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Microsoft word - prescription medicines.doc

REDEVELOPMENT OF THE PRESCRIPTION MEDICINES COMPONENT
OF THE CONSUMERS PRICE INDEX
Andrew Ransom
Statistics New Zealand, Aorangi House, 85 Molesworth St, Wellington, New Zealand The Prescription Medicines component of the Consumers Price Index (CPI) is being reviewed. The review was prompted by a need to update the sample of medicines and their weights, and to develop a robust strategy for appropriately measuring price change taking into account changes in subsidies between therapeutically equivalent medicines. The initial stage of the redevelopment centred on reselection and reweighting of the samples of medicines, based on data obtained from the New Zealand Health Information Service and the Ministry of Health. This stage has been completed and was implemented in the December 2004 quarter. This paper provides an overview of the approach taken to the sample reselection and reweighting and outlines major improvements that have been made. In New Zealand, prescription medicines are subject to significant government subsidies. Pharmac, the Pharmaceutical Management Agency, is a Crown entity whose main function is to maintain and manage the pharmaceutical schedule, a list of approximately 2,600 prescription medicines and related products subsidised by the Government. Pharmaceutical suppliers apply to Pharmac to have a medicine listed on the schedule for subsidy, usually after Ministry of Health approval of the product. Changes to the schedule occur regularly as new medicines are introduced, old medicines are delisted, and subsidies are adjusted. When changes in subsidy occur between therapeutically equivalent medicines, this creates problems for measuring price change experienced by consumers. For example if the price of medicine A increases significantly because its subsidy is reduced from full to partial, but a therapeutically equivalent replacement, medicine B, is introduced at a fully subsidised price, consumers have a choice between the two. Some consumers will experience the price increase of medicine A, and some, who immediately switch to medicine B, will not. This paper details various situations that arise due to subsidy changes and the strategy that has been developed to appropriately measure price change. Disclosure Statement
Copyright
Information obtained from Statistics New Zealand may be freely used, reproduced, or quoted unless otherwise specified. In all cases Statistics New Zealand must be acknowledged as the source. Liability
While care has been used in processing, analysing and extracting information, Statistics New Zealand gives no warranty that the information supplied is free from error. Statistics New Zealand shall not be liable for any loss suffered through use, directly or indirectly, of any information, product or service.
Introduction

of Primary Health Organisations (PHOs). The paper also outlines how prices are currently collected for the CPI. Finally, the paper details the strategy that has been The Consumers Price Index (CPI) measures the rate of developed to appropriately measure price change when price change of consumption goods and services changes in subsidy occur between therapeutically purchased by New Zealand resident households living The prescription medicines component of the CPI is Sample Reselection and Reweighting
being reviewed. The review was prompted by a need to update the sample of medicines and their weights, and to develop a robust strategy for appropriately The initial stage of the redevelopment centred on measuring price change taking into account changes in reselection and reweighting of the samples of subsidies between therapeutically equivalent medicines, based on data obtained from the NZHIS and the Ministry of Health, following consultation with Pharmac concerning data requirements and availability. The prescription medicines component of the CPI includes the Prescription Medicines subsection and the Contraceptive Pills item, which is part of the The Data
Contraceptive Supplies subsection. These two subsections are included in the Personal and Health Care Group, and combined amount to 0.18 percent of The data are grouped using the following variables: the total expenditure weight of the CPI or around $105 million in total annual expenditure. Therapeutic group: The standard international
pharmaceutical way of grouping medicines. Medicines
The initial stage of the redevelopment centred on are grouped according to their anatomical, therapeutic reselection and reweighting of the samples of medicines, based on data obtained from the New Zealand Health Information Service (NZHIS) and the Patient category: The consumer’s age and income
Ministry of Health. This stage has been completed and category as coded on the prescription form. was implemented in the December 2004 quarter CPI. Prescription items: The number of pharmacy
In New Zealand, prescription medicines are subject to dispensings. This is a measure of volume. significant government subsidies. Pharmac, the Pharmaceutical Management Agency, is a Crown Brand name: The trade name of the product given by
entity whose main function is to maintain and manage the Pharmaceutical Schedule, a list of approximately 2,600 prescription medicines and related products Chemical name: The name of the active chemical
subsidised by the Government. Pharmaceutical suppliers apply to Pharmac to have a medicine listed on the schedule for subsidy, usually after Ministry of Chemical ID: The Pharmac identifier of primary
Health approval of the product (Pharmac, 2004). active chemical ingredient. Chemical ID and Changes to the schedule occur regularly as new presentation ID combine to form formulation ID. medicines are introduced, old medicines are delisted, and subsidies are adjusted. Brand code: This is an eight digit code. It comprises a
four digit chemical code plus a two digit presentation
ID (also known as a formulation suffix) and a two digit therapeutically equivalent medicines, this creates problems for measuring price change experienced by consumers. For example, if the price of medicine A Month and year claimed: The timing of a claim by
increases significantly because its subsidy is reduced the pharmacy for pharmaceutical subsidy from from full to partial, but a therapeutically equivalent replacement, medicine B, is introduced at a fully subsidised price, consumers have a choice between the Patient contribution: The amount the patient has to
two. Some consumers will experience the price pay for the medicine. This is a measure of consumer increase of medicine A, and some, who immediately Reimbursement cost: The amount that is reimbursed
