Divergent spender: State‐societal and meso‐organisational mechanisms in the containment of public spending on pharmaceuticals in a liberal capitalist democracy

Abstract

For two decades, New Zealand has been placed consistently at the foot of OECD rankings for state expenditure on pharmaceuticals. In this article, we explore New Zealand's containment of pharmaceutical spending as a ‘divergent’ case of pharmaceutical policy in a liberal democracy. To elucidate the likely institutional mechanisms and interests behind this phenomenon, we conducted a case study of New Zealand's drug reimbursement policy. In doing so, we derived sensitising concepts from major accounts of pharmaceutical policymaking (Corporate Bias Theories and Reputational Theory) and theories of the western state (Historical Institutionalism and Corporate Domination Theory). Drawing on 28 expert interviews and documentary analysis, we identified three main mechanisms of spending containment. First, New Zealand's state bureaucracy use pricing strategies that rely on a spending containment strategy coordinated by bureaucratic managers. Second, these managers shape the policy preferences of expert committees involved in scientific drug assessment. Third, on a meta‐level, conditions for spending containment are enabled by the judicial‐legislative arena. As such, we find support for Historical Institutionalism and Reputational Theory and more limited support for Corporate Bias Theory and Corporate Domination Theory. Our explanation posits further conceptual linkages between the macro/societal and meso‐organisational theoretical levels.

Pricing strategies, executive committee power and negotiation leverage in New Zealand's containment of public spending on pharmaceuticals

“…PHARMAC's cross-cutting influence over MEDSAFE further enables these approaches. These processs may intensify a cost-containing, ‘anti-competitive’ logic – alongside aspects of promoted competition – in New Zealand's reimbursement policy (see Main and Ozieranski, 2021 for the judicial-legislative context to this logic).…”

“…PHARMAC's strategic operations have become part of industry's ‘institutional’ knowledge (as opposed to their and PHARMAC's ‘market knowledge’). For example, PHARMAC's sub-institutional influence over their HTA system provides an explanation for how this influence reinforces cost containment: PHARMAC's executive committees influence over PTAC (and potentially MEDSAFE) promotes an industryreaction to theinstitutional reality and in turn a rationale for industry not seeking to influence drug reimbursement pressure points in New Zealand (Main and Ozieranski, 2021) by, for example, deploying more expensive drug marketing and lobbying of the medical milieu including PTAC members (cf Ozieranski and King, 2017). In effect, then, PHARMAC's executive management committee's sub-institutional power constrains the use and efficacy of indirect industry strategies (such as lobbying) by funnelling the industry's strategic approach to gaining favourable reimbursement decisions into executive-level approaches, in other words, deal making approaches.…”

“…influence over HTA). As we have seen, PHARMAC seeks to promote mutually beneficial relationships with industry actors in some cases – and especially in generic supply from domestic-based industry – at the same time as they maintain the overall conditions of competitive pressure on prices through a bricolage of pricing strategies (Main and Ozieranski, 2021).…”

“…PHARMAC's success in containing pharmaceutical expenditure is well acknowledged in the scholarly community (Metcalfe et al, 2003;Cumming et al, 2010). Research carried out thus far has noted PHARMAC's use of 'reference pricing' as well as risk sharing, multiproduct deals with drug companies, and use of expenditure caps, rebates and competitive tenders for generics (Grocott, 2009;Main and Ozieranski, 2021). Nevertheless, less attention has been paid to PHARMAC's specific pricing strategies for patented drugs or how price negotiations between the agency and drug companies are conducted in practice and their link to effects on levels of expenditure (Main and Ozieranski, 2021).…”

“…Research carried out thus far has noted PHARMAC's use of 'reference pricing' as well as risk sharing, multiproduct deals with drug companies, and use of expenditure caps, rebates and competitive tenders for generics (Grocott, 2009;Main and Ozieranski, 2021). Nevertheless, less attention has been paid to PHARMAC's specific pricing strategies for patented drugs or how price negotiations between the agency and drug companies are conducted in practice and their link to effects on levels of expenditure (Main and Ozieranski, 2021). Separately, although the uniqueness of PHARMAC's approach to price negotiations has been attributed to its 'commercial astuteness' (Cumming et al, 2010), it is fair to argue that the empirical content of this description needs to be clarified.…”