Thank you for the opportunity to speak to you today. I hope I can help you in your deliberations on this important issue for Canada. More importantly, I hope that all of you here today have a very happy Valentine's Day.
New Zealand has universal access to pharmaceuticals. It has this at an affordable cost. More importantly, it can fully control the costs of its universal pharmacare program with a somewhat unrivalled precision.
New Zealand has a broad formulary. It has 2,000-plus line items. It has very low copayments by comparison with other countries, in the region of $0 to $5 per item a month. It has very low copayment maxima by comparative standards. No family spends more than $100 a year out-of-pocket on medicines. There are no annual maxima, and there are no lifetime maxima. Costs have grown at a manageable rate over the last 20-plus years, and that's between, on average, about 1% to 3%. During this modest growth in expenditure, the volume of medicines subsidized has grown, sometimes in excess of 8%. Along with all of that, new on-patent medicines and expansion to on-patent medicines have been added to the formulary.
It's clear from the testimony given to this committee, and indeed from the sentiments expressed by its members, that Canada wants universal access to pharmaceuticals for its citizens. The problem, of course, is how to get there.
I've read some of the testimony that you've heard over the last 12 months, and I'm struck by the complexity of the situation. Canada is a vast country and is united as a country under a loose federalism. That makes moving to universal access to pharmaceuticals all the more challenging. New Zealand, by contrast, has a unitary government, and most of its social services are supplied by central government. It's a small land mass and a small population, around the same size as British Columbia.
What does the New Zealand experience of management of pharmacare possibly have to offer Canada? Well, no matter how Canada decides to get there, one key element that it'll need to master to make it feasible is the ability to control the costs of such a scheme or schemes. New Zealand has costs under control, and thus, I believe, there are lessons that can be learned from its approach to gaining this control.
Here are what I believe are the key takeaways from the New Zealand experience.
First, within a jurisdiction, however that jurisdiction is defined, there needs to be a single purchaser. What does this actually mean? It means that the purchaser has to have the power to negotiate. To put it more bluntly, when it says no to a proposal to buy a pharmaceutical, no means no. If a seller can go to another purchaser within the same jurisdiction, the ability to negotiate is diminished. Likewise, if the seller can go to a politician and get a no overturned, the ability to negotiate is lost.
This leads to the second takeaway: the specific decisions about what pharmaceuticals to fund and what not to fund need to be distanced from political decision-making. It's not possible for the drug plan manager to negotiate and manage the costs if his or her day-to-day decisions are at significant risk of being changed. Clearly, drug plan management needs general oversight by our elected representatives and needs to be held accountable for individual decisions. However, this oversight, I believe, is better effected through other levers, rather than by undermining the ability to negotiate. In short, the power of veto should be used judiciously and rarely.
The third lesson is a little technical, but is nevertheless vital: drug plans are better managed by setting an explicit budget and demanding that managers gain the most health benefit possible from within this budget, rather than by setting decision thresholds. I suspect many of you have heard of NICE, the model we look at in the U.K. In NICE, typically decisions are made on the basis of a threshold, usually at cost per QALY, taking into account other things. They may set that threshold at, let's say, 40,000 quid per QALY. That's what I mean by a decision threshold. I don't believe that's a sensible way to approach management in this area, and there are several reasons for this.
First, obviously the funder knows what they're going to face when they set a budget, but more important are the incentives that setting a budget with an explicit objective create for managers and the lever it subsequently offers to politicians. Briefly, the important outcomes that arise from gaining the most health benefit from a fixed budget are as follows.
First, purchasers are given the strongest incentives possible to minimize opportunity costs in their decision-making. Then sellers, faced with purchasers attempting to minimize opportunity costs, are given incentives to offer prices nearer their minimum willingness to sell. By contrast, when thresholds are used, sellers are effectively saying this is the price at which they'll purchase this product. Clearly, this is not a good way to be negotiating prices in any market.
More importantly, the public, when given information, understand rational decision-making in the face of a budget constraint. This has been my learning through my period managing the Pharmaceutical Management Agency in New Zealand. People who have faced the consequences of these decisions, somewhat to their detriment, understand this notion of having to maximize benefit to society within a budget constraint.
Finally, once you have organizational mastery of an explicit objective within an explicit budget, this gives politicians a very powerful lever. It's a lever that allows them to deliberately and consciously reallocate funding between pharmacare and other health care in the manner that they perceive provides the most benefit.
