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

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.