Intended for healthcare professionals


How New Zealand has contained expenditure on drugs

BMJ 2010; 340 doi: (Published 18 May 2010) Cite this as: BMJ 2010;340:c2441
  1. Jacqueline Cumming, director1,
  2. Nicholas Mays, professor of health policy12,
  3. Jacob Daubé, research assistant1
  1. 1Health Services Research Centre, School of Government, Victoria University of Wellington, P O Box 600, Wellington 6035, New Zealand
  2. 2Health Services Research Unit, Department of Public Health and Policy, London School of Hygiene and Tropical Medicine, London
  1. Correspondence to: J Cumming jackie.cumming{at}
  • Accepted 19 April 2010

The approach of New Zealand’s Pharmaceutical Management Agency (PHARMAC) has much to commend it, say Jacqueline Cumming and colleagues

The recent economic crisis has forced Western countries to examine how they contain health spending and improve value for money. Spending on drugs averages around 15% of total health spending for countries in the Organisation for Economic Cooperation and Development (OECD).1 Improved management of spending on drugs can therefore make an important contribution to containing health budgets.

In recent years, increases in drug costs in New Zealand have been below those experienced in other countries while public coverage has improved. We discuss the Pharmaceutical Management Agency’s (PHARMAC) role in achieving this, its processes for setting priorities, criticisms about its work, and implications for other healthcare systems.

History and role

New Zealand’s healthcare system is predominantly publicly financed from general taxation and provides all drugs free of charge for people in hospital and a comprehensive set of subsidised drugs for people receiving services outside hospital.

For many years, the rise in expenditure on community drug treatment was a major problem. During the 1980s, for example, government expenditure on non-hospital drugs grew at almost 15% a year, faster than any other component of healthcare spending.2

PHARMAC was established in June 1993 with the objective of securing the best health outcomes from community drug treatment, within the amount of funding available.3 PHARMAC’s role has now expanded, and it not only manages the community drug budget but also works to ensure the optimal use of medicines; negotiates prices and supply terms for some hospital medicines; manages the basket of essential cancer drugs that must be made available to New Zealanders; and manages exceptional circumstances schemes that supply drug funding for people with rare conditions.3 PHARMAC is governed by a government appointed but independent board …

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