Pharmac decision not to fund drug was not unreasonable or contrary to law

Ombudsmen Act 1975
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Ombudsmen Act 1975; New Zealand Public Health and Disability Act 2000
David McGee
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Whether PHARMAC decision not to fund a drug was unreasonable or contrary to law—Ombudsman concluded that this case did not reach the threshold of being unreasonable or contrary to law but made suggestions to PHARMAC about the matter 

The Ombudsman considered a complaint about a pharmaceutical funding policy of the Pharmaceutical Management Agency (Pharmac). The complainant in this case suffered from a very rare metabolic disorder, the only treatment for which was a high cost drug, Myozyme, not available on the Pharmaceutical Schedule.

Having had two applications for funding declined, firstly under Pharmac’s ‘Exceptional Circumstances Policy’ and later under its Named Patient Pharmaceutical Assessment Policy, the complainant asked the Ombudsman to consider the reasonableness of these policies. The complainant also contended that, in assessing her application under the policies, Pharmac failed to take into account all the relevant information she had provided in support of that application.  

The Ombudsman did not consider that Pharmac’s actions in this case reached the threshold of being ‘unreasonable’ or ‘contrary to law’. However, he did make a series of suggestions to Pharmac of a general nature as well as provide an opportunity for the complainant to comment further on the reasons for its decision (only expressed to the Ombudsman during the course of the investigation) not to fund the drug for a limited period, as had been suggested by the complainant’s physician.

Pharmac is a Crown entity with various functions, one of which being to determine which medicines will be publicly funded and to negotiate their prices. Its objectives are set out in section 47 of the New Zealand Public Health and Disability Act.

In the course of discussing Pharmac’s role in maintaining the Pharmaceutical Schedule and providing for exceptional circumstances funding, the Ombudsman stated that District Health Boards (DHBs) were not prevented from purchasing medicines that are not on the schedule or otherwise approved by Pharmac, although noted that they were unlikely to do so since they would have to fund them separately.

The Ombudsman agreed that a statutory power cannot be surrendered by a private arrangement with another body but noted that both Pharmac and DHBs are authorised (ultimately by statute) to take on other functions and to enter into agreements and arrangements with other bodies (including each other). Whether a power can be effectively limited by such an arrangement would depend upon a detailed analysis of the provisions that authorised them to be entered into. As to whether Pharmac’s enhanced purchasing role imported the DHB’s obligations (and whether these are significantly different from Pharmac’s), the Ombudsman considered this to be a matter beyond the scope of this investigation.

The Ombudsman said he had seen no statutory authority which would allow Pharmac to give directions to DHBs, whether through the schedule or otherwise. DHBs are subject to direction, but by the Minister of Health, not by Pharmac (sections 32, 33, 33A and 33B). The Ombudsman therefore questioned whether it is competent for Pharmac to address a direction to DHBs in the schedule. Pharmac’s function is to maintain a schedule. It is then for DHBs to ensure that they do not act inconsistently with it. Although Pharmac might legitimately have its own view of what is inconsistent conduct, the Ombudsman was not convinced that it is authorised to impose that view by a provision in the schedule.

Although he had doubts as to the legal effectiveness of clause 5.4.2, the Ombudsman did not consider this to be determinative of the question of whether a DHB could, in the face of section 23(7), provide a medicine such as Myozyme out of its own resources. The answer to that question would depend on a consideration similar to that of DHBs funding community pharmaceuticals. In Pharmac’s view, (as described in the Full Opinion), a DHB would be acting inconsistently with the schedule if it funded a community pharmaceutical not approved under the schedule. Presumably the same argument (and the New Zealand Organisation for Rare Disorders’ contrary position) would arise in regard to Pharmaceutical Cancer Treatments. The Ombudsman declined to express an opinion on this issue.

This case note is published under the authority of the Ombudsmen Rules 1989. It sets out an Ombudsman’s view on the facts of a particular case. It should not be taken as establishing any legal precedent that would bind an Ombudsman in future.

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