This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 TAIPEI 004021 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/RSP/TC, STATE PASS AIT/W 
 
E.O. 12958: N/A 
TAGS: ECON PGOV TW ESTH
SUBJECT: TAIWAN'S IMPENDING HEALTH CARE CRISES 
 
 
¶1.  (SBU) Summary: The Taiwan Health care system is facing a 
number of crises.  The National Health Insurance system is 
teetering on the edge of bankruptcy.  The Department of 
Health faces low morale, an inflexible and conservative 
bureaucracy, a shortage of strong leadership, and an exodus 
of the few good leaders it does have, including the Minister 
of Health and the CEO of the Bureau of National Health 
Insurance (BNHI).  While the public is slowly becoming more 
aware of fiscal threats to the health care system, the 
political will necessary to push through reforms is 
non-existent.  The fiscal crisis at BNHI could be delayed by 
an infusion of government support, but the lack of political 
will to raise premiums and shortage of leadership at DOH 
portend a difficult period ahead.  End Summary. 
 
Health Finances Shaky 
===================== 
 
¶2.  (U) Taiwan's Bureau of National Health Insurance (BNHI) 
faces a severe fiscal crisis in the coming weeks.  According 
to experts, at current premium levels it is estimated that 
BNHI will run an average deficit of almost NT$23 billion 
(US$675 million) every year for the next five years.  The 
BNHI reserve fund, designed to cover short term fiscal gaps, 
reportedly will be exhausted by the end of 2004.  The NHI 
premium income (not the premium rate) increases by only four 
percent per year, while expenses are increasing by six 
percent each year.  In the months before legislative 
elections, no party was willing to consider the need for NHI 
premium and co-pay increases.  The Legislative Yuan is 
scheduled to consider the BNHI budget December 23.  Premier 
Yu has publicly stated that there will be no increase in the 
NHI premium rate during his tenure.  However, there is 
speculation that he will be replaced when the new legislature 
is seated in February. 
 
¶3.  (SBU) Beginning in 2002, BNHI and the Department of 
Health tried to address the fiscal shortfall by instituting 
in phases a "global budgeting" system.  Under this system, 
hospitals are authorized a fixed amount of financial support 
by BNHI based on their quality of service and number of 
patients seen during a representative period (previous 1-3 
months).  This was supposed to increase hospital efficiency 
and help BNHI stay afloat.  But global budgeting has not been 
able to stem the flow of cash from BNHI and has led to 
protests from doctors at small and medium sized clinics that 
they are being squeezed out of existence.  Big hospitals also 
complain that they are losing money at an unsustainable rate. 
 
 
¶4.  (U) Recently published figures from central Taiwan 
hospitals show that total NHI claims by these hospitals from 
July to September 2004 exceeded the global budget allocation 
by almost 16 percent or NT$2.1 billion (US$64 million). 
Local press reports that losses in the first three quarters 
of 2004 at one large hospital were over NT$340 million (over 
US$10 million).  Another medical center in central Taiwan 
reported losing NT$100 million (over US$3 million) in the 
third quarter.  Hospital administrators report CT and MRI 
scans have decreased by 20 percent since 2003, presumably in 
an effort to cut costs.  Hospital purchase orders have been 
canceled and expansion plans put on hold.  The press reported 
in July that some hospitals were turning patients away for 
financial reasons.  DOH later confirmed these reports to AIT 
but insisted that the hospitals involved had been reprimanded 
and the situation would not be repeated.  Pharmaceutical 
companies report a drastic decline in sales volume since July 
as hospitals restrict access to more costly drugs or switch 
to cheaper generic products.  This has increased the already 
heavy pressure on research pharmaceutical companies to cut 
prices.  The hospitals then use the difference between the 
actual and BNHI reimbursement price (the "black hole") to 
fund other operations. 
 
Government Response Lacking Urgency 
=================================== 
 
¶5.  (U) The government, while acknowledging the problems, has 
not yet taken steps to address them.  Instead, it is 
encouraging patients to change their health care habits by 
utilizing community clinics and general practitioners for 
their primary care needs, freeing hospitals to concentrate on 
more serious needs.  However, BNHI is not reimbursing these 
clinics at a level commensurate with their costs.  According 
to the head of the Taiwan Community Hospitals Association, 
while small clinics account for 80 percent of all medical 
organizations in Taiwan, they receive only 20 percent of BNHI 
reimbursements.  Small hospitals and clinics are currently 
being reimbursed by BNHI at an average rate of less than 50 
percent, far below their larger counterparts.  One hospital 
administrator from Taidong reported to AIT that his hospital 
had been reimbursed at only 17 percent of claims from July to 
September 2004. 
 
Rolls-Royce Service at a Yugo Price 
=================================== 
 
¶6.  (U) The fiscal problems of the National Health Insurance 
are exacerbated by the inability of the Department of Health 
to push forward solutions that would be politically 
unpopular.  According to BNHI, Taiwan currently spends only 
six percent of GDP on health care, less than most OECD 
countries (according to OECD statistics, the US spends about 
12 percent of GDP on health care costs).  Yet the level of 
service covered by NHI is high, including not just doctor 
visits but also tests, surgery, and pharmaceuticals for the 
price of a small co-payment.  Anecdotal reports suggest that 
many Taiwan migrs maintain their Taiwan citizenship 
specifically so they can return to take advantage of the 
health care benefits in their old age.  The solution to the 
fiscal crisis must include some increase in premium and or 
co-payments and a revision of the global budget system to 
include some stop loss mechanism for health care providers. 
The problem is not that Taiwan is spending too much on health 
care, rather that patients are paying too little. 
 
