In brief

• Medsafe’s budget is largely funded by pharmaceutical company fees, which raises concerns for some.

• Fees have increased steadily, reaching over $12m in the 2022/23 financial year while government funding tapers off.

• Fees are on a standard schedule and cover the costs of medicine approval and regulation.

• Sometimes the drug companies aren’t even  interested in NZ’s small market. 

Pharmaceutical payments: Fees required by the government, not pay offs

A recent OIA release from Medsafe revealed that the largest portion of its budget comes from pharmaceutical company fees, raising concerns for some about potential conflicts of interest. 

Between 2017 and 2023, Medsafe’s revenue from pharmaceutical companies steadily increased, reaching over $12m in the 2022/23 financial year. 

While many may jump to conclusions about these payments, they are not donations or gifts paid in an attempt to influence the result. Instead, they are mandatory fees associated with the approval and regulation of medicines in New Zealand. 

Much like other regulatory bodies worldwide, Medsafe charges fees to cover the costs of evaluating and approving new medicines to ensure they meet the required safety standards before entering the market.

Comparisons can be drawn with fees paid to other regulatory bodies, such as those to a securities commision(ie.stocks and bonds) or even for a driver’s licence test. 

The Auditor General’s guidelines demand a cost recovery principle to be in effect when setting fees for government services. 

Government funding: A modest contribution

The fees are set such that the percentage of Medsafe’s funding provided by the New Zealand government has remained relatively small. 

For instance, in the 2022/23 financial year, government funding accounted for just under 16% of Medsafe’s total budget at approximately $2.3m. This amount is modest for nearly anything the government does but it is especially modest considering the enormous health related budget.

Moreover, through the years, the proportion of government funding has decreased, with the agency relying more heavily on third-party fees to support its operations. In the 2016/17 financial year, the government contributed almost 23% of Medsafe’s budget. 

This shift reflects a broader trend where regulatory agencies are increasingly funded by the industries they oversee, a model that obligates those benefiting from regulatory approvals to contribute to the costs.

Can Medsafe do more?

The OIA release perhaps provides insight about Medsafe’s operational capacity. The modest level of funding raises the question of whether Medsafe has the capacity to do the “nice to haves”. 

It seems likely they can only review research prepared by others. The question is how much time do they have to search out and review any negative studies that are not put before them by the applicant? 

SAnother question is to what degree are they  just a rubber stamping exercise of what other jurisdictions have approved? Or is it a sober second look that also takes into account reservations raised in other jurisdictions?

We are not suggesting there is anything wrong with this. Indeed, it is a sensible approach. It does, however, virtually ensure that, when speed is an issue, anything that has already made it past the line in another favoured (invariably larger and better resourced) jurisdiction is likely to be approved here. 

Notably, Medsafe has recently increased its fees in order to ensure adequate staffing, training and retention, and improvements in technology aimed at “improving Medsafe’s delivery of its regulatory functions.”  

Some factors to consider

Medsafe is notoriously slow in approving new medicines for New Zealand. As pointed out above, this may be a function of not being first so there is sometimes  more material to review. 

Dr Eric Crampton, chief economist at the New Zealand Initiative also points out that the regulatory system is time-consuming and resource-intensive for the drug companies. In a market as small as ours, drug companies may be reluctant to apply unless the government signals intent to purchase doses.