Submission on PHARMAC Decision Making Criteria

Submission by Dr. Greg Coyle and Dr. John Kleinsman (The Nathaniel Centre) on PHARMAC Decision Making Criteria. 

Background of Submitters

Greg Coyle

Greg completed a doctoral thesis in 2011 examining how government funded public health agencies distribute or ration health resources to citizens. PHARMAC’s Community Exceptional Circumstances was used as an exemplar to test the principles of distributive justice in the operation of the rationing policy. He is employed by The New Zealand Salvation Army as Principal Advisor to the Social Programme.

John Kleinsman

John is the Director of the Nathaniel Centre – The New Zealand Catholic Bioethics Centre, an agency of the New Zealand Catholic Bishops’ Conference established in 1999. Its role is to address bioethical and biotechnology issues on behalf of the Catholic Church in New Zealand. Key functions include:

  • carrying out research into bioethical issues and promoting the study and practical resolution of ethical, social, cultural and legal challenges arising out of clinical practice and scientific research.
  • carrying out research and action to support the Church’s pastoral response to bioethical issues taking into account the needs of different cultures and groups in society.


The review of PHARMAC’s decision-making criteria is timely. We believe that PHARMAC is a very effective operational subsidising arm of the New Zealand health service which rations pharmaceuticals on behalf of District Health Boards (DHBs).

The NZ Health and Disability Act 2000 charges PHARMAC with two primary statutory purposes[i].  The first purpose is to ration, at the national agency level, the supply of pharmaceuticals to the general community by managing Pharmaceutical Schedules. PHARMAC must do this consistently, as well as determine the rules for eligibility for subsidies applied to the medicines. The second statutory purpose is to ration subsidies through claims made by individuals, or very small groups of people, for the supply of pharmaceuticals which are not listed on the Pharmaceutical Schedule. Sufferers of rare and orphan diseases commonly fall into this category, presenting in circumstances described as exceptional.

PHARMAC’s First Statutory Purpose

PHARMAC does an excellent job of consistently providing subsidy for an adequate range of quality pharmaceuticals. Cumming[ii] has estimated that PHARMAC has saved approximately $1.17 billion over 14 years by utilising internationally recognised rationing tools. PHARMAC takes excellent advantage of its market dominance, provided through an exemption from PART II of the NZ Commerce Act (1986). The agency employs aggressive monopsonistic purchasing practices in negotiating contracts with international pharmaceutical companies.

PHARMAC celebrates its use of utilitarian decision making, providing the greatest value for the greatest number of people through a robust system of cost utility analysis (CUA) of new drug listings onto the Pharmaceutical Schedule. Studiously avoiding consideration of personal circumstance, CUA provides assessment of the relative value being purchased for the size of the therapeutic group.

Examination of the relative clinical effectiveness of medicines has led PHARMAC to take money-saving advantage of the availability of generic drug purchases.  PHARMAC’s Board and staff are well served by committees of health economists, clinical experts and medical academics who give advice on the economic performance and clinical effectiveness of medicines. 

These rationing decisions are considered under the framework of nine decision-making criteria[iii]. However we believe that economic performance, clinical effectiveness and affordability are the three primary criteria upholding PHARMAC’s decisions.

No weighting is ever given to the use of the nine criteria and any examination of decisions made by PHARMAC cannot determine the extent to which one criteria has dominated or been undermined by other criteria. As already stated, we believe that economic performance, clinical effectiveness and affordability are the dominant criteria PHARMAC considers.

PHARMAC’s public consultation processes are considerable, and as a public health agency PHARMAC enjoys good support from Ministers, parliament, the DHB’s and the general public for its work in managing the Pharmaceutical Schedule.

In short PHARMAC is appreciated in New Zealand as a world leader in meso-level rationing of subsidies on pharmaceuticals. It provides for a good range of effective medicines to the community. It has done this consistently over 15 years and thereby saved considerable amounts of taxpayer’s money.

