Pharmac explained: how New Zealand decides which medicines to fund

Panels reach for Pharmac because it is a small agency with every big question inside it: universal access, a fixed public purse, an expert committee making explicit trade-offs, patients campaigning for medicines on the wrong side of a line, and a government deciding each year where that line sits. A candidate who can walk a medicine from the manufacturer to the pharmacy counter has demonstrated more understanding of New Zealand healthcare in ninety seconds than most manage in an hour.

Here is the version worth holding. Pharmac does not decide what a medicine costs. It decides whether the public will pay for it, and because the budget is fixed, every yes is paid for by a no somewhere else on the list. Everything interesting — the delays, the campaigns, the political budget top-ups — sits in that trade-off.

Two gates, in order. Medsafe, the regulator, decides whether a medicine is safe and effective enough to be sold in New Zealand. From that point it can be prescribed and bought privately at full price. Pharmac then decides whether the public will pay for it, which is a different question with a different answer.

The process runs on a fixed budget — the Combined Pharmaceutical Budget, set by the government each year and topped up in some years after public pressure. Pharmac receives applications, its Pharmacology and Therapeutics Advisory Committee assesses the clinical evidence and recommends a priority, and Pharmac ranks the medicine on its options-for-investment list against everything else waiting, using cost, benefit, need and the agency’s published decision criteria. It then funds from the top of the list down until the money runs out. The medicines below that line are published, which is the feature that makes the model both unusually transparent and unusually painful: a patient can see exactly which treatment the country has decided not to buy. Once funded, most medicines carry a $5 prescription charge, with exemptions for children, older people and community services card holders.

Hold both of these at once. The case for the model. A fixed budget forces explicit prioritisation, and explicit prioritisation is more defensible than the implicit rationing — waiting lists, postcode variation — that other systems hide behind. The single-buyer model delivers prices that a fragmented system could not, and the money saved on generics funds newer medicines that would otherwise be out of reach. Every dollar is accounted for in public.

The case against how it works. The budget is set politically and has not kept pace with the arrival of high-cost specialty medicines, so the line falls above treatments that peer countries fund routinely, and the patients below it are told so in writing. Rare-disease medicines fare worst, because their evidence is thin by definition. The 2022 independent review found the agency too focused on cost and not enough on health outcomes and equity, and recommended cultural and process changes. And the sole-supply model has produced supply shortages when a single contracted product fails.

Notice that both sides accept that someone has to say no. The disagreement is about how big the budget should be, how transparent the ranking is, and who bears the cost of the wait — which is the level a panel wants you arguing at.

Three episodes come up repeatedly and are worth holding as examples rather than headlines. The cystic fibrosis medicine funded in 2023 after years of campaigning, which showed both the human cost of the wait and the system eventually moving. The 2024 budget increase — several hundred million dollars over four years, announced after a campaign about cancer medicines — which showed the budget line is political and can be moved. And the prescription charge, removed by one government in 2023 and reinstated at $5 by the next in 2024 with exemptions, which is a small policy that teaches the whole argument about co-payments: a flat charge is regressive, an exemption list is administratively messy, and both governments could point to evidence for their choice.

Say those three and you have shown a panel that you follow the system rather than the slogans about it.

This arrives in three shapes. The direct one: "How are medicines funded in New Zealand?" The scenario one: a patient asks why a treatment they read about is not available to them. And the disguised one — "Should the health system fund every effective treatment?"

For the direct question, walk the medicine from Medsafe to the Schedule. For the scenario, be honest about the line, know what options exist, and do not blame the agency in front of the patient. For the disguised question, use the fixed budget as your worked example of explicit rationing and say where you would draw the line.

Start with Pharmac’s own "How we work" pages, which explain the budget, the decision criteria and the options-for-investment list in plain language, then look at the list itself so you have seen what an unfunded medicine looks like on paper. The 2022 independent review’s summary gives you the sharpest criticism; Medsafe’s site gives you the first gate.

Two pieces here give you the surrounding system. How the New Zealand health system actually works puts Pharmac beside Te Whatu Ora and ACC, and the health reform story is the structural change everything else now sits inside. For the interview formats themselves, see our New Zealand interview guides.