PHARMAC responds to Richard Milne on discounting health benefits and costs [2]

New Zealand Medical Journal

Volumn 118, Issue 1219, 2005, Pages

  Metcalfe, Scott ^a   Brougham, Matthew ^b   Moodie, Peter ^b   Grocott, Rachel ^c  

^a PHARMAC ^*

^b Pharmaceutical Society   (New Zealand)

^c WELLINGTON HOSPITAL   (New Zealand)

Author keywords

[No Author keywords available]

Indexed keywords

DRUG;

COST BENEFIT ANALYSIS; COST CONTROL; DECISION SUPPORT SYSTEM; DRUG COST; DRUG MARKETING; GOVERNMENT; HEALTH CARE COST; HEALTH CARE FINANCING; HEALTH SERVICE; INVESTMENT; LETTER; NEW ZEALAND; ORGANIZATION AND MANAGEMENT; RISK MANAGEMENT; UNITED STATES; WORLD HEALTH ORGANIZATION; DRUG INDUSTRY; ECONOMICS; HUMAN; NOTE; PUBLIC HEALTH;

COST-BENEFIT ANALYSIS; DRUG INDUSTRY; HEALTH CARE COSTS; HUMANS; NATIONAL HEALTH PROGRAMS; NEW ZEALAND;

EID: 33644788090     PISSN: 11758716     EISSN: 11758716     Source Type: Journal    
DOI: None     Document Type: Letter

References (12)

1. Milne R. Valuing prevention: discounting health benefits and costs in New Zealand. N Z Med J. 2005;118(1214). URL: http://www.nzma.org.nz/journal/118-1214/1443/
2. The 'capital charge' is used by the New Zealand health sector (CHEs, RHAs, the HFA, and DHBs) for evaluating capital investments. At one point in PHARMAC's history the sector was using a capital charge of 11.3%, and PHARMAC used this rate in its analyses also. However, for most of the last 10 years the rate has fluctuated around 10%. Rather than alter the rate annually in response to relatively small changes, PHARMAC has used a rate of 10.0% for the last 6 years.
3. PHARMAC. A prescription for pharmacoeconomic analysis (version 1); 1999. Available online. URL: http://www.pharmac.govt.nz/pdf/pfpa.pdf Accessed July 2005.
4. Transfund New Zealand. Project Evaluation Manual (PFM 2), Amendment No. 8, October 2004. http://www.ltsa.govt.nz/man.html#prog Section 3.2.4 Discount Rate
5. Ian Melsom, Manager Assessment and Forecasting, Land Transport New Zealand, personal communication (emails 5 and 8 July 2005). In the early 1970's the Treasury stipulated a requirement that a 10% discount rate be used in all public sector analysis. In 1998, when it was still new, Transfund undertook a fundamental review of all aspects of the project evaluation procedures - including the discount rate. An external report concluded that the discount rate should be somewhere between 9% and 15% depending on the risk associated with infrastructure investment (or more specifically, depending on the asset Beta used in the capital asset pricing model - this Beta being a reflection of the risk involved in the investment). Noting that its existing 10% discount rate was within the range suggested in that review and that transport infrastructure is generally less risky than many other types of investment, Transfund concluded there was insufficient reason to change the rate from 10%. That said, the discount rate is a live issue for Land Transport New Zealand, as the 10% rate is considered high compared with overseas transport agencies and does significantly impact on which projects Land Transport NZ invests in.
6. Weinstein MC, Siegel JE, Gold MR, et al. Recommendations of the panel on cost-effectiveness in health and medicine. JAMA. 1996;276:1253-8.
7. Gold M, Siegel J, Russell L, Weinstein M. Cost effectiveness in health and medicine. New York, Oxford: Oxford University Press; 1996
8. Young L. Determining the discount rate for Government projects: NZ Government; NZ Treasury Working Paper 02/21; 2002. Available online. URL: http://www.treasury.govt.nz/workingpapers/2002/twp02-21.pdf Accessed July 2005.
9. A key constraint is how much money there is - discounting can rearrange priorities but doesn't free up new money. No matter what discount rate is used, when budgets are constrained there will be groups that miss out. This makes it inappropriate, in our view, to argue a discount rate on the basis of who gains and who misses out, or on the a priori belief that "prevention is always better than cure" (http://www.nzma.org.nz/journal/118-1214/1443/). Advantaging children could mean disadvantaging the elderly, and whether or not prevention is better than cure depends on just exactly what has to be given up in the short term (i.e. it depends on people's time preferences).
10. PHARMAC. Operating policies and procedures of the Pharmaceutical Management Agency ("PHARMAC"), 2nd edition; January 2001. Available online. URL: http://www.pharmac.govt.nz/pdf /opps.pdf Accessed July 2005.
11. Metcalfe S, Dougherty S, Brougham M, Moodie P. PHARMAC measures savings elsewhere to the health sector. N Z Med J. 2003;116(1170). URL: http://www.nzma.org.nz/journal/116-1170/362/
12. Iain Cossar, Manager, Health Section, NZ Treasury, August 2004, personal communication with Richard Milne, cited in presentation by Richard Milne 'Economic Evaluation of Meningococcal Vaccination' at Wellington School of Medicine, November 2004. "Treasury does not set an edict for departments regarding the use of a particular discount rate. Departments generally either use the capital charge rate (accepted "unwritten" practice) or approach us [NZ Treasury] to recommend a rate. Generally Treasury use 10% real [inflation adjusted] for economic cost benefit analysis unless there is a sector specific rate. There is no such agreed rate in the health sector - possibly because we see this type of analysis all too rarely (in Health and elsewhere)."