Heather Roy

7 February 2018

In my efforts to archive speeches and articles I’ve written over the years I recently came across the speech below that I presented to Trans Pacific Partnership (TPP) negotiators at the Dallas (Texas) round in 2012. I was then the newly appointed Chair of Medicines New Zealand – the industry association for Pharmaceutical Companies in NZ. I was asked to present on New Zealanders access to new medicines (or lack thereof) and our PHARMAC model, which was and still is, novel to the other 10 countries who have recently agreed to the new trade agreement called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

A little context might be helpful. The TPP started its life as an expansion of the P4 signed by Brunei, Chile, New Zealand and Singapore in 2005. In 2008 other countries joined the discussions in an attempt to found a broader agreement. Australia, Malaysia, Vietnam, Peru, and the US were later joined by Canada, Japan and Mexico. The trade agreement was signed in February 2016 but it didn’t enter into force. The US withdrew in 2017 and the remaining 11 countries started working on a new agreement – the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – which was signed in January 2018.

The oddly named CPTPP (as if the original TPP was not comprehensive or progressive!) differs from the TPP in several respects, many of them relevant to the pharmaceutical industry in NZ. In the new agreement, twenty items have been suspended from the original TPP, covering such areas as protection of the PHARMAC model, investor-state dispute settlement prohibitions, investment and intellectual property. The MFAT website has an excellent description of the twenty suspended areas. For any of these suspended provisions to apply in future all CPTPP members would need to agree.

The advantages to New Zealand of this agreement, even with the suspensions, is significant. It will give New Zealand better access to new markets and allow us to diversify our trade and investment relationships. The agreement will enable New Zealand to build on the NZ$20 billion of goods and NZ$8 billion of services exported to TPP countries in 2014. It is anticipated that this will provide a significant boost to New Zealand’s GDP. Unfortunately some of the measures that would have enabled better access for New Zealand patients to new innovative medicines have not been incorporated in the agreement. My presentation in 2012 remains as relevant now as it did then, and it’s to be hoped that in the future some of the access and intellectual property issues will be tackled to improve the plight of unwell kiwis.

Perspectives Versus Perceptions: Opportunities for a win-win for patients, industry and governments

Speech delivered to Stakeholder Luncheon, Trans Pacific Partnership 12th Round of Negotiations, Dallas, Texas
9 May 2012

I retired from politics at the end of last year after three terms (nine years) in the New Zealand parliament. As a member of a small free enterprise party I spent much of my time there advocating for transparency, accountability and getting incentives right.

At the start of this year I was appointed Chair of Medicines New Zealand. With the Trans Pacific Partnership firmly on our agenda I am spending much of my time advocating for transparency, accountability and getting incentives right. So far I’m feeling right at home!

We talk about them a lot because they are important. When policy and process are transparent, when those they apply to are accountable and when the right incentives are in place they drive the behaviour we hope to find in a fair and equitable society. I’m delighted to have the opportunity to talk to you about these issues today.

In these circles whenever you hear TPP, New Zealand and Pharmaceuticals in the same sentence PHARMAC springs instantly to mind. You will no doubt be expecting a tirade of criticism from me regarding New Zealand’s pharmaceutical funding agency. However today I want to break with tradition and have a reasoned discussion on PHARMACs strengths and weaknesses. It is an organisation that does some things very well and could do some even better. Medicines New Zealand wants the optimal use of medicines within the parameters of the New Zealand health system and we have some firm views on how this can and should be achieved without dismantling the structure. We are interested in solutions.

First though I’d like to be very clear that the New Zealand pharmaceutical industry supports the Trans-Pacific Partnership. A good TPP will be good for New Zealand’s economy, a good TPP will be positive for our exporters and importers and it will help to bring this vibrant region closer together.

