Pharmaceutical Management Agency: Changes to the frequency of medicine dispensing.

In 2002, the Pharmaceutical Management Agency (Pharmac) reviewed its approach to dispensing medicines. In October 2003, it partially reintroduced the ability for a 90-day supply of medicines to be dispensed to patients in one quantity. Pharmac projected that, by partially reintroducing all-at-once dispensing, it could reduce district health boards’ spending on dispensing fees paid to pharmacists by $132 million over 5 years.

We report on the extent to which the projected savings have been achieved, and how well Pharmac managed the risks to savings and the effects of all-at-once dispensing on patients and others.

What is Pharmac, and what does it do?

Pharmac is a Crown Entity, established by the New Zealand Public Health and Disability Act 2000. Pharmac’s main objective is to secure for eligible people the best health outcomes that are reasonably achievable from medicines, from within the funding available.

Pharmac manages and maintains the New Zealand Pharmaceutical Schedule (the Schedule) and promotes the responsible use of medicines. The Schedule sets out the rules that health professionals and pharmacists must follow to prescribe and dispense medicines, and states the maximum quantity of each medicine that health professionals can prescribe, and pharmacists can dispense, at a time.

What is all-at-once dispensing?

Doctors1 usually prescribe a 90-day supply of medicine at a time. If patients are dispensed the full 90-day supply on one visit to a pharmacy, this is “all-at-once” dispensing or “stat” dispensing. This dispensing regime was used from 1989 to April 1996. From 1 May 1996, a monthly dispensing regime was put in place because dispensing fees were low and medicine costs were high. Under monthly dispensing, a 90-day supply of medicine was dispensed in three 30-day quantities. Because the cost of many medicines came down, and dispensing increased, monthly dispensing began to cost more than it was saving. It was replaced on 1 October 2003 by the partial reintroduction (covering some, but not all medicines) of all-at-once dispensing.

How did we carry out our audit?

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. We compared Pharmac’s projections for savings from 1 October 2003 to 30 June 2004 with Pharmac’s calculation of the savings achieved. We also looked at whether Pharmac had managed the potential risk to savings from the flexibility provisions in the Schedule, which allow doctors to prescribe a 90-day supply of medicine to be dispensed in smaller quantities. We evaluated Pharmac’s actions to manage and mitigate some of the effects of all-at-once dispensing on patients and others.

Were the projected savings from the partial reintroduction of all-at-once dispensing realised?

There is no question that all-at-once dispensing results in a saving to district health boards; pharmacists are paid fewer fees for dispensing each 90-day supply of medicine than was the case under monthly dispensing. This saving is partially offset by ongoing and once-only costs.

Pharmac had identified the factors that could influence savings under all-at-once dispensing, and reasonably projected and calculated the savings from the partial reintroduction of all-at-once dispensing. However, there were some small omissions in the original projections.

Pharmac originally projected a saving of $5.24 million from 1 October 2003 to 30 June 2004. We cannot give assurance over the savings achieved between 1 October 2003 and 31 December 2003, because Pharmac did not calculate the savings for this period. The implementation costs were incurred during the period that Pharmac did not monitor.

Pharmac calculated the ongoing savings to district health boards from 1 January 2004, and concluded that savings were likely to meet their projections. The calculation under this model is reasonable. However, if any calculation is made of savings in the period 1 October 2003 to 30 June 2004, it should include all the implementation costs that reduce the total. If the implementation costs of $17.96 million are taken into account, the savings by district health boards in this period would reduce, from an estimated $22.4 million to $4.24 million.

District health boards will continue to realise savings from all-at-once dispensing, so long as the contractual relationships between district health boards and pharmacists do not change significantly. However, there is much uncertainty in calculating savings 5 years into the future. We have made recommendations to improve the quality and transparency of estimates of the effect of efficiency proposals. These recommendations are as relevant to the wider public sector as they are to Pharmac.

How did Pharmac manage the risks to savings and the financial effects of all-at-once dispensing?

Before all-at-once dispensing was implemented, Pharmac provided information to doctors and pharmacists that adequately addressed the risk that the flexibility provisions in the Schedule (close control) could affect projected savings.