We are all used to the idea of having budgets and being able to reallocate money across different budgets, but frequently those budgets are not stuck to. The difference I'm trying to get at here is organizational mastery of managing the pharmaceutical budget within the budget as set.
All these lessons are structural in nature, which is why I presented them here. If there's one comment I hope you remember from my testimony today, it is this: structure matters in this arena if you want to control costs.
Finally, I have a comment on the key criticism of the New Zealand approach, which I'm sure you're going to hear from my colleagues after the hour. It's often most heavily criticized for its apparent limiting of the range of medicines to which New Zealanders have funding access. In particular, some argue that the rate of adoption of new technology—that is, new chemical entities in this area—is too restrained.
While I might argue about what the word “too” means in “too restrained”, the adoption of new technology in New Zealand is in fact restrained. Creating a fixed budget and requiring its managers to stay within it creates a competitive tension in the marketplace only if the budget cannot fund everything.
I ask simply that you put this criticism in context. All New Zealanders, and I mean every last one of them, have publicly funded access to a very wide range of drugs. This stands in stark contrast to the situation that Canada finds itself in, where some Canadians have access to an even wider range of drugs, while others, most often the working poor, have nothing but out-of-pocket access to this generous array of generously priced pharmaceuticals. This difference is most starkly highlighted by the research you were alerted to earlier last year in the research of Dr. Booth, which pointed out that working-age Ontarians with insulin-dependent diabetes die at a higher rate than 65-plus-year-old insulin-dependent diabetics simply because the older folks have funded access to insulin. Needless to say, this is not an outcome witnessed under the New Zealand approach, and I would certainly hope that this is an outcome that can be dispatched in Canada before too long.
Yes, there are other factors. Bulk purchasing gets you part of the way, gets some price reductions essentially, but as anyone who is involved in business knows, the way to maintain a high price is to identify your product as unique. The alternative to that—in other words, if you're on the buyer's side—is to understand what products are substitutable for one another. It's understanding the substitutability of products that actually drives the competitive process. This is what introduces strong incentives for price competition in the marketplace.
You can do that in several different ways. In New Zealand, for example, when things go off patent, New Zealand runs tenders for sole supplier of the product. Clearly there are many suppliers of the product, and these products are very substitutable for one another, if not perfectly substitutable for one another.
When it comes to on-patent medicines, you will frequently come across a situation where a competitor...and let's be clear, the competitor has produced a “me too” in order to make it into the market and get a slice of the action. These me toos are frequently substitutable for one another, so suddenly, even in the on-patent market, you'll have the ability to leverage price competition from competing suppliers, and that is one of the key areas where benefits derive.
Therefore it's not just bulk purchasing, and in fact these things tend to combine together in many different ways to enter into what you might call “clever contracting”, essentially.
Thank you, Matthew, for coming in and spending some time with us today and helping us better understand the New Zealand system.
I am going to issue an apology, because I'm going to take us away into a different topic at this point in time. It's a topic that is of the essence in terms of time, and it's a motion that has been tabled since the beginning of December. Unfortunately, this is my opportunity to do so.
At this time, I would like to resume debate on the motion that was adjourned at the meeting of December 13. The motion calls on this committee to review the effectiveness of the 2015 thalidomide survivors contribution program.
The committee will recall that a lengthy history of thalidomide and a detailed overview of the problems facing thalidomide survivors in their efforts to obtain compensation were presented at the meeting on December 13, as stated. That presentation outlined that survivors' medical records from the 1960s have been lost or destroyed, witnesses have passed away, and there is no medical or physical screening undertaken and no in-person interview conducted to determine whether survivors qualify for compensation.
The motion calls for a review of the current qualification procedures and how the procedures to qualify for compensation should be changed to ensure that Crawford's victim services are inclusive rather than exclusive.
These survivors, who have all been denied compensation under the current rules, have now gone through another Christmas without the assistance that the government offered to other survivors. As such, I respectfully request that the members limit debate and that we proceed to a vote on this motion at this time so that the committee can undertake this very important review as we go forward in 2017.
I'm not sure how much you know about the New Zealand medical system, but it is a largely socialized medical system. It has many similarities to the Canadian system. You might want to ask some more questions about that later on, but we thought we would go straight to the way in which pharmaceuticals in New Zealand are registered and funded so that you would have a good basic understanding of that.
In a nutshell, we have a regulatory agency called Medsafe, which in United States terms is the FDA equivalent. This body makes decisions about which medicines may be marketed on the basis of their safety and effectiveness. That process in New Zealand works well on the whole. Registration occurs quite quickly, particularly when we compare it to the way in which it happens elsewhere in the world.
