Drug-buying agency Pharmac says fostering competition among companies has saved more than $400 million in just over a decade.
The latest annual review says forcing drug firms to participate in a sole-supply tendering process encourages competition and drives the price of drugs down.
Pharmac says this approach has saved more than $400 million since 1997 - which has been directed towards other medicines.
The agency says it has kept to its budget of $653 million while providing eight new medicines, widening access to 55 other drugs, and boosting the number of prescriptions it funds by almost 4%.
Pharmac says prices paid in New Zealand for commonly prescribed medicines, including paracetamol, are less than half what Britain, Australia and Canada pay for the drugs.
Radio New Zealand's health correspondent says drugs to treat high cholesterol have been the most expensive single item of funding this year, at $63 million.
Pharmac says its often-contentious approach to drug-buying has proved itself.
It says the number of prescriptions being written continue to outstrip its growth in funding, but Pharmac is able to buy more because of savings made through competitive, sole-supply tendering and brand changes.
Pharmac chief executive Matthew Brougham says this model works and negotiations with drug firms has led to savings of almost $33 million for the year.
Key to this were brand changes involving paracetamol, the cholesterol-lowering drug simvastatin and a stomach ulcer drug.