PHARMAC’s second statutory purpose

Research[iv] into PHARMAC’s second purpose of providing access to medicines for people whose needs are described as exceptional, demonstrated that  PHARMAC’s decision-making process does not closely align with high levels of fairness to individual claimants, particularly sufferers of rare and orphan diseases. Using a formatted view of distributive justice described by Rawls[v] and Sen[vi], it appears that PHARMAC does not provide subsidy equitably for people whose circumstances are considered exceptional and who suffer diseases often requiring high cost medicines.

The research also showed that PHARMAC’s decision-making operates in a somewhat speculative fashion. In the past, committees deciding claims of individuals have not recorded the reasons for decisions nor advised claimants under which criteria their applications have failed. Underlying this PHARMAC practice is a deep anxiety that if claimants were provided with the reasons why their claims were denied, some decisions would most certainly be challenged. This would require the decision-makers to defend the material they considered and defend the attitudes and values which have gone into making the final decision. PHARMAC has not demonstrated an appetite for such openness and prefers to tell claimants simply that their applications have been considered and denied.

PHARMAC has evaluated the equity issue in the Review of High Cost Medicines and the Review of Exceptional Circumstances. Both reviews have supported the position that high cost and low cost medicines should be examined by the same decision-making criteria. The Named Patient Pharmaceutical Assessment (NPPA) scheme, which replaced the Community Exceptional Circumstances scheme, was recently adjudged by Ombudsman[vii] McGee, to be lawful but not clearly reasonable. He noted there was no differentiation between the criteria used to decide on the Pharmaceutical Schedule drugs and the NPPA claims.  He stated that “…to attempt a specific recognition for rare diseases in the NPPA policy would significantly undermine the Pharmaceutical Schedule”.

Our views on the value of the current nine decision criteria

Criterion 1: The health needs of all eligible people within New Zealand;

We believe that the pharmaceutical needs of eligible people among the wider population are in large part being met, but the needs of people suffering rare diseases are not being fairly considered.

Criterion 2: The particular health needs of Māori & Pacific peoples;

PHARMAC has never stated what pharmaceutical provisions for Māori or Pacific people are being provided which are not being provided to non-Māori or non-Pacific people. We do not see that PHARMAC has contributed in any way to the lowering of health inequality between Māori and Pacific people and the rest of the New Zealand population. For example, the prevalence of cardiovascular disease in the Māori population has reduced at a very similar rate to the general population. The reduction in smoking rates and the provision of medicines to achieve this result has not changed the health inequality gap between the two populations. We believe that barriers to accessing treatment for Māori and Pacific peoples are the problem, not the supply of pharmaceuticals. We believe this is a serious issue for New Zealand.

These barriers play a much larger part in sustaining health inequalities than the supply of treatments and services. In a study conducted by the Commonwealth Fund in 2010[viii], New Zealand’s public health system was compared to Australian, Dutch, USA, Canadian, German and British health systems for equity, access, quality, efficiency and life expectancy.  The Dutch health services scored the highest in all categories.  The Commonwealth Fund found that New Zealand has the highest ranking among countries in the study for quality of care.  However, New Zealand ranked sixth of seven (next to the USA) in the equity category.  In relation to these comparator countries in the study, New Zealand provides very cost-effective care of high quality, but fails to provide health care in the public sector to all citizens equitably.

We agree with Blakely and Summers[ix] who describe the fundamental drivers of health inequalities as the unequal distribution of social determinants (e.g. income, housing conditions and employment). The NZ Medical Association’s[x] statement of health inequalities suggests that the task of addressing the social determinants of health lie beyond the mandate of health services. Therefore, we do not see how PHARMAC can demonstrate the influence their decision-making is having on these social determinants.   

Significant government funding has been provided to primary and secondary health services in New Zealand to reduce these access barriers since 2001. Despite this, they still exist, particularly in poor urban and deprived rural areas. In essence, the more money that is spent on health care the worse this inequity problem becomes, because the services go to the better well-off.

PHARMAC has no metric for assessing decision-making against this criterion and consequently, we believe it to be meaningless and should be dropped. The specific health needs of Māori and Pacific people, along with all other citizens, should be considered under Criteria 1. Instead, we propose that the government urgently examine the very high levels of social and economic inequality in New Zealand and the considerable barriers to equitable access to publicly funded healthcare, which confront poor and marginalised communities.

