New report calls for major change to Pharmac’s funding model

Pharmac’s decision-making process for funding drugs in Aotearoa New Zealand is in need of a major overhaul - according to a new independent report.

The Milne Report, commissioned by Multiple Sclerosis New Zealand (MSNZ), says its time Pharmac based its funding decisions not just on the cost of a drug or medical device, but on the wider fiscal impact of funding it, or not, on New Zealand society as a whole.

The report, ‘The Cost Effectiveness of Ocrelizumab for Treatment of Primary Progressive Multiple Sclerosis in Aotearoa New Zealand from Healthcare and Societal Perspectives’ was undertaken by health economist Dr Richard Milne and colleagues in New Zealand, Tasmania and Singapore, as an economic case study evaluation of ocrelizumab – a drug newly-funded to treat the Primary Progressive form of multiple sclerosis (PPMS).

MSNZ has published an overview of this report, highlighting why this is so critical to New Zealand.

President Neil Woodhams says while the report may be focussed on just one drug for MS, its findings have clear implications for the way Pharmac funds ALL chronic disease drugs and devices in New Zealand.

“The report we commissioned makes clear that Pharmac’s traditional funding decision model, often waiting years to access the cheapest medicines possible, is not necessarily a cost saving when the costs to wider society are taken into account” Woodhams says.

“The Milne Report recommends that for Pharmac to make quicker and smarter funding decisions it needs to include whole of society costs, including loss of income, loss of tax and superannuation contributions for both the person with MS and their partner and whānau, as well as the costs of hospitalisations, equipment, comorbidities, and the cost of caring for those with a disability.”

The report explains that Pharmac’s current funding model is a cost utility analysis (CUA), which is a subset of cost effectiveness analysis. In this, Pharmac weighs up the direct healthcare costs and makes decisions relative to its own ring-fenced and capped budget.

In contrast however, the Milne Report proposes that by Pharmac including all costs to society in a cost benefit or cost utility model, it would give a wider view of the financial impact of a disease, in addition to medical costs.

“A cost benefit model, widely used overseas, was recommended by the NZ Treasury in 2015 for all budget initiatives. It has never been made clear why Pharmac has used a cost utility analysis instead of a cost benefit model,” Woodhams says.

The report concludes if Pharmac were to make funding decisions based on the total cost to society, it would change the ranking of new pharmaceuticals listed for funding whilst reflecting the true value of the medicine. Therefore, it states, treatments that reduce long term disability and improve quality of life would be meaningfully valued, meaning patients could have a better quality of life for longer, enabling them to either return to work or work more productively.

It clearly makes the point that in MS, treatment is more cost-effective when initiated earlier in the course of disease, and/or at younger ages.

“This makes absolute economic sense,” says Woodhams.

“People with MS, as in other chronic conditions, want to continue working, being productive and contributing to the economy, With our health and disability systems under critical financial pressure, we need to change the approach to funding medicines for the sake of New Zealand. Let’s be the ambulance at the top of the hill, not the bottom.”

PPMS is mostly diagnosed in people aged 25 to 50, in their prime earning, family-raising years, with studies showing ocrelizumab slows disease progression and delays wheelchair dependence by 4-6 years on average.

The Milne Report says indirect costs for MS account for over half of the total cost to society annually for the disease, and are not currently accounted for in Pharmac funding decisions.

It justifies Pharmac spending 4.7-fold more per annum per person on ocrelizumab for patients with PPMS (from $4,673 to $22,057) than the current economic model focussed solely on healthcare costs.

“We appreciate this report indicates greater investment in medicines but the savings this model could provide elsewhere to our economy should not be underestimated,” Woodhams says.

“The economy can no longer be segregated into siloed pockets of funding. Injecting money into medicines will keep people out of hospitals for longer, limit disability and the requirement to remain on benefits and keep our economy moving.”

The report also notes that adopting these recommendations would also help Pharmac meet the Associate Minister of Health’s Expectations as detailed in a letter dated July 16th, stating that the agency: Updates its decision-making and evaluation models to include the wider fiscal impact of funding or not funding a medicine or medical device to the whole of government and has tools to consider the wider societal impact.’