Pharmac and the crazies: John Key admits mistake, Andrew Little looks to repeat it

OPINION

Gareth Morgan

Andrew Little

Gareth Morgan on Labour and 'Big Pharmac'

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During the recent TPP furore, Labour made much of the threat to Pharmac from US drug multinationals. And now, just weeks after signing the TPP, the greatest threat to our independent drug buyer comes from Labour itself. Today a petition is being presented to Parliament over the drug Keytruda, and Andrew Little is calling for the government to step in to ensure it is funded. There are shades of déjà vu with John Key’s intervention over Herceptin.

Pharmac – our health sector’s success story
When Pharmac was created in 1993, it was given independent control over the drug budget, and was instructed to get the best value (in terms of healthy life years) from the money. Through a mix of selecting the most cost effective drugs and tough bargaining with foreign drug companies, it has delivered far better value for money than the rest of the health sector.

In 2009 we wrote Health Cheque – the truth we should all know about New Zealand’s public health system. This found that Pharmac was the envy of every health system in the world. The follow-up Prescription for Change found that, if anything, the Pharmac approach – getting the politicians out of decision making and leaving it to the experts – should be expanded across the rest of the health sector.

Instead, it is  again under threat from meddling politicians.

Keeping the politicians out 
It seems that every three elections Pharmac becomes an issue. Last time around it was the National Party in 2008 arguing for Herceptin to be funded. Late last year Health Minister Jonathan Coleman admitted that Prime Minister John Key had “made a mistake” over his promise to fund Herceptin. Of course, back then National was in Opposition and wanted to win an election. This ensured Mr Key was impervious to the uproar over his Herceptin hypocrisy at the time. He was not making a mistake at all – it was pure politicking that led to his call to undermine Pharmac at that time.

Now it’s Andrew Little’s turn. Despite the Helen Clark government holding the line on Herceptin in 2008, Mr Little is cynical enough to accuse Mr Key of being cycnical and in the same sentence then say that this melanoma drug Keytruda should be funded by Pharmac. He acknowledges that Pharmac is an independent body but says that sometimes it needs to be overridden. Apparently it’s okay for the pot to call the kettle black.

When the heat comes on in politics, principles go out the window – we need to all remember that when it comes to assessing the validity of politicians’ utterances.

Is Keytruda worth it? 
The focus by the media has gone on the effectiveness of Keytruda, using some anecdotes of early successes. Pharmac has responded that it is far too early to consider the long-term efficacy of Keytruda and it will announce when it thinks it has enough data to make an informed decision.

The other side of the coin of course is cost. These drugs are hugely expensive, and so to meet Pharmac’s value of money criteria they need to be outstandingly effective. That is the harsh reality that melanoma sufferers – along with several other categories of cancer patients have to face. Pharmac has limited funds (now that is the role of the political process) and its job is to get the most health benefit from that as possible.

We need to bear in mind that Pharmac is negotiating with profit-seeking companies here. The more politicians meddle with that, the more the drug companies will milk it. In other words, if we keep throwing money at this problem, they will keep putting their prices up.

Mr Little argued that there could be a separate fund for temporarily funding experimental new drugs while we work out if they are effective. This is a ridiculous idea. When in the history of government has it ever been able to stop funding a drug once they start? He also points out that other countries are funding Keytruda. Yes – and a host of other drugs besides. Different countries have different funding models.

Keytruda is the first of many such next generation drugs that help people’s immune system to fight cancer – so their own immune system does the heavy lifting in getting rid of the cancer. All these drugs are going to be expensive, and the technology will take a while to be proven. We have to let Pharmac do its job – otherwise we will be having this conversation every few months, politicians will keep running interference to covet special interest votes, and our drugs bill will explode.

Unless taxpayers are happy to fund every drug on earth at any price, politicians need to get back in their cages, let Pharmac do its job of allocating the budget. The only political decision should be the size of their budget.

Gareth Morgan is a New Zealand economist and commentator who in previous lives has been an investment manager. This post first appeared on Gareth's World.

Tune into NBR Radio’s Sunday Business with Andrew Patterson, launching this Sunday morning, for analysis and feature-length interviews.


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There is nothing anecdotal about Keytruda results. If we ( Phrmac and Dr Coleman) think we know more than the Australian experts who have been working with Keytruda, and financed it BECAUSE of the results, then we are already slipping into Gareth Morgan world status.

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Andrew Little wins either way on this one. If Pharmac gets told to fund Keytruda, he wins. If not, he can say "I tried, but the heartless Government doesn't care about suffering Kiwis".
Likewise, the Government loses either way.
Cynicism on all sides. But healthcare is a value/ profit-oriented, cynical business. It has to be, or else we'd be funding "wing of bat and eye of newt" stuff.

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I agree, this is absolutely stupid on Labour's part - actively working to undermine Pharmac just when Kiwis need to be looking to protect the organisation. We've already seen Pharmac's negotiating power undermined by the TPPA - and now this! Crazy.

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