Part 1: Introduction

• What is Pharmac, and what does it do?
• What is all-at-once dispensing?
• Why did we audit the partial reintroduction of all-at-once dispensing?
• How did we carry out our audit?

What is Pharmac, and what does it do?

1.1
The Pharmaceutical Management Agency was established by section 46 of the New Zealand Public Health and Disability Act 2000. The Agency is referred to, both commonly and by the Act, as Pharmac.

1.2
Pharmac’s main objective is to secure for eligible people the best health outcomes that are reasonably achievable from medicines, from within the funding Pharmac has available. The amount of funding available to Pharmac each year is agreed in its contract with the Minister of Health.

1.3
Pharmac’s roles are to manage and maintain the New Zealand Pharmaceutical Schedule (the Schedule), and promote the responsible use of medicines. The Act allows Pharmac to undertake research, within its budget, to help it meet its objectives.

1.4
The Schedule lists subsidised and unsubsidised medicines. It sets out the rules that doctors and pharmacists must follow to prescribe and dispense medicines to obtain subsidies, and states the maximum quantity of each medicine that doctors can prescribe. Most patients who take medicines regularly are prescribed a 90-day supply at a time. The Schedule also limits the maximum quantity of each medicine that pharmacists can dispense at a time.

1.5
To achieve its objectives, Pharmac interacts with other organisations and groups that have their own responsibilities for managing medicines. These other organisations and groups include medicines suppliers, health professionals, pharmacists, district health boards, New Zealand Medicines and Medical Devices Safety Authority (Medsafe), Health Payments, Agreements and Compliance (HealthPAC), and New Zealand Health Information Service (NZHIS).²

What is all-at-once dispensing?

1.6
Doctors usually prescribe, for patients who take medicines regularly, a 90-day supply of medicine. If patients are dispensed the full 90-day supply on one visit to the pharmacy, this is “all-at-once” or “stat” dispensing. If patients must visit the pharmacy 3 times, and are dispensed a 30-day supply each time, this is “monthly” dispensing.

1.7
Pharmac introduced monthly dispensing in 1996, then partially reintroduced all-at-once dispensing in 2003. The new regime was a partial reintroduction of all-at-once dispensing because only some medicines listed in the Schedule can be dispensed all at once.

Monthly dispensing – 1996 to 2003

1.8
In 1996, Pharmac’s main reason for introducing monthly dispensing was to reduce the cost to regional health authorities of medicines and their supply. (Regional health authorities were the organisations responsible, in 1996, for funding these costs.) Pharmac knew that patients do not always take all of the medicines dispensed to them – regional health authorities were paying for medicines that patients were not taking. The unused medicines were expensive when compared to the relatively low average dispensing fee.

1.9
Pharmac estimated that, although pharmacists would earn 3 dispensing fees instead of one, the cost of the extra dispensing fees would probably be less, on average, than the amount of money regional health authorities were paying for medicines that patients were not using.

1.10
Pharmac amended the Schedule, from 1 May 1996, to require a prescription for a 90- day supply of medicine to be dispensed in 30-day quantities (with a few exceptions). This meant that patients had to go to pharmacies 3 times to obtain the full supply and pharmacists earned 3 dispensing fees.

1.11
If patients had difficulty getting to a pharmacy, they could be dispensed the 90-day quantity all at once.

Partial reintroduction of all-at-once dispensing – 2003 onwards

1.12
In 2002, Pharmac concluded that monthly dispensing was costing more than it was saving. The cost of medicines was lower, and the dispensing fee was higher, than had been the case in 1996. For example, the cost of a monthly supply of a medicine to treat stomach ulcers had reduced from $106 to $30. The cost of a monthly supply of a medicine to lower blood cholesterol levels had reduced from $187 to $17.

1.13
Since 1996, the average dispensing fee paid to pharmacists had doubled, and more medicines were being prescribed (so more dispensing fees were being paid). In 1998, pharmacists were paid $90 million in dispensing fees, and in 2002 they were paid $180 million. By July 2003, Pharmac was estimating that dispensing fees would reach $207 million for 2003.