Then we have the medicines funding agency, Pharmac, which I think we've not heard much of in Matthew's presentation, but which he will be talking to you about. It's responsible for funding the vast majority of medicines in New Zealand. The private market of New Zealand is tiny and insurers generally fund only what Pharmac approves. Pharmac comprises a secretariat and a clinical committee called PTAC, which is short for the pharmaceutical technical advisory committee, which also has various speciality clinical subcommittees.
Although Pharmac bases its operations on a health technology assessment, or HTA, framework, specifically using cost-utility analysis, there are a number of elements of HTA best practices that are not applied.
For example, the clinical committee that I spoke of, PTAC, is not independent of the secretariat. These problematic aspects have led to a system that has been criticized by patients and clinicians for being unresponsive to patients' needs, inconsistent in its decisions, and responsible for major delays in accessing new treatments. In this, New Zealand sits well behind other OECD nations.
One of Medicines New Zealand's recommendations for greater transparency is that the clinical committee be independent of the secretariat as a way of putting in place normal checks and balances needed in a funding system of this type.
The other point I would make, just at a high level, is that Pharmac is exempt from key elements of the New Zealand Commerce Act. Because of this, it can negotiate very aggressively. It does deals, and it trades by bundling contracts. For example, we'll fund this drug for X if you'll sell us this other drug for Y, and it can and does pursue sole-supply relationships. Sole supply means that Pharmac can contract a company to supply 100% of the market, for three years normally, and it often changes the entire patient population to the next cheapest option once that contract ends. Doing that brings some issues with it.
That, I hope, sort of sets the scene for you.
I'm going to hand over to Graeme now to talk briefly about the strengths and the weaknesses, as we see them, of the New Zealand Pharmac setting.
I'll limit my discussion points to innovative or patented medicines. Obviously, as the industry association for patented medicines, we don't represent generics and over-the-counter products, so bear that in mind.
For anyone, the biggest strength—and I'm sure Matthew spoke at length about it—is the cost containment or the kept budget that Pharmac has. From a health perspective, it's the one component of our health care budget that has remained relatively stable, at around 5% of the total federal health care budget over the past decade or so. You have to give Pharmac credit for that. Ironically, health care costs are going up in New Zealand, as with the rest of the world, with trends such as a chronic disease boom in the aging or older population.
Often one of the highlights that's pointed out to us is that Pharmac is doing a great job because the life expectancy is above the OECD average. Basically, it's above the OECD average as a result of health and medicine standards in New Zealand. It's about 80.3 years of life expectancy. However, even the New Zealand treasury has noted that life expectancy measures are not a particularly useful indicator for a health system's efficiency, obviously because it's influenced by a lot of other factors, be they the living conditions, socio-economic status, or lifestyle choices. That's often the example given to us about the strength of the Pharmac system
From the weakness side, we do have some issues from a new or innovative medicines perspective. There have been a lot of studies, comparative or otherwise, showing that New Zealand lags behind the rest of the world in terms of accessing new or innovative medicines. We're 20th out of 20 comparable OECD countries. In fact, only 13% of a list of 247 innovative medicines were actually funded in New Zealand over a five-year period. For reference, there was a three times greater rate of access in Canada, despite the different systems that I understand you run.
The other thing is that the actual process for registration is quite slow. A published study, not by us, in 2011 highlighted that the lag time between the listing of a medicine by Pharmac on the schedule and its actual registration was 3.6 years. We've done an updated internal study because that study is quite old. We've shown for the newer medicines that it's over four and a half years, so that lag time seems to have been increasing over the past five or so years.
As Heather Roy also mentioned, at times the Pharmac approval process is not transparent. We've seen this from publicly released information from PTAC, the technical advisory committee. There have been 91 cost-effective medicines that they have recommended, which Pharmac funds, but the average waiting time for these medicines—because remember, they're recommended but they've not been funded—is now over three years for these 91 medicines, and that's not just in one therapeutic area. There are things like mental health and depression medicines, cancer medicines, medicines for diabetes, medicines that I understand people in Canada can get access to but New Zealanders simply can't. Type 2 diabetics don't have access at the moment through public schemes. It is the same with asthma and arthritis.
There have even been what have been termed high-priority medicines, so they were recommended by the committee with a high priority, and these have been waiting for up to six years and are still not funded. They're not available to the health care system and they're not available to patients.
