In the 10 September 1999 NZ Medical Association Newsletter I wrote an editorial entitled When PHARMAC decides, who represents the patient? Looking at contracting techniques used by PHARMAC to get the lowest prices for pharmaceuticals I drew the conclusions then that financial imperatives outweighed concern over patient safety, consultation with the medical profession was cynical, and bureaucratic requirements were smothering prescribers. Has anything improved?

In the intervening 5 years, PHARMAC’s policies have hardened and its contracting attitude has become more combative and aggressive. It must be said that PHARMAC is fulfilling its statutory obligations in purchasing at the lowest price and it has a limited (most would say far too limited) budget to work with. The Government sets the agenda and budget for PHARMAC, so the sorry state of pharmaceuticals’ availability, and indeed of the pharmaceutical industry and research in New Zealand, are a direct result of this Government policy.

Shortages of a number of pharmaceuticals have been in the news in recent months but none more spectacularly than the recent fiasco over flu vaccines. New Zealand’s annual flu vaccination programme usually begins in March and runs through to the end of June, with up to three-quarters of a million people vaccinated. A month before the flu vaccine was expected in doctors' surgeries all over the country, it was announced that the vaccine was under-strength in one of the three component flu strains. (PHARMAC, who had taken over purchase of flu vaccines from the Ministry for the first time this year, had awarded the tender to one company, Sanofi-Pasteur of France, to supply all the vaccines.) Overnight, all of New Zealand's potential flu vaccine supplies were deemed unsuitable and PHARMAC was left scrambling trying to locate full-strength vaccines from other suppliers.

As has happened before with other shortages caused by PHARMAC’s sole-supply tendering policy, the pharmaceutical industry rallied round to bail PHARMAC out. Ironically GlaxoSmithKline (GSK), the company who had successfully supplied New Zealand's flu vaccines for the last few years but failed to win the tender this year, has been able to supply 368,000 vaccines, thus salvaging the flu vaccine programme and saving both the Minister of Health and PHARMAC’s faces.

Sole-supply tendering is one of PHARMAC’s favourite ways of awarding contracts for off-patent pharmaceuticals. Specifically, interested companies put in a tender to supply the whole of the New Zealand market for a pharmaceutical, and PHARMAC awards the sole contract to one of them, generally the lowest priced.

The debacle over the flu vaccine is just the latest and undoubtedly the biggest and most far-reaching example of how sole-supply tendering can harm the health of New Zealanders. For small savings per dose, the health of hundreds of thousands of people as well, as the very credibility of the national flu vaccine programme, have been put at risk.

The Press newspaper (Christchurch), in its editorial of 17 March 2005 headlined Lessons for PHARMAC,1 observed:

The problem with the flu vaccine appears to be one of human error (that occurred at Sanofi-Pasteur’s manufacturing plant in France), and it has affected other countries besides New Zealand. But why did New Zealand have all its eggs in the one basket in this and so many other cases? Australia went for dual supply and had only 35% of its vaccines affected by the Sanofi-Pasteur problem. Merck Sharp & Dohme, the company who won the contract to supply the vaccines, and GSK both made it clear that a split tender was perfectly acceptable and indeed possibly desirable for them.

PHARMAC has correctly pointed out that the flu vaccines have been supplied by sole tender in the past successfully, but perhaps we have just been lucky that we have not had a problem in the past. A sole-tender contract means the company supplies all the vaccines that end up being required, whatever the number, and bears the financial risk. A split contract means that PHARMAC must order a set number of vaccines from each successful company whether or not they are ultimately used, so PHARMAC’s undoubted preference is for sole-supply regardless of the risks to the public.

The 2005 flu vaccination programme is going ahead albeit a month later than usual and with confusion surrounding the exact dates and availability of vaccines—and at considerable inconvenience to doctors and nurses administering the vaccines, and to New Zealanders seeking protection from the flu.

According to PHARMAC’s website (http://www.pharmac.govt.nz/), nearly a third of the 2600 chemicals listed on the Pharmaceutical Schedule are sourced through sole-supply tenders. If you speak to any pharmacist or doctor they will confirm that the numbers of frequently used pharmaceuticals that are unavailable has skyrocketed as sole supply has become more common. PHARMAC blames the Pharmaceutical Industry for this, saying that their contracts stipulate quality and continuity of supply. But what actually happens if the quality is not up to scratch or the supply fails? This has been an issue in many other compounds, not just the flu vaccine.

