Augmenting Reference Pricing of Pharmaceuticals in New Zealand with Strategic Cross-Product Agreements

Abstract

Reference pricing pharmaceuticals in New Zealand involves reimbursing drugs at the lowest price ruling in a given therapeutic subgroup, and has been argued to promote competition leading to equalised prices among similar drugs. Disappointment at the inability to contain public drug expenditures sufficiently has led to the augmentation of reference pricing with cross-product strategic agreements. These require firms seeking subsidisation of new drugs to significantly reduce their prices in unrelated markets, typically for relatively unpopular drugs. An examination of the markets for statins and angiotensin-converting enzyme inhibitors in New Zealand shows that in neither case has price matching voluntarily accompanied these agreements. Although imperfect drug substitutability appears to be an important factor in explaining some of these results, particularly for statins, intrafirm cross-subsidisation induced by agreements and industry concern about international benchmarking of drug prices are proposed as major likely sources of influence.

Ontario and New Zealand Pharmaceuticals: Cost and Coverage

“…Drugs can be sold at prices above reference price; however, the difference is paid by the patient. This allows for potential formation of cross-product agreements: if a pharmaceutical company is seeking coverage for a new product, it will agree to lower the price of another product within a reference group, thereby lowering the reimbursement price for that group and resulting in additional savings (Woodfield 2001). Eighty per cent of European countries had some form of reference pricing system (including determination of a price for a multisource drug) in 2011 (Simoens 2012).…”

Limits to Neoliberal Reforms in the Health Sector: The Case of Pharmaceutical Management in New Zealand

“…Some states define their therapeutic groups narrowly, essentially meaning they have to be interchangeable medicines [24]. Unlike some European systems which determine the level of subsidy based on the average cost of the drug in the therapeutic group, PHARMAC determines subsidy from the lowest cost at which there is willingness to supply the drug [25]. One fully subsidized pharmaceutical is in each therapeutic sub-group [24].…”

“…Cardiologists claimed that PHARMAC's decision "caused more harm and premature death to New Zealand patients than any of their other manoeuvres" [34]. Lipid-modifying drugs were released into the New Zealand market in the late 1980s and statins became a focus for PHARMAC as future expenditure on this group of drugs was predicted to be extremely high [25]. Between 1989 and 1997 three statins, fluvastatin, pravastatin and simvastatin, were all fully subsidized and available to New Zealand patients on a specialist prescription [25].…”

Pharmaceutical Policy Reforms to Regulate Drug Prices in the Asia Pacific Region: The Case of Australia, China, India, Malaysia, New Zealand, and South Korea

“…Next came innovations including price rebate and cross-product agreements (bundling) to keep drug prices low [13,14]. PHARMAC enters negotiations with pharmaceutical manufacturers where PHARMAC would receive a rebate on the initially negotiated price after a certain period from the pharmaceutical manufacturers for their scheduled pharmaceuticals, with the value kept confidential [15].…”