This paper provides an overview of the approach taken to sample reselection and reweighting. The paper examines various factors that affect consumer prices for prescription medicines, including the introduction Sample Reselection
Within the patient category variable there are three A representative sample of contraceptive pills was main consumer age categories: adult, child six to 17 selected from the Genito Urinary System therapeutic years, and child under six years. Prior to the group to represent the Contraceptive Pills item in the redevelopment, one sample of medicines was used to CPI. The remaining items in this therapeutic group that represent all three consumer age categories. This was are not oral contraceptives were discarded. This not ideal and it was decided that a separate sample for therapeutic group was a small one to begin with each age group would be more appropriate. The reason (3.52% of total prescription items) and it was decided for this decision is fairly obvious in that children under that removal of the contraceptive pills from the total six years old are unlikely to suffer the same illnesses would render the group insignificant overall. and be prescribed the same medicines as adults or even children between the ages of six and 17 years. The next step was to determine a representative formulation and quantity for each medicine. The Therefore, the first step in sample reselection was to formulation is a description of how the medicine is separate the data set into the three age categories using taken, and its size and strength (eg oral liquid 10g per the patient category variable. This allowed for selection 15ml or tab soluble 300mg). For each medicine there of three separate samples to represent the three separate may be more than one formulation. The quantity is simply the amount of medicine prescribed (eg 200ml or 30 tabs). For each of the three age categories, sample selection was carried out in the same way. The basic rule was to In the data received from NZHIS, the formulation for select the most commonly prescribed medicines in each each medicine is designated by the two digit of the most significant therapeutic groups. First the presentation ID that is included within the eight digit data was stratified by therapeutic group, with those brand code. The most popular brand code, and therapeutic groups which contained less than one therefore formulation, based on number of prescription percent of the total number of prescription items items, was selected for each medicine in the sample. (volume) being discarded. This left around 10 The list of selected brand codes was then sent to significant therapeutic groups for each age category. Pharmac who supplied the necessary formulation name that is represented by each code (eg tab soluble The second sample selection rule was to select a minimum of three medicines to represent each therapeutic group. The third sample selection rule was In order to determine a representative quantity for each to select enough medicines in each therapeutic group to medicine, Pharmac supplied ‘average daily dose’ and cover at least 50 percent of the total number of ‘average days supplied’ information. These two figures prescription items in the group. In some cases the were multiplied to arrive at a representative average minimum selection of three medicines covered over 50 prescription quantity for each medicine. percent of the group total, whereas in other groups it was necessary to include up to the top nine medicines In summary, four separate samples of medicines have before the 50 percent threshold was met. been selected, one for each age category: adult, child six to 17 years, and child under six years, and one In order to take account of those medicines for which sample of contraceptive pills. Each sample consists of a there may be a relatively low number of prescription list of representative medicines, with formulations and items but high total patient contribution (expenditure), items that ranked highly in terms of patient contribution, but that had not been selected on the basis of number of prescription items, were included in the Sample Reweighting
This method of sample selection ensures inclusion of a New quantity weights have been derived for the new range of medicines as well as allowing each of the samples of prescription medicines, using the patient significant therapeutic groups to be represented contribution (expenditure) variable. Because of the sample selection method used, the number of medicines selected in each therapeutic group varies The Genito Urinary System therapeutic group was between three and nine. To ensure that each of the treated slightly differently from the other therapeutic therapeutic groups retains its total patient contribution groups. This group is dominated by contraceptives of relative to the other groups, the remaining patient various types. However, it also includes a small range contribution from each therapeutic group of medicines of non-contraceptive medicines. Because the not selected in the sample, was pro-rated across the Contraceptive Pills item is separate from Prescription Medicines in the CPI regimen, the decision was made to deal with this therapeutic group separately in terms To derive quantity weights, total patient contribution, including pro-rated patient contribution, for each medicine was divided by an average price for each medicine as at the September quarter 2004. The average price for each medicine took into account An interim funding formula applies to other PHOs until different prices that are paid by various categories of there is enough funding for all PHOs to be on the access funding formula. Enrolment with an Interim Funded PHO reduces the maximum Government This method of deriving quantity weights, rather than prescription charge for a three-month supply of a fully simply using the prescription items variable ensures subsidised medicine to $3 for consumers in the adult 65 two things. First, for the period in which the sample years and over and child six to 17 years age categories. was selected and weighted, the sum of prices At the end of 2004, around 2.6 million people were multiplied by quantities in a therapeutic group will equal the total patient contribution for that group. Second, for the period in which the sample was This leaves around 380,000 people who were not selected and weighted, the overall sum of prices enrolled with either an Access or Interim Funded PHO multiplied by quantities for all therapeutic groups in at the end of 2004, representing people in small the sample will equal the total patient contribution for pockets around the country where a PHO has not been all therapeutic groups represented in the sample. As Government funding allows, the per capita amounts What Affects Consumer Prices For
in the interim formula will be increased towards the Prescription Medicines?