In late-2002, PHARMAC awarded a sole-supply contract for generic felodipine ousting the patented product Plendil. The Ministry of Health raised concerns about the bioequivalence and effectiveness of the generic felodipine so it was withdrawn. PHARMAC gave AstraZeneca 2 weeks’ notice to resupply the market with Plendil (for the 50,000 or so patients requiring it). By September 2003, Medsafe had reinstated consent for the 5 mg and 10 mg strengths of generic felodipine so PHARMAC informed AstraZeneca they were reinstating the original sole-supply contract immediately. The 2.5 mg dose has never been reinstated, so patented Plendil is still being supplied by AstraZeneca who would have preferred to have entirely withdrawn Plendil from the New Zealand market.

Pharmaceutical companies are not in the business of filling the gaps and propping up supply when generic companies’ supplies fail and being expected to turn on and off product supply at one or two days’ notice. Companies can be quite uncertain whether they have obtained a contract in the first place because of the lack of clearly defined response times from PHARMAC to contract submissions and tenders. A contract can be ‘held in abeyance’ for months (or even years), thus making forward planning almost impossible. Companies do not know whether to run stocks down or build them up.

New Zealand now has a very small manufacturing base, importing most products. Lead times to obtain products are around 4–5 months, constraining companies’ abilities to react to any shortages.

The reduction in margins imposed by the tendering and contract processes mean that holding mountains of stock is not financially viable. This affects the whole supply chain including pharmaceutical companies, wholesalers, and pharmacies—thus making the ‘pipeline’ stocks much lower than they used to be. PHARMAC’S constant switching of products also worsens this problem.

Sole-supply tenders are often for 3 years, so products’ supply can becomes tenuous toward the end of the contract period (as uncertainty mounts as to whether the contract will be re-awarded or go to an even cheaper generic supplier), thus cutting margins and possibly quality and reliability even more. Companies that fail to win a tender withdraw their products from New Zealand as there is no longer any market for them. In fact, entire companies have had to withdraw because their continued presence has become no longer viable in New Zealand.

Basic everyday pharmaceuticals (such as iron tablets, allopurinol for gout prevention, the only stat treatment for chlamydia, certain doses of progesterone, diltiazem 90 mg slow release to name just a very few) are all currently or recently out of stock nationwide. For many of these pharmaceuticals, there is no similar alternative.

Quality problems have caused difficulties too—with the generic brand of paracetamol (that won the sole-supply tender) being almost impossible to swallow because of its lack of film covering; cheap enalapril disintegrating into crumbs in unsuspecting patients’ medicine cabinets; and having inferior slow-release morphine (giving higher peak blood levels, but shorter release times), thus leaving sick patients with side effects then premature pain.

Another major concern is that PHARMAC’s sole-supply contracts are for therapeutic subgroups, forcing people to switch not just from a patented product to a generic product, but often to a completely different compound. Generic felodipine has not only replaced Plendil, but amlodipine also, for all but a few with Special Authority subsidies.

Professor Tim Maling, in his 2002 paper Finding a better balance between pharmaceutical supply and demand – a medicinal issue,2 writes:

Professor Maling bemoans the lack of a National Medicines Policy too. Unfortunately the intervening 3 years have not remedied this lack in a country where we seem to have a national policy for almost everything else. Australia’s National Medicines Policy would be a good model for us start with.

New Zealand is no different from any other country with a potentially bottomless demand for health dollars. PHARMAC and its policies have been remarkably successful at constraining the pharmaceutical expenditure of this country—but at what cost? Basic pharmaceuticals run out, are of poor quality, and cause constant and potentially harmful switching of brands for stabilised patients—as PHARMAC signs the next new cheapest deal. Indeed, our flu vaccination, and other vaccination programmes, by association, are in jeopardy from delay and public confusion and disaffection.

In a recent finding by the Health and Disability Commissioner, a pharmacist was found to be in breach of the code for dispensing the incorrect dose of atenolol and Accupril. However, in the pharmacist’s defence, he stated that with frequent changes in suppliers for subsidised medications, plus unfamiliarity with different packs and medications, may have contributed to the error.

An editorial in the NZMJ by a group of respected physicians in Mar 2003 entitled The sorry saga of the statins in New Zealand – pharmacopolitics versus patient care3 had this to say of PHARMAC:

Two years since then, and 5 years since I wrote with concerns about PHARMAC, the situation is much worse, with that organisation being more aggressive and arrogant in its dealings—while choice, quality, and availability of necessary pharmaceuticals spirals us further into Second World health status.

A review of pharmaceutical management, and PHARMAC and its operations, is well overdue.

Author information: Pippa MacKay, Chairman, Researched Medicines Industry Association of New Zealand (RMI), Wellington; General Practitioner, Ilam Medical Centre, Christchurch; and Former Chairman of the NZMA, Wellington

Correspondence: Dr Pippa MacKay, Ilam Medical Centre, 106 Memorial Ave, Christchurch. Fax: (03) 351 7265; email: pippa@ilam.co.nz