New Zealand agency comes under pressure to pay more for drugs

The United States is using a fresh round of talks on free trade to try to water down New Zealand’s tough approach to negotiating low prices with drug companies.

The talks are part of the proposed Trans-Pacific Partnership agreement, which will involve nine countries in the Asia Pacific region, including the United States, New Zealand, and Australia, and will cover trade in intellectual property, pharmaceuticals, and other commodities.

The prices that the New Zealand government pays for drugs are among the lowest in the developed world, and the drug industry, much of which is based in the US, is using the trade talks to push for reforms in how those prices are set.

Last month a group of 28 US senators wrote to President Barack Obama urging him to protect US companies’ interests during the current trade talks, specifically mentioning the drug industry. The senators’ letter argued that the US biopharmaceutical industry would gain little if, in foreign countries, “the authorities responsible for pricing and reimbursement are able to set the terms of sale through arbitrary and non-transparent means.”

Although the letter didn’t name New Zealand, the senators were understood to be making a direct reference to the country’s drug purchasing authority, Pharmac, which has developed an international reputation for negotiating low price deals (BMJ 2010;340:c2441, doi:10.1136/bmj.c2441).

Created almost 20 years ago, the publicly owned Pharmac has to purchase drugs for the national formulary within a tightly capped budget rather than an open ended funding system of the type that other nations use. Central to its ability to stay within budget is the public agency’s right to say no, to walk away from negotiations if a drug price is not affordable, and to substitute another product.

Medicines New Zealand, the body representing the industry, argues that it wants more transparency in the process and clear guidelines on how Pharmac makes its decisions.

The general manager of Medicines New Zealand, Kevin Sheehy, told the BMJ that companies also want to see the internal cost-benefit analyses of their drugs that Pharmac compiles and would like the opportunity to present their case directly to the influential committee of experts that advises the agency.

Pharmac’s chief executive, Matthew Brougham, told the BMJ that drug companies already had “unfettered access” to his organisation’s staff and that he didn’t see any value in allowing companies to present directly to the advisory committee. As to the demand to see Pharmac’s internal cost-benefit analyses, he said that they were already available.

Although Pharmac is unable to comment on how the trade negotiations may affect its work, Mr Brougham said that his organisation’s ability to choose which drugs to purchase was the key to staying within budget. “Any rules or regulations which undermine our ability to choose reduce our ability to negotiate even handedly with industry,” he said.

Critics of the proposed Trans-Pacific Partnership argue that it could turn negotiations over drug prices into formal rule making procedures, complete with cumbersome appeals processes and the possibility of legal action.

In Australia, for example, where drug reimbursement procedures were changed after a free trade agreement with the US several years ago, expert advisers can feel vulnerable to the threat of personal legal action if their decisions don’t favour drug companies (BMJ 2010;341:c6527, doi:10.1136/bmj.c6527).

Academics and others have expressed concern that New Zealand’s conservative government may offer concessions to drug companies so as to boost the export of dairy and other products to the US.

However, the negotiations are secret, and the full details won’t be publicly known until after the agreement has been signed. The trade minister, Tim Groser, is currently sending mixed signals on the issue, praising Pharmac’s methods as a good way to allocate scarce resources but at the same time confirming that the agency is part of the negotiations with the US. “I am not taking Pharmac off the table,” he said in a recent speech.

The agreement is due to be debated at a meeting of Asia Pacific nations in Hawaii in November.