Applying Programme Budgeting Marginal Analysis in the health sector: 12 years of experience

Abstract

The Pharmaceutical Management Agency in New Zealand, PHARMAC, was established in 1993 at a time when growth in pharmaceutical expenditure was very high and arguably unsustainable. PHARMAC was charged with finding new and effective ways to manage expenditure growth, while also obtaining the best health outcomes for the New Zealand population. In order to help achieve this goal, PHARMAC has used Programme Budgeting Marginal Analysis. The use of Programme Budgeting Marginal Analysis, together with a capped budget and tools to generate savings, has significantly contributed to PHARMAC achieving its objective. However, there are implications of using Programme Budgeting Marginal Analysis with a capped budget. In particular, a different approach is required when undertaking and using cost–utility analysis (focused strongly on relative cost–effectiveness), and the opportunity cost of poor decisions is magnified significantly. As the demand on pharmaceutical expenditure continues to rise, the opportunity cost of not having a capped budget and tools for controlling pharmaceutical subsidies will only increase.

Keywords::

• budget
• budget management
• cost–utility analysis
• economic analysis
• expenditure management
• Programme Budgeting Marginal Analysis
• relative cost–effectiveness
• tender
• threshold
• value for money

Acknowledgements

The author would like to acknowledge the significant contribution the following people made in the drafting of this article: Peter Alsop (Manager, Corporate and External Relations, PHARMAC), Scott Metcalfe (Chief Advisor Population Medicine, PHARMAC), Rico Schoeler (Manager, Analysis and Assessment, PHARMAC) and Steffan Crausaz (Manager, Funding and Procurement, PHARMAC).

Financial & competing interests disclosure

Rachel Grocott is an employee of PHARMAC. The author has no other relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript apart from those disclosed.

No writing assistance was utilized in the production of this manuscript.

Notes

GATE: Graphic Appraisal Tool for Epidemiology; PTAC: Pharmacology and Therapeutic Advisory Committee.