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

UNCLAS SECTION 01 OF 02 TAIPEI 004882 
 
SIPDIS 
 
STATE FOR EAP/RSP/TC, STATE PASS AIT/W AND USTR, USTR FOR 
WINELAND, WINTERS AND STRATFORD, USDOC FOR 
4431/ITA/MAC/AP/OPB/TAIWAN/MBMORGAN AND JDUTTON 
 
E.O. 12958: N/A 
TAGS: ECON ETRD TW ESTH
SUBJECT: TAIWAN'S PLAN TO CUT HEALTH COSTS WORRIES PHRMA 
 
REF: TAIPEI 4685 
 
¶1.  Summary: In the first of what are promised to be regular 
bimonthly meetings between Taiwan's Bureau of National Health 
Insurance (BNHI), AIT, and local heads of U.S. pharmaceutical 
companies, BNHI explained in detail its current proposal to 
expand a pilot reimbursement cap program.  Makers of 
innovative pharmaceuticals are concerned that expanding the 
"global budget" program will encourage hospitals to switch to 
lower-cost/higher-margin generic drugs and reduce 
prescriptions of patented products.  End Summary. 
 
¶2.  Representatives of U.S. pharmaceutical companies in 
Taiwan joined AIT in a meeting chaired by BNHI CEO Dr. Liu 
Chien-hsiang to discuss BNHI's plans to extend "global 
budgeting" to all hospitals and medical centers in Taiwan. 
Global budgeting is the term used to describe reimbursement 
caps imposed by BNHI.  Medical providers are guaranteed a 
certain amount of funding from BNHI, but if their claims 
exceed that amount they are reimbursed at a reduced rate or 
not at all.  BNHI's goal is to encourage the hospitals to 
operate more efficiently while simultaneously reining in 
medical spending growth that threatens to bankrupt Taiwan's 
health care system.  However, experience from implementing 
global budgeting on a trial basis beginning in 2004 shows 
that hospitals respond to BNHI budget caps by limiting 
purchases of innovative pharmaceuticals and switching from 
innovative drugs to lower-cost/higher-margin generics that 
may be less effective.  Some hospitals were also accused of 
"patient dumping," i.e., refusing to admit patients with 
chronic ailments or needing high-cost treatments or forcing 
them to repeatedly shift hospitals.  Taiwan's Department of 
Health (DOH) acted quickly to impose punitive sanctions on 
any hospital engaging in patient dumping, but anecdotal 
reports suggests the practice still occurs.  There were no 
penalties for drug switching, and it would likely be 
impossible to impose such penalties. 
 
The Latest Global Budget Plan 
============================= 
 
¶3.  DOH is confident that its newly proposed expansion of the 
global budget system has taken into account lessons learned 
from the pilot implementation program and will limit 
opportunities for abuse.  It strives to provide 
predictability, encourage competition, and promote 
transparency.  Hospitals can choose a guaranteed 
reimbursement of between 80% and 90% of their costs (July 
2004 to June 2005 base period.)  Hospital expenses over the 
chosen guaranteed amount will then be reimbursed on a 
floating scale up to a cut-off point that is determined by 
the chosen guarantee level.  A lower guaranteed level results 
in a higher cut-off point (up to 115% of the base period 
reimbursement) while a higher guaranteed level means a lower 
cut-off (105% of the base period for those that chose a 90% 
guaranteed level.)  Any expenses above the individual 
hospital cut-off point will not be reimbursed, but will be 
considered when budgets are allocated the next year.  To 
avoid patient dumping, BNHI is proposing that claims for 
certain cases designated as acute or severe be fully 
reimbursed, regardless of the guaranteed limits, and that the 
individual hospital cut-off points be adjusted upward. 
 
¶4. To encourage competition and to ensure that patients have 
the opportunity to benefit from new and innovative 
pharmaceuticals, BNHI has earmarked 5% of the NHI budget 
specifically for purchase of new products.  This amount is 
separate from reimbursements provided under the global budget 
proposal and is meant to encourage hospitals to increase 
their use of innovative but more expensive products.  BNHI 
also proposes to create a mechanism to closely monitor 
hospital expenditures in real-time that will allow it to 
adjust payments to reward or penalize hospital practices. 
Hospital representatives are encouraged to join BNHI to 
create regional co-management teams to improve communication 
and transparency and create peer-control mechanisms. 
 
Consultation not leading to Consensus 
===================================== 
 
¶5.  BNHI has already held four meetings with hospital 
representatives, consumers and health care experts to discuss 
the plan.  However, some large medical centers are reluctant 
to accept a BNHI proposal that they reportedly believe will 
limit their earning potential and entail increased monitoring 
from BNHI.  BNHI had hoped to implement the new plan 
beginning January 1, but opposition from the medical centers 
has delayed implementation indefinitely.  BNHI was to meet 
with hospital representatives December 9 for further 
discussions. 
 
¶6.  Taiwan-based representatives of U.S. pharmaceutical 
companies were pleased to finally have the opportunity to 
hear directly BNHI's proposal, but were disappointed that 
they had not been informed earlier.  BNHI CEO Liu responded 
that the plan was still not finalized and that BNHI felt that 
it would have been premature to share earlier versions of the 
global budget proposal.  AIT Econoff made the point that 
early consultation was the best way to head off potential 
concerns and suggested that implementation of the proposal be 
delayed to allow companies a chance to respond.  Liu agreed 
that information-sharing was important and promised to give 
the U.S. pharmaceutical company representatives some time to 
review this new information.  He did not, however, give any 
specific date.  Liu welcomed the chance to have regular 
meetings with U.S. pharmaceutical company representatives and 
AIT and promised to do his best be available to chair each 
meeting. 
 
Comment: Minimize the Negatives 
=============================== 
 
¶7.  Comment: U.S. pharmaceutical companies were taken by 
surprise in November when word of the new global budget 
proposal leaked out.  Misunderstanding and mistaken 
assumptions about how the program would operate were 
compounded by a lack of communication with BNHI.  This 
meeting was industry's first chance to hear directly from 
BNHI what the expanded global budget proposal would entail. 
Company representatives will join AIT to discuss the details 
of the program with staff-level DOH drafters in the next week 
with the goal of mitigating the negative effects of the 
expanded global budget program on innovative pharmaceuticals. 
 However, BNHI appears to be committed to implementing the 
program in the near future.  It is unlikely that 
pharmaceutical companies will be able to stop implementation 
of this plan.  CEO Liu's willingness to engage with the 
international community is encouraging and a marked departure 
from the lack of interest BNHI displayed in the recent past. 
These bimonthly meetings (the next is tentatively scheduled 
for February) could serve as a valuable new forum for AIT and 
the pharmaceutical industry to work with the DOH and BNHI to 
tackle both immediate and long-term problems.  End comment. 
PAAL