Second – and contrary to common misconception – the industry has no intention of using the TPP process to get rid of PHARMAC. Anyone who knows about the global pharmaceutical market can tell you that the industry works with national or sometimes state or sometimes private sector funding agencies in numerous markets all around the world. PHARMAC and industry might sometimes look like an odd couple – with gripes and grumbles and concerns about budget management – but the reality is that divorce is not an option and we’re quite used to living under the one roof.

I should start by explaining how the New Zealand system works. In a nutshell, we have a regulatory agency called Medsafe (FDA equivalent) which makes decisions about which medicines may be marketed on the basis of their safety and effectivenness. That process works well on the whole.

Then we have a medicines funding agency, PHARMAC. It is responsible for funding the vast majority of medicines in New Zealand. The private market is tiny and insurers generally fund only what PHARMAC approves. PHARMAC comprises a secretariat and a clinical committee called PTAC (Pharmaceutical Technical Advisory Committee) and various specialty clinical subcommittees.

Although PHARMAC bases its operations on a Health Technology Assessment (HTA) framework, specifically using Cost-Utility Analysis, there are a number of elements of HTA best practice that are not applied. For example, the clinical committee (PTAC) is not independent of the secretariat. These problematic aspects have led to a system that has been criticized by patients and clinicians for being unresponsive to patient need, inconsistent in its decisions and responsible for major delays in accessing new treatments. In this New Zealand sits well behind other OECD nations. One of Medicines New Zealand’s recommendation’s for greater transparency is that the clinical committee be independent of the secretariat as a way of putting in place normal checks and balances needed in a funding system.

PHARMAC is exempt from key elements of the New Zealand Commerce Act. Because of this it can negotiate very aggressively. It does deals – it trades, by bundling contracts:  “we’ll fund this drug for X if you’ll sell us this other drug for Y” and it can and does pursue sole-supply relationships.  This sole supply means that PHARMAC contracts a company to supply 100% of the market for 3 years and then often changes the entire patient population to the next cheapest option once the contract ends.

There are no timeframes for PHARMAC approvals of funding applications so these can sometimes sit for years.

Three-and-a-half years is the average delay between Medsafe approval and PHARMAC listing but it can take up to eight years. Importantly, this measurement of delay does not take into account those products that never receive funding, of which there are many.

The process has always been closed: pharmaceutical producers don’t get to speak directly to the clinical committee about their products and because approvals can be pending for years, it’s often not clear where things stand.

I would like to note for the record that PHARMAC has, in recent times, been more open and willing to engage with us and to have a positive dialogue.  And I’m grateful to our current Minister of Health for his role in encouraging and supporting a much more consultative and constructive approach.

Over time PHARMAC decisions have allowed the New Zealand government to buy a lot of drugs at a competitive price and subsidise New Zealand patients who pay very modest prescription fees.  We’re literally awash with Paracetamol (in the US that’s Tylenol). It’s an unusual bathroom cabinet in New Zealand which is not fully stocked with various free or very cheap prescription drugs.  Put another way, PHARMAC bulk funds a lot of what we need, some of what we don’t need, cheap medicines very cheaply and some expensive medicines comparatively cheaply …  but only after substantial delays – an average of 3.6 years after regulator (Medsafe) approval as I mentioned earlier.  3.6 years looks like any other statistic on this slide but there is a large human cost attached to this time gap.

We believe that PHARMAC has traditionally focused on fiscal constraint over patient health outcomes. This has led to the funding of older treatments while countries like Finland provide better access to newer treatments as shown in a recent academic study.

Although some believe that the only medicines PHARMAC doesn’t fund are the so called “me too” medicines, this graph shows the proportion of medicines that  are funded where there are no competitors, the “first-in-class” medicines. This is despite PHARMAC having as a decision criterion the need to consider whether an alternative treatment is available for patients with any specific disease. (NB Study by Wyatt Health Management under commission form RX&D – Canada)

We believe the model could be improved.

In my former political role as a health spokesman the issue that constantly intrigued me was this: Where is the best relative investment or combination of investments in the health system? In our staunch efforts to keep the pharmaceutical budget under control I think that New Zealanders have lost sight of this important question.

