NEW ZEALAND AIMING TO STEM SALE OF PRESCRIPTION

UNCLAS SECTION 01 OF 02 WELLINGTON 000577

SIPDIS

DEPARTMENT FOR EAP/ANP-TRAMSEY, EB/TPP/IPE-BSOILA AND
EB/TPP/BTA/ANA-RARMSTRONG
STATE PASS TO USTR FOR LCOEN
COMMERCE FOR 4530/ITA/MAC/AP/OSAO/ABENAISSA

SENSITIVE

E.O. 12958: N/A
TAGS: ETRD ECON KIPR NZ
SUBJECT: NEW ZEALAND AIMING TO STEM SALE OF PRESCRIPTION
DRUGS BACK TO U.S.

REF: (A) WELLINGTON 119; (B) 04 WELLINGTON 1037


1. (SBU) Summary: With selected medicines much cheaper in New
Zealand than in the United States, efforts are under way to
impede the ability of Americans to purchase prescription drugs
from New Zealand. The New Zealand Ministry of Health is
tightening the law to prevent doctors from prescribing medicines
to non-New Zealanders. Both the New Zealand agency that decides
which medicines are publicly funded and its usual nemesis, the
pharmaceutical industry, are working on other plans to counter
any flow of prescription drugs back to the United States. End
summary.

Affordable and safe
--------------

2. (U) Hard bargaining with pharmaceutical companies by New
Zealand's national health care system ensures that its
pharmaceutical prices are among the lowest in the OECD. Under
that system, the Pharmaceutical Management Agency (PHARMAC)
decides which medicines will be subsidized by the government and
how much reimbursement will be paid for each pharmaceutical (ref
B). The agency's bulk drug purchases account for 73 percent of
prescription drug expenditures in New Zealand. PHARMAC's
practices result in prescription drug prices that are roughly 40
percent less than those in the United States. The perception
that New Zealand maintains high safety standards for medications
makes its more affordable drugs even more attractive to U.S.
consumers.


3. (U) So far, however, only a trickle of U.S.-made drugs is
brought to New Zealand and then re-imported back to the United
States, according to PHARMAC and the industry. That amount is
expected to remain insignificant. In fact, until recently, the
New Zealand government assumed that it would be nearly impossible
for U.S. consumers to make retail purchases of prescription
medicines from New Zealand. The Medicines Act 1981 allows
doctors to prescribe medications only to patients under their
care, and regulations that took effect in November 2000 forbid
pharmacists from selling drugs overseas to any individual who
does not have a prescription from a New Zealand doctor.
(Previously, only the sale of prescription drugs to New
Zealanders without a prescription was illegal.) The regulations
also extend the Medicines Act restrictions to drug sales over the
Internet.


4. (SBU) However, in a recent case against a doctor who wrote
bulk prescriptions over the Internet, the court broadly
interpreted whether the patients were "under his or her care" and
acquitted him of breaching the Medicines Act, according to Kevin
Moar of the Ministry of Health's Sector Policy Directorate. The
government has appealed the decision to the High Court. (The
government has successfully prosecuted three Internet-based
operations under the Medicines Act for retail sales of
prescription medicines to overseas buyers without a prescription.
One pharmacy's overseas sales accounted for 70 percent of New
Zealand's Viagra allotment in 2002.)


5. (SBU) Moar said the Ministry of Health is working to change
the law to restrict doctors to prescribing medications only for
patients who are physically present in New Zealand or for New
Zealand residents who are temporarily traveling overseas. The
amended law is expected to prevent retail sales of prescription
medicines at subsidized prices to overseas consumers. The
government has set a deadline of July 2006 for the law to be
changed, as part of an amendment that also would allow the
startup of a joint Australia-New Zealand agency to regulate
therapeutic products in both countries (ref A).


6. (U) Meanwhile, the amended law would not prevent re-
importation of over-the-counter medicines or of prescription
drugs sold wholesale, or at non-subsidized prices. Wholesale
prices for newer drugs are generally not that different in New
Zealand and the United States. However, wholesale prices for
older drugs -- especially those older than 10 years -- and for
over-the-counter medicines are much lower in New Zealand,
according to PHARMAC's chief executive officer, Wayne McNee. New
Zealand pharmacies with wholesale licenses can sell medicines
directly to the United States.

A watchful eye
--------------

7. (SBU) To counter such sales at the wholesale level,
pharmaceutical companies in New Zealand have been modifying their
contracts with wholesalers, restricting their onward sales only
to New Zealand. Pfizer, for example, altered its wholesalers'
contracts after detecting substantial quantities of its drugs
being sold from New Zealand to Asia. If the industry were to
discover large flows of its products being re-imported back to
the United States, McNee fears it would restrict pharmaceutical
supplies in New Zealand and raise their prices. The drug
companies certainly are monitoring pharmaceutical exports out of
the country and "will move to protect themselves" if the problem
becomes significant, said Lesley Clarke, chief executive officer
of the industry association Researched Medicines Industry of New
Zealand. Meanwhile, she said, the industry considers a change in
the law as the best way to prevent re-importation.


8. (SBU) McNee said PHARMAC stands ready to respond if re-
importation causes pharmaceutical companies to cut the supply or
boost their prices of prescription medicines in New Zealand. In
contracts with pharmaceutical companies, PHARMAC would increase
the use of rebate arrangements. Such contracts would stipulate
that a drug would be sold at New Zealand pharmacies at what
effectively is the international price, but that the drug company
would reimburse PHARMAC for a set portion of that price. This
arrangement would preserve the agency's cost-savings, while also
discouraging exports of the drug since its retail price in New
Zealand would match that in the United States. PHARMAC's use of
rebates has increased dramatically in recent years, according to
Stuart Bruce, communications and external relations manager for
PHARMAC. For example, rebates rose 29 percent over the past
year, from NZ $80 million (US $54.5 million) to NZ $103 million
($70 million).


9. (U) The Medical Council of New Zealand, which registers
doctors to practice medicine in New Zealand and monitors their
standards and conduct, also is hoping to strengthen its
guidelines for the prescribing of medications. Its current
guidelines mirror the Medicines Act in specifying that a doctor
should prescribe medicines only to patients "under his or her
care" and only to patients with which the doctor has had at least
one face-to-face consultation. Tania Turfrey, the council's
registrar, said that although several doctors have violated those
guidelines, no doctor has been disciplined under them. She said
the council plans to rewrite the guidelines later this year to
include a stronger statement on the ethical dispensing of
medicines.


10. (U) Comment: Normally, the government and the pharmaceutical
industry are at odds, disputing pharmaceutical pricing policies
that the government touts as reducing its citizens' health-care
costs and that the industry says are denying it adequate return
on its investment. In this case, however, both agree on the need
to prevent the re-importation of pharmaceuticals from New Zealand
back to the United States. While the government does not
consider this issue to be significant yet, it is poised to act if
its pharmaceutical supplies and prices are affected.

BURNETT