levels in the access formula. In the next three years the maximum Government prescription charge for a three-month supply of a fully subsidised medicine will be In New Zealand, prescription medicines are subject to reduced to $3 for all age categories. Cheaper medicines significant government subsidies. Pharmac, the will be rolled out for 18 to 24 year-olds in July 2005, to Pharmaceutical Management Agency, is a Crown 45 to 64 year-olds in July 2006, and the rest of New entity whose main function is to maintain and manage Zealanders, those aged 25 to 44 years, in July 2007 the Pharmaceutical Schedule, a list of approximately 2,600 prescription medicines and related products subsidised by the Government (Pharmac, 2004). Introduction of PHOs by the Government, and the resulting cheaper prescription medicines for some age Consumer prices for prescription medicines that are categories was one of the major issues that this subsidised by Pharmac are dependent on the redevelopment attempted to deal with. The following consumer’s age, health card status and PHO enrolment method has been developed: for the adult and child six status, and further dependent on whether the level of to 17 years age category samples, two prices are now subsidy is full or partial. In some cases, such as for collected each quarter for each medicine. One price is contraceptives, the type of medicine also has an effect the PHO discount price and the other is the standard on consumer prices. Each of these factors affects both price. Data from the Ministry of Health have been used price level and price change and was therefore taken to calculate the proportion of people within each age into account in redeveloping the prescription medicines category that benefit from a PHO discount. These proportions were used to divide the quantity weight of each medicine between the PHO discount price and the standard price. Primary Health Organisations (PHOs)
For the child under six years age category and for contraceptive pills, it is not necessary to collect PHO The Government’s recent Primary Health Care discount prices because prices for these groups are not Strategy led to the establishment of PHOs. These are essentially a group of health care providers whose job it is to look after the people enrolled with them. PHOs receive a set amount of funding from district health Maximum Government Prescription
boards to subsidise a range of health services. Funding Charges
is based on the numbers and characteristics (age, sex and ethnicity) of people enrolled with them (Ministry of Health, 2004). The following table provides maximum government prescription charges for a three-month supply of a fully Access Funded PHOs serve populations with the worst subsidised medicine for the various categories of health, and therefore get the most money. Enrolment consumer based on age, health card and PHO with an Access Funded PHO reduces the maximum Government prescription charge for a three-month supply of a fully subsidised medicine to $3 for all consumers in the adult and child six to 17 years age categories regardless of health card status. At the end of 2004 around 1.09 million people were enrolled with Access Funded PHOs. Manufacturer’s Surcharge
Table 1. Maximum Government prescription
charges for a three-month supply of a fully
((Manufacturer’s price - Subsidy) x Average pharmacy subsidised medicine
Health Card
No PHO Access
Patient Co-Payment
Discount
((Subsidy x Pharmacy mark-up 1.09 + Dispensing fee 4.38) x GST 1.125) Prescription medicines that are included on the Pharmaceutical Schedule may be either fully or partially subsidised. This is determined by the first part of the formula, the manufacturer’s surcharge. If the subsidy covers the entire manufacturer’s price then the manufacturer’s surcharge will be zero, the medicine fully subsidised, and the consumer will pay only the patient co-payment. If the subsidy does not cover the entire manufacturer’s price then the manufacturer’s surcharge will be greater than zero. Therefore the medicine will be only partially subsidised and the consumer must pay both the manufacturer’s surcharge (including mark-up) and the patient co-payment. For either a fully or partially subsidised medicine, if the patient co-payment, using the above calculation, is greater than the maximum Government prescription charge based on the patient's age, health card status, and PHO enrolment status, then the maximum Government prescription charge is used in place of the patient co-payment. For example, for an adult not enrolled with a PHO and with no health cards, the maximum Government prescription charge is $15. If the calculation results in a patient co-payment of anything greater than $15 then the maximum Government prescription charge for an adult with no cards of $15 will be used. If the medicine is fully subsidised then the adult consumer will pay $15 in For example, the Ventolin brand of salbutamol inhaler total. If the medicine is partially subsidised then the is a fully subsidised medicine that has been selected in adult consumer will pay $15 plus the manufacturer’s all three age category samples: adult, child six to 17 years and child under six years. For a three-month supply of Ventolin, in the adult age category the maximum a consumer will pay is $3, with a PHO Current Price Collection Method
