARMAC managing hospital medicines and (to a lesser extent) insulin pumps, mixed views about PHARMAC managing wound care products and devices, and considerable concern about PHARMAC managing coronary stents.The views of those who participated in the consultation process were summarised as follows (Sage, 2010):

  • a warning that the scale of change proposed will require major changes, improvements and investment in hospital processes and systems;
  • sufficient support to proceed - slowly - toward PHARMAC managing the assessment, prioritisation and procurement of hospital medicines within a fixed budget, provided there are no unreasonable constraints on clinical choice and timely treatment;
  • some support for national procurement of medical devices, but more concern than support regarding PHARMAC assuming a greater role in the assessment, prioritisation and procurement of medical devices;
  • significant concern amongst cardiologists about PHARMAC managing the assessment, prioritisation and procurement of coronary stents;
  • qualified support for PHARMAC becoming more involved in the funding of insulin pumps;
  • significant concern amongst wound care clinicians about PHARMAC managing the assessment, prioritisation and procurement of wound care products.

PHARMAC itself has welcomed the prospect of taking on this wider role. However it has emphasised the need to proceed with caution, in particular the need to take into account the different context in which hospital medicines are used and to work alongside clinicians in implementing the proposals.

Actors and positions

Description of actors and their positions
Minister of Healthvery supportivevery supportive strongly opposed
Cliniciansvery supportiveopposed strongly opposed
Cardiologistsvery supportivestrongly opposed strongly opposed
PHARMACvery supportivesupportive strongly opposed
DHBsvery supportivesupportive strongly opposed

Influences in policy making and legislation


Actors and influence

Description of actors and their influence

Minister of Healthvery strongvery strong none
Cliniciansvery strongstrong none
Cardiologistsvery strongstrong none
PHARMACvery strongvery strong none
DHBsvery strongneutral none
Minister of HealthDHBsPHARMACCliniciansCardiologists

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

The key actors who will be engaged in implementation will be PHARMAC, the District Health Boards and the clinical community. All parties recognise the need to proceed with caution, and to make sure the appropriate processes and mechanisms are put into place. Widespread, open and ongoing communication between these parties will be essential if the implementation path is to proceed smoothly.

Monitoring and evaluation

No specific monitoring and evaluation of this policy has yet been proposed.

Results of evaluation


Expected outcome

The success of PHARMAC to date in containing expenditure on community pharmaceuticals suggests that the potential to contain costs is high if PHARMAC's role is extended to a wider range of medicines and products. Making decisions about the availability of hospital medicines and medical devices at the national rather than local level should iron out many of the current regional inequities in access to medicines and devices. However the policy is controversial with many members of the clinical community being strongly opposed. Any outcome will therefore depend crucially on its successful implementation.

Impact of this policy

Quality of Health Care Services marginal neutral fundamental
Level of Equity system less equitable system more equitable system more equitable
Cost Efficiency very low high very high



Sources of Information

Author/s and/or contributors to this survey

Toni Ashton


Suggested citation for this online article

Toni Ashton. "Extending the role of PHARMAC". Health Policy Monitor, October 2010. Available at