VZCZCXYZ0008
RR RUEHWEB

DE RUEHIN #2947/01 2360915
ZNR UUUUU ZZH
R 240915Z AUG 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 1813
INFO RUEHBJ/AMEMBASSY BEIJING 5577
RUEHUL/AMEMBASSY SEOUL 8041
RUEHKO/AMEMBASSY TOKYO 7966
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF AGRICULTURE WASHDC
RUEHGV/USMISSION GENEVA 1758

UNCLAS AIT TAIPEI 002947 
 
SIPDIS 
 
SIPDIS 
 
 
 
STATE PASS USTR 
STATE FOR EAP/TC, 
USTR FOR BOLLYKY AND ALTBACH, 
USDOC FOR 4431/ITA/MAC/AP/OPB/TAIWAN/JDUTTON 
USDA/FAS FOR SHEIKH/MIRELES 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EIND TW
SUBJECT: TAIWAN TIFA FOLLOW UP - DRUGS - SHORT TERM 
PROGRESS, LONG-TERM WORRIES 
 
REF: TAIPEI 2570 
 
Summary 
------- 
¶1.  As part of TIFA follow-up meetings, Deputy Assistant 
U.S. Trade Representative Eric Altbach and delegation 
discussed pharmaceutical issues with the Department of 
Health (DOH) and the Bureau of National Health Insurance 
(BNHI) as well as local representatives of U.S. 
pharmaceutical firms. These firms, while concerned about 
achieving the long-term goals of separating prescribing and 
dispensing (SPD) and actual transaction pricing (ATP), were 
pleased with progress they had made with DOH and BNHI in 
anticipation of the DAUSTR meetings.  DOH agreed not to 
change the R-zone from the current 15% and eliminated 
therapeutic groupings of drugs.  The DOH also agreed not to 
seek price cuts for several specific drugs.  In the meeting 
with DOH, DAUSTR Altbach stressed the need to make the Price 
Volume Survey (PVS) more predictable, accurate, and 
transparent, and to consult with all stakeholders. DOH 
agreed to improve data collection in the future.  Regarding 
the current PVS, Altbach urged DOH to apply the Merck Index 
1982, as opposed to Merck Index 1984 as proposed by DOH. 
DOH noted that they were prepared to be flexible on this 
point. DAUSTR stressed the need to make meaningful progress 
on SPD and ATP and suggested additional discussions, via 
DVC, before the final PVS results are announced on October 
¶1.  AIT will follow up with DOH on DVC timing and other 
issues as well as continue to reiterate that real progress 
needs to be made under the TIFA process.  Meaningful 
progress on ATP and SPD will be difficult.  Other 
(non-pharmaceutical) issues discussed by delegation reported 
septel.   End Summary. 
 
 
US Industry sees some progress from TIFA dialogue 
--------------------------------------------- ---- 
¶2.  As a lead up to meeting with DOH, DAUSTR Altbach met 
with local representatives of US pharmaceutical firms.  They 
stated that in anticipation of the TIFA follow up meetings, 
DOH had already met with them several times and had offered 
some concessions. They stated DOH had agreed not to change 
the R-zone from 15%, as opposed to an earlier suggested 
8.5%.  (The R-zone is the acceptable discount - expressed as 
a percentage of the government reimbursement rate - which a 
hospital receives from a drug distributor.)  They also noted 
DOH had agreed to eliminate therapeutic groupings of drugs 
for pricing purposes, and not to seek price cuts for several 
specific drugs.  The patent-term for pricing purposes was 
still under discussion (reftel). 
 
¶3.  DOH previously announced that for the 5th PVS, the Merck 
Index 1984 would be used to determine whether or not to 
consider a drug on-patent for pricing purposes.  The PVS 
study of two years ago, however, used the Merck Index 1980. 
Moving to the Merck Index 1984 would result in 2-years' loss 
of patent coverage for pricing purposes.  After extensive 
discussions, DOH had told industry that they were 
considering a compromise and shifting to Merck Index 1983. 
Industry is still pushing for Merck Index 1982, to be 
consistent with the patent-term in prior surveys. 
 
But industry still has plenty to worry about 
-------------------------------------------- 
¶4.  While pleased with the progress made in talks with DOH 
in advance of the DAUSTR visit, industry continues to raise 
concerns about the PVS and its accuracy and transparency. 
Several industry representatives had raised concerns about 
the new "C-survey," which is an additional comparison of 
data reported by distributors and hospitals.  Significant 
discrepancies are pulled for further investigation and 
referred to the Ministry of Justice.  While most of the 
investigations seemed to involve local companies, several 
international firms stated that they also had one or two 
drugs on the list.  Industry was concerned that they had not 
seen any criteria for inclusion in this survey. It is still 
sometimes not clear what data needs to be reported, they 
pointed out. It is also not clear what possible 
administrative or criminal penalties they might face, if 
any, as a result of this survey.  One initiative that might 
 
improve the accuracy of data collection, they suggested, was 
for DOH to mandate hospitals and drug suppliers use a 
standard contract that capture all payments surrounding the 
transaction to clarify the true cost hospitals pay for each 
drug. 
 
¶5.  Although generally pleased with the results of their 
consultations with DOH on the mechanics of the current PVS, 
industry is pessimistic about DOH reaching the long-term 
goals of separating prescribing and dispensing (SPD) and 
actual transaction pricing (ATP). They urged the USG to 
continue pushing DOH to make steps towards these goals. And 
although they were pleased DOH had decided not to pursue 
therapeutic grouping, they were still disappointed that DOH 
groups their off-patent brand-name drugs with generics for 
pricing purposes. 
 