1.14
Pharmac calculated that it would be cheaper for district health boards if the amount they were paying pharmacists to dispense medicines could be reduced – even if this meant that patients took home more medicines than they were under monthly dispensing.

1.15
District health boards agreed to Pharmac amending the Schedule and partially reintroducing all-at-once dispensing. Pharmac’s Board made the final decisions, and the new Schedule came into effect on 1 October 2003.

1.16
If a medicine on the all-at-once dispensing list is prescribed for 90 days, it must be dispensed to patients all at once – unless the doctor writes on the prescription that they want the pharmacist to dispense the medicine in 30-day quantities (or more frequently). The instruction doctors write on the prescription to make this happen is called “close control”.

1.17
Pharmacists earn one dispensing fee for dispensing a 90-day supply of medicine all at once. They earn 3 dispensing fees if a 90-day supply of medicine is dispensed 3 times under close control. They can earn 90 dispensing fees if a doctor prescribes that a medicine on the all-at-once dispensing list be dispensed daily.

1.18
Pharmac calculated the financial benefit of all-at-once dispensing by analysing the effect of dispensing a 90-day quantity of medicine in one quantity instead of 3.

Why did we audit the partial reintroduction of all-at-once dispensing?

1.19
Government agencies, responsible for introducing changes to the way public funds are distributed, need to be able to account for the reasonableness of the costs and benefits projected for those changes.

1.20
Pharmac projected that partially reintroducing all-at-once dispensing could reduce district health boards’ spending on dispensing fees paid to pharmacists by $132 million over 5 years.

1.21
In our view, it was important to audit this decision. The change involved a large amount of money, had a widespread effect on patients, doctors, and pharmacists, and was of interest to both the public and the Health Committee of the House of Representatives.

How did we carry out our audit?

1.22
We examined the assumptions underlying Pharmac’s business case to partially reintroduce all-at-once dispensing, and the risks and uncertainties associated with those assumptions and savings projections.

1.23
We compared Pharmac’s projections for savings from 1 October 2003 (the day all-atonce dispensing was reintroduced) to 30 June 2004 (the end of Pharmac’s and district health boards’ financial year) with Pharmac’s calculation of the savings achieved. We assessed whether the savings were attributable to all-at-once dispensing.

1.24
Close control, if inappropriately used, could reduce the projected savings to district health boards. We expected that Pharmac had provided guidance to doctors and pharmacists to adequately address this risk.

1.25
Changes to the Schedule can require changes to the information technology used to make and pay pharmacy claims. We expected that Pharmac would have ensured that the information technology changes were made in time to implement all-at-once dispensing from 1 October 2003, without interrupting the claims payment cycle. We also decided to review Pharmac’s actions to inform the prescribing software suppliers of the changes needed to implement all-at-once dispensing.

1.26
We expected that Pharmac would have considered and quantified the flow-on financial effect of all-at-once dispensing for patients, identified any untoward consequences, and taken effective mitigating actions.

1.27
All-at-once dispensing means that some patients take home more medicines than they did under monthly dispensing. We expected that Pharmac would have taken steps to minimise the quantity of medicines dispensed to patients but not used. We expected that they would have agreed, with district health boards, who would be responsible for collecting unused medicines from pharmacies for disposal.

1.28
We did not ask district health boards how they had used any savings. We did not evaluate the effect, if any, of all-at-once dispensing on patients’ health.

1.29
We reviewed Pharmac’s internal papers and external communications and interviewed staff. We also interviewed staff from the Ministry of Health.

1.30
We surveyed district health boards to get information about issues related to all-at-once dispensing for which they had accepted responsibility. These were preserving patients’ access to pharmacies, and collecting and disposing of unused medicines.

1.31
To assess Pharmac’s method for estimating savings, we contracted Dr Stephen Haslett (Professor of Statistics at the Institute of Information Sciences and Technology, and Director of the Statistics Research and Consulting Centre, Massey University) in an advisory role.

2: Appendix 1 gives an overview of how pharmacists’ claims for reimbursement of the cost of medicines and dispensing fees are dealt with, and the role of district health boards, HealthPAC, and NZHIS in this.