Criterion 3: The availability and suitability of existing medicines, therapeutic medical devices and related products and related things;

This criterion is sound.
Criterion 4: The clinical benefits and risks of pharmaceuticals;

We believe that analysis of the clinical effectiveness and risks of pharmaceuticals, before subsidising decisions are made, is essential. It is attractive for  the public to believe that a determination of clinical effectiveness, dosages, indications and contraindications are cut and dried matters. PHARMAC certainly presents their decisions to the public under this criterion in such terms. However, researcher-authors in respectable peer reviewed international medical and pharmaceutical journals do not always agree on how well medicines work in particular cases.  Consequently, as a matter of necessity, PHARMAC has to decide which advice it prefers and which experts it agrees with. This underlies the contestable nature of determinations about clinical effectiveness and risk. PHARMAC should be much more open with the public about such contention and spell out more clearly the reasons why it prefers the advice selected.

We are also aware that representative groups of sufferers of orphan and rare diseases have raised concerns about the clinical experts PHARMAC relies on when it considers subsidising high-cost medicines for the treatment of rare diseases. For example, on several occasions the New Zealand Organisation for Rare Diseases (NZORD), has complained that the PHARMAC decision-making experts adjudicating on the effectiveness of highly specialised drugs do not have the knowledge or experience to properly decide, and have given PHARMAC poor quality advice leading to wrong and unfair decisions.

We believe that PHARMAC should listen to the recommendations of groups such as NZORD recommendations regarding clinical experts and consider a wider suite of advice than is currently being considered.

Criterion 5: The cost-effectiveness of meeting health needs by funding pharmaceuticals rather than using other publicly funded health & disability support services;

PHARMAC has made extensive use of CUA and Quality Adjusted Life Years (QALY) metrics as a rational basis for a utilitarian calculation about relative value. The QALY measure assumes a calculation of the cost of an added year of capacity and quality to a person’s life. Each QALY is regarded as equal in every way to every other QALY for all medical conditions and equal between one person and another. Such a singular quantitative approach militates against providing treatment for people who are unlucky enough to suffer a rare disease because of the high cost per QALY. Conversely, it provides treatment for people who are ‘lucky’ enough to suffer common diseases which are treated at a lower cost per QALY, because the pharmaceutical treatment satisfies a stronger CUA calculation.

We believe that this calculation falsely assumes that the health values can be compared between one treatment and anther. For example, the additional adjusted quality of life year (or part of a year) gained by treating an ingrown toenail is compared in dollar value the cost of treatment of coronary artery disease. The QALY for each condition is assumed to be equal in every way, although the dollar value per QALY is vastly different. The personal suffering and disruption to life of the sufferer and his/her family cannot in any way be compared. We do not believe that economists are able to make such determinations, which claim to capture the essential comparison, with any accuracy or validity. Inevitably they muddle through, making decisions which they believe to be reasonable, and this emasculates the CUA process. Whilst the decisions may be reasonable, the process leads to claims about performance of medicines, which are based on little more than spurious assumptions reduced to what are seen to be reasonable determinations, but promoted by PHARMAC as indefeasible economic analysis.

In the CUA utilised by PHARMAC, only costs and benefits against the public health service are measured. QALY’s cannot measure need, nor consider the relative benefit of that which an individual has good reason to value in their lives. For example if a medicine was provided that would get a person back to work, the benefits to that person and his/her family and community in becoming a tax payer rather than a tax taker, have significant human and financial value. The CUA excludes important factors which should be included in the analysis and gives undue weight to a very narrow set of economic measures. We strongly suggest that these factors need to be considered by PHARMAC.

Another problem, pointed out by Gillon[xi], is that such a calculation has no way of measuring what harm will be done without the provision of the treatment. We accept that such personal opportunity cost and potential individual and community benefit factors may be difficult to measure, but this does not mean they do not exist and are not vitally important. No amount of CUA can replace the absence of such considerations.

We contend, therefore, that PHARMAC’s general use of CUA and QALY’s is appropriate for considering the relative costs and benefits in the supply of pharmaceuticals to large populations. However, the use of CUA, as is presently undertaken by PHARMAC, is too narrow when assessing individual claims for medicines and does not consider relevant factors which should be taken into account.

