The Biden administration announced Thursday that the US government's Medicare public health insurance program had started negotiated discounts with pharmaceutical companies on 10 drugs. The discounts will range from 38% to 79% when the negotiated prices take effect in 2026. The bargaining will save Medicare $6 billion per annum, according to U.S. Department of Health & Human Services estimates.
When a large buyer purchases from many competing sellers, it can often get a lower price. Economists call it "monopsony" power. By contrast, monopoly power, which can be illegal, occurs when a big seller (not the buyer) can affect the going price. Pharmac runs this model in NZ, and it's a good feature of our health system. Pharmac just needs to be well-funded and run by competent people who know what are the best drugs to buy.
As for those folks who believe its best not to purchase from the private sector when it comes to health-care (and education) services (which includes the far left Leader of the Opposition, Chris Hipkins) well, if NZ didn't buy drugs from the pharmaceutical companies, then no Kiwi would have access to a single drug or pill. Is Hipkins actually aware of that fact? I'm not aware that Hipkins or Jacinda Ardern have ever manufactured any product or service at all, let alone the Pfizer (Covid) vaccine for that matter.
As for those folks who believe its best not to purchase from the private sector when it comes to health-care (and education) services (which includes the far left Leader of the Opposition, Chris Hipkins) well, if NZ didn't buy drugs from the pharmaceutical companies, then no Kiwi would have access to a single drug or pill. Is Hipkins actually aware of that fact? I'm not aware that Hipkins or Jacinda Ardern have ever manufactured any product or service at all, let alone the Pfizer (Covid) vaccine for that matter.
More generally, the Pharmac-style model should be applied throughout our health system in the sense that many private (as well as public) sellers should supply our system, with their services funded on behalf of all Kiwis by a government agency. Like the firms that supply Pharmac, the hospitals supplying our health system should compete so the government gets the highest quality product and uses its monopsony power to negotiate a good price. But that's too much common sense for it to ever be adopted by an NZ political party.
Sources:
https://www.whitehouse.gov/briefing-room/statements-releases/2023/08/29/fact-sheet-biden-harris-administration-announces-first-ten-drugs-selected-for-medicare-price-negotiation/
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
Sources:
https://www.whitehouse.gov/briefing-room/statements-releases/2023/08/29/fact-sheet-biden-harris-administration-announces-first-ten-drugs-selected-for-medicare-price-negotiation/
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
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