Our concerns arose because there was no transparency around HNZ’s consideration and decision-making of reasonable cost pressure adjustments for community pharmacy. HNZ’s analysis estimated cost pressures of 5.62% facing community pharmacy for 2024/25, yet the HNZ Board decided to apply a cost pressure adjustment/price uplift offer of 2.51%.
We now have increased transparency on the decision-making that occurred in 2024/25 following HNZ’s belated response on 19 February 2025 to our Official Information Act (OIA) request of 30 September 2024. This followed escalation of our OIA request to the Ombudsman in December 2024.
Escalation of our concerns
We recently wrote on behalf of our members escalating our significant concerns with HNZ’s approach to the funding of reasonable cost pressure adjustments for community pharmacy in 2024/25. This follows our correspondence with the HNZ Commissioner and engagement with HNZ’s commissioning team in 2024.
This followed our detailed review of HNZ’s analysis and decisionmaking for 2024/25 cost pressure funding uplifts, based on our analysis of HNZ’s seriously delayed OIA request response and the government’s fiscal policy settings for Budget 2024 decisions.
We found that HNZ’s overall approach to funding cost pressure uplifts in 2024/25 and to the NAAR process was flawed.
Our review identified key areas that require action before any HNZ decisions are made regarding the price uplift offer for reasonable cost pressure adjustments for community pharmacy for 2025/26.
Cost pressure uplifts
HNZ’s commissioning approach demonstrated an apparent unjustified preference towards general practice by giving full recognition to general practice’s reasonable cost pressures.
General practice cost pressures were effectively funded at 5.88% for 2024/25 (4.00% funded price uplift, plus 1.88% through permitted patient co-payment increase) – which is funding at 100.9% of HNZ’s cost pressures estimate of 5.83% for primary care. Community pharmacy was funded at 2.51% price uplift for 2024/25 (with no contractual ability to increase patient charges to offset unmet pressures) – which is funding at 44.7% of HNZ’s reasonable cost pressures estimate for community pharmacy of 5.62%.
This means general practice are making no productivity/ efficiency contribution to offset their own cost pressures in 2024/25 and consequently other healthcare providers, such as community pharmacy (which has delivered efficiency gains over the last 16 years), are being unfairly disadvantaged through reduced reasonable cost pressure recognition.
This approach does not align with the government’s fiscal policy intentions for cost pressures funding in Budget 2024, and the assumption of a 77% contribution towards HNZ’s annual cost pressures estimate.
This unfair and inconsistent cost pressures funding allocation aligns with our long-term trend analysis of community pharmacy service fee growth being much lower than the rate of inflation, unlike general practice fees, which have been growing at around inflation. Ongoing cross-subsidisation of reasonable cost pressure uplifts across service providers is inconsistent, financially unsustainable, and unfair. This allocation issue requires urgent attention.
Key review findings
HNZ’s overall approach to funding cost pressure uplifts in 2024/25 and to the NAAR 2024/25 process was flawed. As a result, there was a significantly adverse cost pressures uplift for community pharmacy in 2024/25. We have found that HNZ:
- failed to align with the government’s fiscal policy intentions for cost pressures funding for Budget 2024
- failed to properly consider “reasonable cost pressure adjustments” for community pharmacy, in contravention of its contractual commitments in the ICPSA
- failed to work collaboratively, transparently and in good faith with providers/provider representatives throughout the 2024/25 NAAR process under the ICPSA. This failure was underscored by HNZ’s delay in providing requested supporting information for its cost pressure uplift offer during discussions in 2024.
Next steps
We are determined to avoid a repeat of this approach from HNZ for community pharmacy reasonable cost pressure adjustments for the 2025/26 NAAR process.
We sought to urgently meet with HNZ to discuss our review findings and general concerns with the NAAR 2024 process and requested a written response to our letter.
Following our further enquiry, we have now received a written response from HNZ, this included a commitment to meet with us to discuss our concerns. We are engaging with HNZ to progress these serious matters on members behalf.
Andrew Gaudin
Chief Executive, Pharmacy Guild of New Zealand