This inevitably leads to other questions, for example:

  • If one can provide a medicine to stop kidney failure might that be better than paying 100 000 dollars per QALY for kidney dialysis?
  • Or is it possible to delay the progression of Alzheimers Disease using medication so that costly rest home care is deferred and which is more cost effective for the taxpayer?

I don’t necessarily have the answers to these and many other cost-benefit queries but I think it’s a discussion we should be having much more ‘clinically’ in New Zealand.

At the heart of this issue in the TPP context is just one point:

What can we do better? 

The improvements we recommend to the PHARMAC system are:

  • Timelines – decisions should be made within a predetermined timeframe
  • Transparency – the scientific information on which decisions are based should be shared transparently between PHARMAC and applicants
  • Decisions – the system should require PHARMAC to make a decision and communicate this decision to stakeholders
  • Decision criteria – these should be applied transparently and consistently
  • Stakeholder access – stakeholders should have meaningful opportunity to provide input to the decision process at the appropriate stages
  • Targeting pharmaceuticals – pharmaceutical products should not be treated differently to other health technologies in the funding process
  • Value attributed to innovative treatments – where innovative treatments demonstrate improved patient outcomes these should be appropriately valued by the procurement system.
  • System of Review – a review panel to ensure consistent decisions and due process.

These aspects are all recommended as part of a comprehensive HTA system and are discussed in more detail in a report by Charles River Associates in 2011.

I want to also touch on patent life.  Given the nature of patent timeframes, many medicines have limited commercial prospects when they reach NZ in the first place and very little patent life when or if they are approved for funding.  If the general strategy is to sit on funding applications until patent term expires or is close to expiry then we should be having a broader discussion of what pharmaceutical patents mean in New Zealand and whether the practicalities of funding effectively (if not formally) render patents useless.

Currently the approximate 12 years for development followed by regulatory approval plus 3.6 year average delay for funding approval (totaling 15.6 years) mean that a medicine has 4.4 years of effective patent life in New Zealand. There are also a number of products that do not get funded while under patent, despite there being no funded alternatives available in their disease area, such as the Alzheimers medication Donepezil that was funded only once off patent – 7 years after first applying for funding.

So, why are transparency, accountability and the right incentives important? Because they drive the right behaviours.

My view is that New Zealanders could have access to better and newer medicines if the system was streamlined and the broader questions relating to health policy and relative spends were addressed.  I don’t accept that better access to medicines would result in a blow-out of the health budget.  On the contrary I think there are efficiencies to be gained.

None of the suggested changes to PHARMAC processes would be able to increase the prices of pharmaceuticals that are already being funded. The TPP also has no ability to force the NZ Government to increase its capped pharmaceutical budget. The hope is that more accountability in the system would allow the public to better understand the investments being made and how those investments might be reallocated to secure improved health outcomes.

I’ve looked at trade agreements around the region and found that civil society views regarding doomsday outcomes on pricing or the detrimental impact on the generics industry are simply not born out.

Recent work by the Centre for Strategic Economic Studies (at Victoria University Melbourne) and replicated by an Australian Government study confirm that the Australian PBS has been and continues to be sustainable into the future. This refutes speculation from critics of the Australian-US FTA in 2005, that brought very similar changes to those we are recommending, that costs would escalate unsustainably.

I would like to leave you with one thought: there is nothing to fear in having a robust discussion about the best way to deliver the best health outcomes to people.  There’s no hidden agenda here – all of our perspectives are clearly outlined and we are more than happy to answer questions about them.  Regardless of what happens in the context of these negotiations, PHARMAC will remain for long after TPP deliberations are complete.  And, just as we are constantly revising and revisiting our business models, we hope that the New Zealand Government will ensure New Zealanders are getting the best possible outcomes from PHARMAC. Improving the system is not about threatening its existence, but rather about putting health outcomes above hype and hyperbole.