DOH wants to talk 
----------------- 
¶6.  After meeting with industry, Altbach and delegation met 
for three and a half hours and through lunch with Department 
of Health officials led by Vice Minister of Health Chen 
Shih-Chung and Bureau of National Health Insurance President 
Liu Chien-Hsiang.  The meeting covered the full range of 
drug pricing issues - both immediate concerns over the 
current PVS as well as long-term goals of SPD and ATP.  The 
discussions were friendly and open, and throughout the 
meeting, there were several requests for continued 
discussions at various levels.   DOH officials emphasized 
that Vice Premier Tsai Ing-Wen had taken a personal interest 
in the TIFA pharmaceutical dialogue.  (Note:  Tsai told 
AIT/T Director on August 16 that she had met with DOH and 
that she had or shortly would also meet with industry 
representatives from the U.S., the EU and Japan.  End note.) 
 
The 5th Price Value Survey - striving for accuracy, 
transparency, predictability 
--------------------------------------------- ---------------- 
------------------- 
¶7.  DAUSTR expressed appreciation that DOH and BNHI had been 
actively engaged in consultations regarding the 5th PVS with 
international pharmaceutical firms, stressing that the 
survey should be transparent, predictable, and gather as 
accurate data as possible.  He urged DOH to continue to 
consult with stakeholders and also to clarify what data is 
required to be disclosed in the survey as well as to clarify 
what penalties can be imposed for incorrect reporting.  He 
cited the "C-Survey" as an example.  DOH officials reported 
that the "C-Survey" was initiated after the Vice Premier 
urged the Ministry of Justice to get involved in dealing 
with fraudulent reporting.  DOH officials were uncertain 
what possible actions that the MOJ would take.  DAUSTR urged 
continued consultation on C-survey implementation and how 
administrative and criminal penalties might be applied. 
 
¶8.  He suggested DOH could develop a standardized contact 
for hospitals and drug suppliers that included all relevant 
information and identified payments that could help increase 
both transparency and data accuracy.   BNHI Vice President 
Lee stated that this was an excellent idea and that his 
office was currently developing such a contract.  He stated 
that BNHI was serious about dealing with fraudulent and 
misleading reporting.  One official stressed the difficulty 
of truly capturing all of the payments surrounding a 
transaction, noting that sometimes drug suppliers make 
payments into a separate entity as part of a transaction. 
The Taiwan side further requested that they be able to 
consult with the USG Health and Human Services Inspector 
General to study US efforts to investigate and prosecute 
false data reporting. Vice Minister Chen also reiterated the 
importance of this issue, noting that Vice Premier Tsai 
Ing-Wen had ordered DOH to study the issue of establishing 
what he described as a "fair transaction" environment and 
that he would be meeting soon with Taiwan's Fair Trade 
Commission to seek their help in improving transparency and 
accountability. 
 
¶9.  DAUSTR also urged the DOH to apply the principles of 
consistency and predictability in applying patent-definition 
for pricing purposes, stating that the USG viewed the Merck 
 
1982 Index as being most consistent with past surveys since 
it applied the same patent-term.  DOH officials stated that 
this issue was still under internal discussion. 
 
¶10.  Altbach also stressed the need to continue to take 
meaningful steps to move to SPD and ATP.  DOH officials 
agreed that was also their goal, but that it would take 
time.  They highlighted several initiatives currently 
planned or in place to move closer to this goal: 
--requiring physicians to actually give their patients a 
copy of any prescription so that they would have the choice 
of filling it at any pharmacy. 
--Auditing doctors every 3 months to insure that they are 
complying with the policy 
--Requiring local pharmacies to legally register their 
ownership to increase the chance that they would separate 
from physicians 
--start a lottery system whereby patients could use 
prescription receipts as lottery tickets. (Note: This sounds 
hokey, but a similar lottery based on general tax receipts 
is enormously popular in Taiwan. End note.) 
 
Next Steps 
---------- 
¶11.  AIT will follow-up with DOH/BNHI and with USTR to set 
up a DVC to review progress before the October 1 
announcement of the PVS results.  We will also further 
investigate the possibility of DOH officials meeting with 
our own HHS staff in Washington.  We will also reiterate 
with DOH that while we were generally pleased with the 
dialogue to date, the USG will continue to look for real 
progress and real reforms as part of the TIFA process. 
 
Comment: 
-------- 
¶12.  The word has clearly gone out that the DOH needs to 
actively engage the USG in the TIFA process.  They were 
prepared to talk about all aspects of their national health 
care system, and made a real effort to work with industry in 
anticipation of Altbach's visit.  Progress on a more 
transparent Price Value Survey, while welcome, is far from 
reaching the long term goal of eliminating the PVS and 
moving to SPD and ATP.  DOH acknowledges that this will take 
considerable time. 
 
¶13.  Although far from perfect, Taiwan's National Heath 
Insurance Program is inexpensive and accessible, and is one 
of the few popular programs of the current administration. 
Any actions that raise prices to users or radically change 
the system are likely to meet widespread political 
opposition.  It would take a significant and surprising 
political commitment to implement these changes anytime 
soon.  As a counterbalance to current political realities, 
however, the dramatically under-funded status of the program 
means reform will - eventually - be necessary.  With its 
current level of financing, the program is unsustainable. 
YOUNG