However, the bigger question raised by the use of this criterion, is how fair the outcome of the analysis is for an individual and how fair is the outcome for the wider society? Herein lies the nub of the problem for PHARMAC. Whose needs should take precedence; those of the individual or those of the wider society? Our position is that there needs to be community input and debate on the moral position and ethical values which inform answers to such a question. Medical experts analysing clinical effectiveness of treatments, and economists analysing economic performance of medicines, cannot and should not be a proxy for this debate.

Amartya Sen argues that fairness must take regard of substantive economic opportunities and a CUA, utilising a price per QALY, is one such measure which does this. However he also proposes that an equally important element of fairness is the outcome for citizens. Fair outcomes   include both the procedural fairness of the process PHARMAC is following as well as the advancement of the capability of citizens to enjoy the things they have good reason to value[xii]. Otherwise we have public policy which suits the needs of decision-making actors and institutions and not the people they are set up to serve. In this vision the rules which PHARMAC follow would be assessed in the broader more inclusive perspective which is inescapably linked to the world which emerges for the individual claimant.

We believe this tension between PHARMAC’s decision-making rules and just outcomes for individuals has its roots in NZPHD Act (2000) and has never been adequately explained or managed by PHARMAC. Indeed it cannot possibly be managed if PHARMAC is to successfully achieve its statutory (first) purpose provided for by the legislation. The Ombudsman confirmed this point in his recent decision when commenting that, to meet the needs of individuals fairly, PHARMAC must significantly undermine the Pharmaceutical Schedule.

The NZPHD Act (2000) assumes that both competing interests (individual versus community) can be managed, and leaves the decisions about both types of assessments for PHARMAC to make.  Therefore, while it is entirely appropriate for PHARMAC to manage the provision of subsidy medicines for wider society using criteria based on the utilitarian principle of providing the greatest good for the greatest number, we believe that another agency should manage individual claims, utilising a set of decision-making criteria based on the principles of justice as fairness to individuals, within a separate budget provided for this purpose.

Criterion 6: The budgetary impact (in terms of the pharmaceutical budget and the Government’s overall health budget) of any changes to the Schedule;

When medicines cannot be afforded because of budgetary impact, PHARMAC should say so. We believe that in the past PHARMAC has asked for more information to support funding applications as a proxy for simply saying the drug cannot be afforded.

PHARMAC’s explicit rationing priorities do not consider community values. We know that PHARMAC does consult the public, but it does not have a framework for including community values in its decision-making. While PHARMAC might argue that its Board provides this function, we would argue that a more adequate mechanism is needed. The primary role of the Board is to ensure PHARMAC remains solvent and carries out its statutory duties, which makes it extremely difficult to give adequate weighting to community values. We believe that budgetary control and solvency are paramount considerations in the minds of PHARMAC directors and, because of that, fairness and equity considerations are secondary.

Criterion 7: The direct cost to health service users;

In relation to individual claims for medicine subsidies, PHARMAC has no way of knowing about an individual’s ability to pay direct costs for medicines. With regard to the wider community meeting direct costs for medical prescriptions, we submit that apart from the small part-charge on pharmaceutical dispensing, medicines on the Pharmaceutical Schedule should be provided without direct costs to citizens. If PHARMAC cannot afford to place medicines on this basis it should say so. Part-charges for medicines are perceived, particularly by the poor, as a barrier to them up lifting medicines prescribed by their doctors.

If people choose to pay for medicines which are not on the Pharmaceutical Schedule (either self-fund or recover costs through insurance arrangements) that is their prerogative. If medicines are provided without direct costs to citizens, we believe criterion seven is unnecessary and should be dropped.

Criterion 8: The Government’s priorities for health funding, as set out in any objectives notified by the Crown to PHARMAC, or in PHARMAC’s Funding Agreement, or elsewhere; Whilst this criterion is laudable, the public have no way of measuring how well or how poorly PHARMAC is delivering on the government’s health priorities through its funding decisions. PHARMAC does not appear to utilise the government’s Medicine Strategy promulgated by the Ministry of Health to drive decision-making. This criterion cannot be meaningfully assessed and for this reason it should be dropped.
Criterion 9: Such other criteria as PHARMAC thinks fit. PHARMAC will carry out appropriate consultation when it intends to take any such “other criteria” into account.

