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13 October 2021

Pharmaceutical compounding contract to deliver cost reduction, flexibility & redundancy

A new contract for pharmaceutical compounding services, negotiated by NZ Health Partnerships (NZHP), is expected to deliver at least $2.756m a year in cost reduction to DHBs across the country.

Abhijit Trikannad, NZHP
Abhijit Trikannad

The five-year open panel contract has enabled a new supplier, iMix, to enter the market – providing DHBs with flexibility in their choice of provider, while improving resilience in the supply of this critical service.

Compounding is the process of combining, mixing, or altering ingredients to create a medication tailored to the needs of an individual patient.

Previously, compounding services to DHBs were provided predominantly by global supplier, Baxter Healthcare, while Napier-based iMix, mostly serviced private healthcare providers, along with limited supplies to a small number of DHBs.

For the first time, DHBs now have access to iMix’s chemotherapy, antibiotics, analgesics and IV additive compounding services.

This additional competition in the market, along with competitive pricing, will reduce the costs of pharmaceutical compounding services to DHBs, says NZHP Category Manager Abhijit Trikannad.

“The intent of our RFP was to secure the best pricing for DHBs. Having a new entrant in the market meanwhile helped create the competitive tension required to ensure reduced pricing.”

DHBs can now switch between providers in 12-month blocks, during the term of the contract.

“Over a five-year period, a DHB’s strategy may change, so the makeup of contract supports that. DHBs can commit to a certain volume of its compounding business with one supplier at a preferential rate each year,” says Abhijit.

The contract includes a transition agreement with iMix, which allows DHBs to use its services for six months and then decide how much of their compounding needs to outsource to the new supplier.

This reduces the risk of DHBs working with a new supplier. 

“Compounding is a critical patient-facing service. Products are tailored to a specific patient and some have to be delivered and administrated within a certain time. The impact of delayed or missed deliveries could be life threatening to patients.

“Therefore, it is essential for DHBs to have confidence in a new supplier’s ability to deliver services reliably and efficiently.”

Crucially, having multiple suppliers in the market also increases the resilience and redundancy of services provided to DHBs.

“With a single provider there is the risk that supply chain issues could impact services. Having access to more than one supplier creates resiliency in the supply chain.”

The contract came into effect in July 2021 after an RFP was issued in October 2020.

The predicted benefit of the contract is based on a conservative estimate and calculated on lower than usual spending on compounding services in 2020 due to reduced services because of COVID-19 restrictions.

 “The actual amount DHBs will spend on compounding services over the next year could be 20% higher, which means the actual cost avoidance is likely to be greater,” says Abhijit.