Fleeing a Sinking Ship? 
======================= 
 
¶7.  (U) The Department of Health is facing a leadership 
vacuum.  Minister of Health Chen Chien-jen was appointed 
during the SARS crisis in 2003, and while a popular and 
capable administrator, has not pushed for urgently needed 
policy reforms in pricing, validation, and data protection 
for innovative pharmaceuticals.  Chen has announced he plans 
to return to Taiwan University after the upcoming Legislative 
Yuan elections.  Although he recently has been relatively 
outspoken about NHI's precarious fiscal position, his lame 
duck status makes it difficult for Chen to do more than use 
the bully pulpit of his office to warn of the impending 
crisis.  He has announced plans to convene public meetings to 
discuss the future of NHI.  Chen's replacement will be the 
fourth Minister of Health in four years. 
 
¶8.  (SBU) The recent resignation of Deputy Minister of Health 
and CEO of BNHI Chang Hong-jen is another blow to a ministry 
that can ill-afford to lose capable administrators.  Chang 
led BNHI for almost 4 years and gained a reputation as the 
"Teflon administrator" for cutting BNHI's administrative 
costs to just 2 percent of operating expenses and for forcing 
through price hikes in premiums and co-payments in 2002.  His 
resignation in October, in response to protests by more than 
1000 doctors and small hospital administrators over the 
implementation of global budgeting, surprised most observers. 
 Chang told AIT November 22 he had been seeking to step down 
for several months in order to allow a new CEO to take the 
reins at BNHI.  After repeated urging by the Minister of 
Health and President Chen he agreed to temporarily take on 
the additional role of deputy Minister of Health in June 
¶2004.  However, he was growing increasingly concerned that he 
would not be allowed to leave and took the protests as his 
opportunity to step down to pursue a fellowship at a U.S. 
university.  Chang's colleagues suggest he stepped down in 
order to better position himself for a more senior role later. 
 
¶9.  (SBU) The Director of the Bureau of Pharmaceutical 
Affairs (BOPA) Wang Hui-po also submitted her resignation in 
August, but she agreed to stay on until a replacement can be 
found.  Wang told AIT she "could no longer in good conscience 
remain in (her) position when the leadership of DOH was more 
concerned with finances and protecting international 
companies than with the welfare of the Taiwan public."  She 
cited in particular the pressure from foreign pharmaceutical 
companies for changes in Taiwan's validation procedures and 
establishment of data exclusivity provisions.  However, DOH 
has been unable to find a successor and Wang is still in 
place.  Her future status is uncertain.  Wang has not been 
helpful to efforts to bring Taiwan into compliance with WTO 
commitments on pharmaceutical data protection and has been a 
major obstacle in efforts to simplify pharmaceutical 
manufacturing validation procedures.  However, the medical 
device industry credits her for quickly resolving their 
concerns about re-registration of imports.  The position of 
BOPA Deputy has been unfilled for several months. 
 
Comment: Doctor's Don't Make Great Managers 
=========================================== 
 
¶10.  (U) Many DOH bureaucrats are reportedly drawn from the 
ranks of medical doctors.  Their expertise is in medical 
practices and procedures, not management, and they are often 
unwilling to listen to differences of opinion or explain 
decisions.  The result is a particularly inflexible 
bureaucracy that issues edicts with little consultation or 
explanation and is then forced to reluctantly backtrack when 
crises spiral out of control.  The initial mishandling of the 
SARS crisis in 2003 led to some improvements in the 
Ministry's procedures and readiness to control pandemic 
disease, but the rapid spread of the disease at the beginning 
stages was a direct result of DOH's bureaucratic inability to 
coordinate a sound response.  Irrational medical device 
registration requirements, announced at the end of 2003 and 
then modified after pressure from industry and the US 
government, is another example of the DOH announcing a policy 
change without sufficient consultation or forethought.  The 
2002 announcement of serious changes in regulations for 
pharmaceutical registration, done without consultation with 
industry, and the subsequent difficulties in reaching an 
acceptable agreement on registration and inspection 
requirements is yet another example. 
 
¶11.  (U) The regular turnover of Ministers, the resignation 
of those officials who have demonstrated some leadership, and 
the inflexibility of the DOH bureaucracy have combined to 
make the DOH unwilling or unable to address many of the 
serious shortcomings of Taiwan's public health care system 
and make working with DOH a challenge.  Long hours, low 
wages, heavy workloads, recurring health crises, and 
political pressures affect the staff morale and make it 
difficult to recruit and retain capable professionals. 
 
¶12.  (SBU) Taiwan's impending health insurance crisis has 
been obvious to health care administrators for some time. 
DOH raised the issue in 2003 but met a brick wall in the LY. 
Given the increasingly sour post-election partisan 
environment, chances for the LY to agree on future needed 
premium hikes are low.  Efforts to implement global budgeting 
are acknowledged by former BNHI CEO Chang Hong-jen as a 
stop-gap cost-cutting measure that could only really be 
effective if Taiwan's health care costs had already 
stabilized.  Global budgeting may have bought BNHI a few 
months, but is not a solution.  A government bailout could 
prevent BNHI's fiscal collapse in the short term, but the 
structural shortcomings of the health care system will 
remain.  With the departure of Minister Chen and CEO/Deputy 
Minister Chang, the DOH and BNHI lack the leadership 
necessary to lead the push for solutions and the inflexible 
culture and low morale of the DOH will make reforms even more 
difficult.  Chang agreed that the bankruptcy and closure of 
several hospitals may be necessary before there is political 
will to address the root causes of this crisis. 
PAAL