This criterion hands PHARMAC a carte blanche to make funding decisions for either communities or individuals in any way it likes. PHARMAC is under no obligation to justify publicly why it would utilise this decision-making criterion. We are not aware of this criterion being abused but neither are we aware of it being used effectively. Such decisions should always be subject to under the principles of openness and accountability. We believe this criterion is unnecessary and should be dropped.

Another Matter

We are concerned that the funding of prenatal-testing for pregnant mothers, and the consequent actions which flow from such testing, have physical, social, cultural and ethical impacts on the unborn, families and the wider community. We believe that there is a wider moral issue here and we wish to signal our intention to discuss this with PHARMAC in the future.

We Need a Fairer System for Individual Claimants

We believe that New Zealand needs a fairer system for analysing individual claims, which is both legal and reasonable and based on the principles of distributive justice.

It is very unfair to expect PHARMAC to achieve its statutory first purpose of managing the Pharmaceutical Schedule within a capped budget and have what are essentially unaffordable claims for high cost medicines made against it. It is also unfair to accuse PHARMAC of being prejudicial to people by not meeting these claims.  This situation has created animosity and on-going frustration for significant numbers of people suffering rare and orphan diseases. The media have taken advantage of this situation also, in promoting the interests of selected mediagenic sufferers  above those of other equally worthy and deserving claimants.

It is equally unfair for sufferers of rare or orphan diseases to be denied medicines which will improve their life expectancy because they are being assessed against an economic metric which applies to a model based on 4 million people. We believe this approach to provision of health care punishes people because they have a rare disease. The fact that PHARMAC can achieve success only by acting against the interests of these high cost claimants has created a patently unjust situation in New Zealand which must be addressed.

We need to ensure that PHARMAC is unencumbered in its statutory first purpose of managing the subsidisation of an adequate range of pharmaceuticals for New Zealand. PHARMAC does this well and should be enabled to continue in this role. But, we need a fairer system that utilises a different set of rationing criteria more suited to the task in order to achieve the statutory second purpose of rationing the needs of individuals.

A New ‘Rare Diseases Funding Agency’

We believe decision-making regarding individual and small group claims should be taken away from PHARMAC, the NPPA scheme scrapped and a new fund should be established called the ‘Rare Diseases Funding Agency’ (RDFA). It would be administered by a Board appointed by the Minister of Health and facilitated by the Ministry of Health. The fund should be capped off at approximately $25m annually and the adequacy of the fund should be regularly reviewed and reported to the Minister.

The RDFA will need to live within the budget set for it and continually review with PHARMAC medicines for those diseases at the boundary of the definition of rare, and medicines that should be listed on the Pharmaceutical Schedule. 

The RDFA will need to carefully consider both relative economic efficiency and the best clinical advice available. It would be appropriate for PHARMAC to undertake the CUA’s when required, on behalf of the new agency. The decision-making criteria will also need to include a method of understanding the quotient of fairness and to be aligned with community values in its micro-rationing decisions. As a first priority, the Agency should examine methods of engaging with community values to guide decisions.

We understand that the National Institute of Clinical Excellence in the UK has a model for making equity judgements which includes community input, not simply consultation but for decision-making. Another framework for organisations to use entitled ‘Accountability for Reasonableness’, presented by Daniels and Sabin,[xiii] contributes to the debate between those calling for explicit and implicit rationing. This decision-making framework calls for transparent and informed debate, including agreement between all those involved in a case as to which choices are relevant for that particular case. This framework occupies a middle ground somewhere between the explicit and implicit approaches, which allows the construction of principles that will produce fair decisions about real cases.  We believe that the social inclusion in such an approach provides the best prospect of achieving agreement over sharing medical resources fairly. The new RDFA Board should investigate these two suggested frameworks, and other decision-making frameworks, which allow for the inclusion of community values into its rationing decisions.

In assessing individual claims, we believe that the needs of the poor should be prioritised over the needs of those who have greater ability to pay. Such a system will reduce health inequity and direct government funding to those whose need for government support is greater. This is the same principle behind taxation scales where more tax is taken from those who earn more than from those who earn less.  The RDFA should adopt a criterion which captures this principle.

