What do drugs really cost NZ?

Confidential deals, which see New Zealand receive hundreds of millions of dollars in rebates from pharmaceutical companies, unfairly hide the real cost of drugs, say international academics.

Under the system, Pharmac negotiates with the companies to pay one price – which is made public – but then receives a confidential rebate, meaning no-one except the drug companies knows the actual price.

Last year, over $400 million – which is more than a third of Pharmac’s gross expenditure – was paid back by companies, and use of the practice is rising.

But global experts who have studied the rebate system used by New Zealand and many other Western countries believe it puts too much power in drug companies’ hands. When companies say ‘‘you are offered the best price’’, Pharmac cannot know if this is true, says Nina Zimmerman, from the Austrian Public Health Institute, which works with the World Health Organisation to study pharmaceutical pricing.

‘‘Companies might know what they are offering to different countries, [but] payers/policy makers have to rely on the indications by the company,’’ says Zimmerman.

The system also disadvantages poor countries. ‘‘For low-income countries, since the benchmark price that is set is already high and does not reflect the real situation, [that] might put them into a difficult negotiation starting point.’’

Pharmac’s director of operations, Lisa Williams, admits that under the rebate system Pharmac cannot know the actual price of the drugs it’s buying.

But she says the drug-buying system, including the use of rebates, gives New Zealanders good value.

‘‘We’ve done some analysis where we’ve looked at the price that Pharmac was paying for medicines in 2007 compared with 2017,’’ Williams says. ‘‘If we were still paying the same prices that we paid in 2007, the total expenditure over that time period that we saved is $5 billion – that’s the value that we bring to New Zealand.’’

Pharmaceuticals representative Dr Graeme Jarvis of Medicines NZ, says the rebate system gives Pharmac the power to purchase modern medicines.

‘‘I actually think if you look at the data that’s out there, and there have been international comparative studies, New Zealand gets a pretty good price.’’