discount, and $15, without a PHO discount. For the child six to 17 years age category the maximum consumers will pay is $3, with a PHO discount, and For the CPI, prescription medicine and contraceptive $10, without a PHO discount. For the child under six pill prices are collected quarterly from the Pharmac years age category the prescription will be free, with or website. The Pharmac website provides a prescription cost calculator, which allows selection of the consumer’s age, health card status, PHO enrolment status and total quantity of medicine. Using these Price Calculation
details the prescription cost calculator can provide a price for any medicine listed on the Pharmaceutical Schedule. The prescription cost calculator uses the There are two main parts that make up the price of a formula outlined in the Price Calculation section, prescription medicine: the manufacturer’s surcharge and the patient co-payment. The standard formula can be seen below (Pharmac, 2004): This price collection method makes an important assumption about prescription medicine prices. It assumes that prices on the Pharmac website are on average the same as those charged across all dispensing are sourced through this tender process (Pharmac, pharmacies around New Zealand. Most of the elements that make up the price of a subsidised prescription medicine are fixed by Pharmac as can be seen in the To continue the example above, medicine B is formula above, with the exception of the average introduced to the schedule at a fully subsidised price. pharmacy mark-up on the manufacturer’s surcharge. Medicine A increases in price, as it is now partially Pharmacies are free to set their own mark-up so this subsidised, and more expensive for consumers than will vary between pharmacies. However, for the medicine B. Within six months of medicine B's purposes of the prescription cost calculator, Pharmac introduction, medicine A is delisted from the uses an average mark-up of 86 percent. Therefore, Pharmaceutical Schedule. During this six-month collection of prices from the Pharmac website assumes 'changeover' period, consumers and doctors have a that the average mark-up across all dispensing choice between the two medicines. Some consumers pharmacies is 86 percent and that this remains constant will experience the price increase of medicine A as it moves from full to partial subsidy, and some, who immediately switch to medicine B, will not. Another consequence of collecting prices directly from the Pharmac website is that it restricts price collection The following is an example of this situation that to subsidised prescription medicines. Unsubsidised prescription medicines do exist but are not dealt with by Pharmac and, by definition, are not included on the 1. Brufen brand of ibuprofen oral liquid 100 mg Pharmaceutical Schedule. For CPI purposes, unsubsidised prescription medicines are an issue that is 2. The price increased from $10.00 to $13.49 Subsidy Change Issue
Fenpaed, had successfully tendered to be the sole subsidised supplier of ibuprofen oral therapeutically equivalent medicines, this creates liquid 100 mg per 5ml and the contract would problems for appropriately measuring price change experienced by consumers. For example, if the price of medicine A increases significantly because its subsidy 4. Fenpaed brand of ibuprofen oral liquid 100 is reduced from full to partial, but a therapeutically equivalent replacement, medicine B, is introduced at a Pharmaceutical Schedule and fully subsidised, fully subsidised price, consumers have a choice between the two. Some consumers will experience the price increase of medicine A, and some, who 5. Pharmac confirmed that the price increase of immediately switch to medicine B, will not. Brufen was the result of reference pricing, where the subsidy on Brufen was reduced to Movement from full to partial subsidy in medicine A match the subsidy on Fenpaed. Therefore the commonly occurs as a result of Pharmac awarding a subsidy on Brufen no longer fully covered the ‘sole subsidised supply’ contract to medicine B. Following this the subsidy on medicine A is reduced to match the subsidy on the cheaper replacement 6. Pharmac confirmed that Brufen would exist medicine B. This reduction in subsidy on medicine A partially subsidised on the Pharmaceutical is termed ‘reference pricing’ by Pharmac. It can be Schedule for six months, alongside Fenpaed described in general as a situation where “all which is fully subsidised, and Brufen would pharmaceuticals in any given therapeutic sub-group are subsidised at the level of the lowest priced pharmaceutical in that therapeutic sub-group” In terms of measuring price change in this situation, including the full price increase resulting from the subsidy change of Brufen may bias the index upward if Sole subsidised supply contracts are negotiated for off- some consumers switch to Fenpaed. However, simply patent pharmaceuticals using a tender process. This replacing Brufen with Fenpaed and showing a price involves Pharmac issuing tender documents to decrease from the fully subsidised price of Brufen pharmaceutical suppliers inviting their bids for a set list ($10.00) to the fully subsidised price of Fenpaed of pharmaceuticals. Usually the