Adequate appeal processes need to be in place for claimants who are dissatisfied with the RDFA decisions to have their cases reviewed. An External Review Panel (akin to the National Institute for Clinical Excellence Citizen’s Council in the UK), independent of RDFA Board and staff, should be instituted. It would be made up of non-medically qualified citizens appointed by the Minister of Health and would be required to review cases and make recommendations to the Board. In such cases the External Review Panel would review all the information provided in the claim, including the RDFA’s ability to provide a subsidy. The RDFA Board would be required to make a final decision.


In this submission we have discussed the nine decision making criteria and we have argued that criteria 2,7,8, and 9 should be dropped.

We believe the government should urgently examine the very high levels of social and economic inequality in New Zealand and the considerable barriers to publicly funded healthcare experienced by poor and marginalised communities.

We have promoted the separation of the management of the Pharmaceutical Schedules by PHARMAC from the claims for subsidy made by individuals (and small groups). We suggest this be done by a new agency named the Rare Diseases Funding Agency. This agency should be facilitated by the Ministry of Health, have its Board appointed by the Minister of Health and be provided with a fund of around $25m.

Thank you for considering our suggestions.

Greg Coyle
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[i] Ministry of Health. (2000). The NZ Public Health and Disability Act 2000. Retrieved from  accessed on 7 November 2013.
[ii] Cumming, J., Mays, N., & Daube, J. (2010). How New Zealand has contained expenditure on drugs. British Medical Journal, 340 (May 18 1), c2441. doi: 10.1136/bmj.c2441
[iii] Minister of Health. (2007). Actioning Medicines New Zealand.  Wellington: Published in December 2007 by the Ministry of Health.
[iv]Coyle, G. (2012) Doctoral Thesis. How does the operation of PHARMAC’s ‘Community Exceptional Circumstances’ policy align with the distributive justice principles of fairness and equity as described by John Rawls and Amartya Sen? 
[v]Rawls, J. (1971). A Theory of Justice. Oxford: Oxford University Press.
[vi]Sen, A. (2009). The Idea of Justice. Cambridge Massachusetts Harvard University Press
[vii] McGee, D. (2013) Ombudsman’s final Opinion. Complaint from Ms. Freda Evans (assisted by Mr. John Forman) against PHARMAC’s decision not to approve funding for ‘Myozyme’. May 2013. Ref:343665[vii]Hope, T., Reynolds, J., & Griffiths, S. (2002). Rationing Decisions: Integrating Cost-Effectiveness With Other Values. In R. Rhodes, M. P. Battin & A. Silvers (Eds.), Medicine and social justice : essays on the distribution of health care (p. 144-155). Oxford ; New York: Oxford University Press.[vii]Desser, A. (2013) Prioritizing treatment of rare diseases: A survey of preferences of Norwegian doctors. Social Science & Medicine, Vol.94, p56-62.
[viii]Davis, K., Schoen, C., & Stremikis, K. (2010). Mirror, Mirror on the wall. How the Performance of the U.S. Health Care System Compares Internationally 2010 Update (Vol. 1). London: The Commonwealth Fund.
[ix]Summers D, Blakely T (2011) FACT AND ACTION SHEETS ON HEALTH INEQUITIES. NZMA June 2011.  Accessed on 6 August 2013.
[x]New Zealand Medical Association. (2010). Health Equity Position Statement. Retrieved from Accessed on 6 August 2013. No longer available here, but the 2011 position statement can be found:
[xi], Gillon, R. (2006). PHARMAC and the Funding of High Cost Pharmaceuticals. Information from PHARMAC’s 2006 High Cost Medicines Review released as contribution to Government’s work on `HIGH-COST HIGHLY SPECIALISED’ MEDICINES’. (P61-1-0 #96955).  Accessed 13.05.2007.
[xii]Sen, A. (2009). The Idea of Justice. Cambridge Massachusetts Harvard University Press. p20
[xiii]Daniels, N., & Sabin, J. (1998). The Ethics of Accountability in Managed Care Reform. Health Affairs, 17(5), 50.