Robert MacCulloch
Robert MacCulloch is a native of New Zealand and worked at the Reserve Bank of NZ before he travelled to the UK to complete a PhD in Economics at Oxford University.
The Biden administration has announced that the US government’s Medicare public health program is negotiating discounts with pharmaceutical companies on 10 drugs. The discounts will range from 38 per cent to 79 per cent when the negotiated prices take effect in 2026. The bargaining will save Medicare $6 billion per annum, according to the Department of Health and Human Services.
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 buyer – affects the going price). Pharmac runs this model in NZ – 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 healthcare (and education) services (which includes NZ’s far-left Labour opposition leader, Chris Hipkins), if NZ didn’t buy drugs from pharmaceutical companies, then no Kiwi would have access to a single drug or pill. Does Hipkins actually know 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 any NZ political party.
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This article was originally published by Down to Earth Kiwi.