You may say, “Well, what does this mean?” “There's only a certain amount of money” is often the thing that's used.
Well, there are studies that have been done on pharmaceutical innovation, and we think they have an effect on patient outcomes and the broader health care system, and, in fact, on society. These are based on what we term real-world data, so it's not clinical trial information, which is often used for health technology assessments, but actual real-world data.
One particularly good study done in Australia in 2015 showed that in 2011 alone, the investment in innovative medicines led to a net savings upstream in the health care system of $1 billion New Zealand.
We've also had a study done in 2016 that was talked about in the New Zealand Parliament. It is currently going through the review process. It showed that just in cancer alone, for every $1 spent and invested in cancer medicines in New Zealand, $1 was saved in terms of the hospitalization costs. That's reduced hospitalization costs, reduced time for patients to be in there, as well as things like improving survival rates and reducing life-years lost, and hence mortality, by over 5%. In fact, for every new cancer medicine that was introduced in New Zealand, the cancer mortality rate dropped by 5%.
That's quite important from a monetary perspective, a budget perspective, and a patient outcome perspective. The study was done repeatedly when we funded it, but then data was collected from public sources away from us. Sadly, the study concluded that had New Zealand invested more in these new cancer medicines, the impacts that I've talked about and noted above may have been far greater, both for patients in the New Zealand health care system and in fact for the clinicians, who would have had access to even more tools to treat the patients.
Finally and most importantly, it's not just us stating these sorts of views. In 2010, the then Minister of Health commissioned a report looking at the role of Pharmac, with the potential to expand it. It was referred to as the Sage report. It requested that some operational corrections be made to Pharmac's procedures around the lack of transparency on the scientific processes for making decisions, the time frames for funding decisions to be made, the lack of direct stakeholder access to the clinical committee, to PTAC, and the lack of ability to challenge a funding decision or the presence of any appeals process.
As well, questions were asked over the practice of bundling. It was felt that bundling led to decision-making processes that focused on cheap prices or good deals but not necessarily the best solution for the patients or the health care system in general. Regrettably, none of those steps have really been implemented, despite the way that Pharmac is now changing its model and is now, in fact, looking after medical device procurement for the public health system.
The other thing to note, I think, is that it's not just us saying these things—
Yes. We've seen, I think, over the past five years quite a bit more awareness in the public and health care professionals and in general media debates over a lack of access to medicines in New Zealand. Out of interest, an online survey completed last year showed that of the over 1,000 people who responded, 89% thought the New Zealand government should invest more in new medicines.
Specialists and doctors in oncology and their patients have become far more vocal. There was a big one last year around innovative medicines for skin cancer, melanoma. We have the highest rate globally for melanoma. Australia had five innovative medicines that were funded; we had none, absolutely none, and these are shown to make quite a big impact.
It's not just cancers; it's rare diseases, diabetes, and arthritis. There is a lot more public debate on access to these medicines. Even in the case of general practitioners, such as community-based doctors, a survey last year showed that 71% of them thought that the range of medicines reimbursed through Pharmac may compromise patient health outcomes, and 72% also felt the range of medicines available affected their prescribing practices.
These are not good things from a New Zealand patient perspective or a health care system perspective, and yet we are cognizant of the fact that there is only a certain amount of money to go around. It means investing the best you can with the best return on investment. For us, and from the evidence, we believe that innovative medicines are a very good return on investment for any health care system to consider.
Although I'm quite happy to send the committee the papers, if they so I wish, there have been studies that actually quantitfy this, and these are those real-world studies that I was referring to.
The Australian study I referred to talked about a range of chronic and acute conditions—cancers, diabetes, arthritis—and actually showed that you are saving money, so there's a return on investment for the health care system. Other studies have also shown that in terms of productivity, meaning economic impact, access to a number of medicines provides you with enhanced productivity, as I mentioned, because there's less absenteeism from work, and less presenteeism, which is a term meaning you're not optimal at work. You're half asleep, as I am this morning.
There are studies that have actually quantified that based on real-world analysis. These are economic studies. Therefore, I think there is a place for medicines, and for innovative medicines in particular, in the health care system; and it's a matter of getting the balance right.
I think that is our fundamental discussion here today. If you don't get the balance right in terms of funding, if you only have costing payment on what is allowed you and don't deal with the real return on investment from innovative medicines as part of the health care system, that creates problems in your health care system.
If everything was great and we had the right medicines, I wouldn't expect to see health care costs ramping up as quickly as they can. The year-on-year investment in our health care system is 29 times greater than it has been for our medicines. That's quite significant.