Pharmac worked to ensure that pharmacy claims could be paid without interrupting the normal payment cycle. The major supplier of software that pharmacists use to make pharmacy claims did not finish testing its software until 16 October 2003, so the transitional period might have been too short.

Patients who only collect medicines that are dispensed all at once have fewer visits to pharmacies. Patients who also collect medicines dispensed in smaller quantities have the same number of visits, or sometimes fewer, than they did with monthly dispensing. All-at-once dispensing did not increase patients’ travel costs to collect medicines.

Close control enables, among other benefits, the costs of prescription charges and any manufacturers’ surcharges to be spread over, for example, 3 months for those patients who have difficulty paying them all-at-once. Activating close control relies on doctors and patients discussing the issue.

Patients are financially disadvantaged by the partial reintroduction of all-at-once dispensing when they pay additional fees to get their medicines (for example, fees to get medicines after-hours), or pay for “blister” packaging that they were not charged for under monthly dispensing. More pharmacists are charging after-hours fees, to recover some of the revenue lost from the partial reintroduction of all-at-once dispensing.

Minimising the quantity of unused dispensed medicines

All-at-once dispensing increases the quantity of medicines dispensed to patients. We expected Pharmac to have minimised the portion of the additional medicines that patients would not use. The method Pharmac used to identify medicines that would save district health boards money, if dispensed all at once, minimised the potential increase in the quantity of unused dispensed medicines. We agree with Pharmac’s view that it is difficult to estimate how much of the additional medicines provided to patients would go unused.

It is not clear which organisation – Pharmac, district health boards, or the Ministry of Health – is responsible for funding the collection and disposal of unused medicines. District health boards hold little or no data about the quantity and type of unused dispensed medicines. In November 2004, 40% of district health boards funded the collection and disposal of unused medicines, and another 30% intended to do so in future. Several district health boards were to gather data during 2004-05 to help them choose the most effective arrangements to prevent and manage medicine waste. Collecting nationally consistent data about unused dispensed medicines would help to improve the quality of prescribing and the effective use of medicines, and reduce waste.

Minimising risks to patients

During the consultation about all-at-once dispensing, some submissions noted that all-at-once dispensing could pose a safety risk because more medicines would be in homes for 60 days of a 90-day treatment period. Adequate mechanisms are available in the Schedule (for example, close control) to manage the risk of poisoning, theft, and any difficulties patients might have managing larger quantities of medicines. The mechanisms rely on the doctor, patient, and pharmacist actively considering the risks.

Concerns were also raised about the ability of residential care services to safely manage larger quantities of medicines. However, the Schedule lets residential care services store the same quantities as they did under monthly dispensing.


We recommend that:

  1. the Pharmaceutical Management Agency ensure that reports on the savings under all-at-once dispensing reflect the sensitivity in the model for calculating savings;
  2. when the forecast effects of any efficiency proposals are put to decision-makers, a breakdown of the important assumptions, uncertainties, and limitations around the estimates is included;
  3. ranges of likely results be given when efficiency proposals are put to decision-makers, or released to the public, to reflect any uncertainty in the calculations;
  4. the Pharmaceutical Management Agency use its existing powers to ensure that independent research is undertaken to determine what effect, if any, dispensing medicines to patients in 30-day or 90-day quantities has on patients’ use of those medicines;
  5. the Ministry of Health take the lead in discussing and agreeing with district health boards and the Pharmaceutical Management Agency, and other organisations as required, where the responsibilities will lie for monitoring unused medicine, and for funding the collection and disposal of publicly and privately funded unused medicines; and
  6. district health boards collect consistent data about the quantity and type of unused dispensed medicines funded by them, to improve the quality of prescribing, the effective use of medicines, and reduce waste.

1: Doctors are the health professionals who most commonly prescribe a 90-day supply of medicine. (Not all health professionals who are able to prescribe medicines are able to prescribe a 90-day supply of medicines.) For the purposes of this report, “doctor” refers to health professionals who are able to prescribe a 90-day supply of medicines.

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