tender ends in the ($9.21), may bias the index downward if some award of a three year sole subsidised supply contract to consumers do not switch to Fenpaed immediately. the successful supplier. In effect, this means that the successful supplier’s brand of medicine will be the The important question for measuring price change only subsidised brand of that medicine on the appropriately in this situation is: what proportion of Pharmaceutical Schedule for three years. Nearly a third consumers will experience the price increase of Brufen of all chemicals listed on the Pharmaceutical Schedule and what proportion of consumers will immediately significantly. Previously, prices were collected each switch to Fenpaed and experience a price decrease quarter for around 30 different medicines, for each of from the fully subsidised price of Brufen to the fully the three age categories. This has increased to around subsidised price of Fenpaed? The problem here lies in 75 medicines for the adult sample, 50 medicines for the attempting to follow the consumer, with the child six to 17 years sample, and 30 medicines for the complication that doctors have a major influence on child under six years sample. The sample of which brand of medicine a consumer purchases. contraceptive pills has been expanded to include seven different types of contraceptive pill. As part of the redevelopment, a strategy has been developed to appropriately measure price change in the The third major improvement is the strategy that has situation outlined above. When a medicine in the been developed to appropriately measure price change sample moves from full to partial subsidy, the in the situation where changes in subsidy occur replacement, confirmed by Pharmac, will be included between therapeutically equivalent medicines. The in the sample, alongside the old medicine. During the strategy that has been developed allows more accurate six-month changeover period, when both medicines reflection of price change experienced by consumers exist on the schedule at different price levels, the weight of the old medicine will be split between the new replacement and the old medicine, using appropriate proportions derived from data analysis. Remaining Issues
These proportions reflect the numbers of consumers purchasing the old and new brands of medicine during the six-month changeover period. The sample of medicines was selected so that it covers at least three items in each significant therapeutic To continue the example above, assume the quantity group, and at least 50 percent of the total number of weight of Brufen was 100 prior to the introduction of prescription items in each group. It is possible, Fenpaed. If data from NZHIS suggest that during the however, that robust results could be achieved with a changeover period 15 percent of consumers purchase sample that covers less than 50 percent of the total Brufen and 85 percent purchase Fenpaed then during number of prescription items in each significant the changeover period the quantity weight of Brufen therapeutic group. This issue will be monitored in the would be 15 and quantity weight of Fenpaed would be 85. After Brufen is delisted from the schedule, the total quantity weight of 100 will be assigned to Fenpaed. For the CPI, prices for prescription medicines are currently collected from the Pharmac website. This Therefore, when a medicine moves from full to partial assumes that the average mark-up across all dispensing subsidy the price increase is included in the index, but pharmacies is 86 percent, which is the average mark-up with a reduced weight. The remainder of the weight used on the Pharmac website, and that this mark-up will show any change from the fully subsidised price of remains constant over time. It also restricts price the old medicine to the fully subsidised price of the new replacement. After the changeover period, when the old medicine is removed from the sample (as it is A remaining issue surrounds possible alternative delisted from the Pharmaceutical Schedule), its entire sources for price collection (eg from a sample of weight is applied to the new replacement resulting in a pharmacies). Collection of prices from pharmacies price decrease in the index. Consequently, this strategy would allow changes over time in mark-ups and will contribute some short-term volatility to the CPI differences in mark-up levels between pharmacies to be Prescription Medicines subsection index. reflected in the index. It would also allow collection of prices of unsubsidised medicines. Conclusion
References
“Pharmac”, http://www.pharmac.govt.nz [20 November 2004] Major Improvements
“Ministry of Health”, http://www.moh.govt.nz/moh.nsf [20 November 2004] One of the major improvements resulting from the redevelopment is the selection of a different sample of JEL Classification
medicines for each of the three age categories, so that age-appropriate medicines are used to represent consumers in each age category. Previously, one sample of medicines was used to represent all three age I18 Government Policy; Regulation; Public Health
Key Words
A second major improvement is that the number of Consumers Price Index, Inflation, Prices medicines included in the sample has increased

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