I will use diabetes as an example. One in 16 New Zealanders has type 2 diabetes, so there are about 250,000 type 2 diabetics in New Zealand in a population of 4.7 million.
Again, it's not just us saying this. I understand, from looking at your formulary, that diabetics in Canada can get access to three different classes of diabetes medicine, such as GLP-1s, DPP-4s, etc.
In New Zealand we have metformin and sulfonylureas and insulin, which is more for type 1 diabetics. Clinicians and specialists have basically argued in the public domain that type 2 diabetics need to have access to some, not all, of these medicines, because they help reduce the comorbidities of diabetes, which at the moment cost New Zealand about $1.1 billion a year.
These are medicines that you get in Canada. These are medicines that are recommended in international guidelines for the treatment of diabetes, and at the moment type 2 diabetics in New Zealand aren't getting access to them. Mainly it's 10% to 20% of type 2 diabetics who actually really need these. It's great to have metformin, but we need these other medicines.
It comes down to getting a good balance. It does have an impact on the chronic disease burden if you're not getting the right treatments that clinicians know would make a difference.
Thank you very much, Mr. Chair.
I want to thank the witnesses for getting up early and being with us, as everyone says.
I want to move along this line of questioning about costs versus quality. I believe, Heather, you said that you had been an MP, so you were sort of in that situation that we see ourselves in. We talked about the concern about balance, getting the best outcome for a limited budget and the best return on investment. I guess that's okay, as long as you're not the person who needs the innovative medicine.
You mentioned melanoma. I think to myself, what if I was a New Zealand citizen who had paid for my whole life into this system for pharmaceuticals, but when the day came that I needed an innovative drug, I couldn't get it? In Canada, we have a very vibrant private sector insurance industry. We have vibrant generics and name brand industries.
Do you have any data on people who can't get these innovative drugs? Have you ever had a lawsuit? As I was saying, if I'm part of society down there and I've paid for this entire system my entire life, and then some bureaucrat makes a ruling that I can't have that drug, what do I do if I'm a New Zealand citizen and I need treatment?
We don't have lawsuits, for two reasons. First, Pharmac has an exemption from the Commerce Act, so there aren't lawsuits—company versus Pharmac—for that reason. We also have a public insurance-based system called Accident Compensation that deals with accidents only, not illnesses. That system was put in place also to prevent lawsuits from being prevalent in New Zealand. They're not impossible, but they tend not to happen.
With regard to your comment, it's very hard to get data on who's missing out. It's much easier to get data on who is taking medicines, but that leaves a big gap in terms of how many people are missing out.
In the absence of data, we measure how much noise there is out there in the community about people who are not getting access. People think we have a pretty good system, by and large, until they or somebody very close to them develops a disease and is presented with a lack of access to something that their doctor knows would help them with the illness that they have by treating them or curing them. We have had some pretty high-profile public cases in which patients have taken petitions to Parliament, stood on the steps of Parliament. Recently we had a case of melanoma treatment where that exact thing happened. That person's just been awarded the New Zealander of the Year title for 2016.
There is disquiet out there. Many of the patient groups are very vocal and lobby hard because of the lack of access to drugs that they know they would have automatic access to if they lived in Australia, Canada, or the United Kingdom.
The balance is really important. I would like to see much greater transparency around the Pharmac decision-making process, and we would like to see government committing more to the amount of funding that they allocate to Pharmac for pharmaceutical funding.
I'd simply like to raise a technical question, Mr. Chair.
You might want to use your earpieces, because the issue is about translation.
While I was listening to the interpretation channel, there were several moments where there was no interpretation at all. Our interpreters are not the problem. There are some technical issues. We have witnesses from New Zealand, and we've had all sorts of technical difficulties today during the entire question period. Personally, I don't always need the interpretation, but today because of the witnesses' accent, among other things, I wanted to listen to the interpretation. And in doing so, I lost a good part of the content of the discussion.
This is in fact an argument in favour of travelling. Things are different when people are on site. This is the type of technical difficulty that arises when we put questions to people who are at the other ends of the earth, and I find this unfortunate. These people are far away, and when we call them, we should take Canada's two official languages into account as we usually do. That is fundamental.
What would have happened if I'd asked a question in French? I don't even know if they have an interpreter on their side. I saw no earphones nor any other such preparation to answer questions. I don't have the impression that they were equipped to do interpretation on their side.
I would like us to take that into consideration for the next time.