US embassy cable - 05WELLINGTON577

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