VZCZCXRO1121
RR RUEHGH
DE RUEHIN #0136/01 0180851
ZNR UUUUU ZZH
R 180851Z JAN 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 3785
INFO RUEHBJ/AMEMBASSY BEIJING 6238
RUEHUL/AMEMBASSY SEOUL 8404
RUEHKO/AMEMBASSY TOKYO 8403
RUEHGP/AMEMBASSY SINGAPORE 6781
RUEHKL/AMEMBASSY KUALA LUMPUR 3661
RUEHML/AMEMBASSY MANILA 9924
RUEHHI/AMEMBASSY HANOI 3217
RUEHHK/AMCONSUL HONG KONG 7467
RUEHGZ/AMCONSUL GUANGZHOU 9915
RUEHGH/AMCONSUL SHANGHAI 0736
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 04 TAIPEI 000136 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS TO AIT/W 
STATE FOR EAP/RSP/TC, EAP/EP and EB/TPP/MTA/IPC 
STATE PASS to USTR for BOLLYKY and ALTBACH, STRATFORD 
USDOC for 4431/ITA/MAC/AP/OPB/TAIWAN/JDUTTON 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EIND TW
SUBJECT: Taiwan TIFA:  U.S. and Taiwan agree to move ahead on 
pharmaceutical working groups 
 
REF: TAIPEI 2947 
 
Summary 
------- 
¶1. Assistant USTR Timothy Stratford urged Taiwan's Bureau of 
National Health Insurance (BNHI) and Department of Health (DOH) to 
consult actively with US firms and the U.S. as it contemplates major 
changes to its national health insurance system.  USTR promised to 
provide by early January a proposal on technical working groups to 
deal with long-term problems.  AUSTR Stratford also urged Taiwan to 
address a number of issues of interest raised by U.S. pharmaceutical 
firms and to find a way for American-qualified chiropractors to 
practice in Taiwan.   An ongoing prosecutorial investigation has 
raised the stakes at BNHI.  It has cost the President of BNHI his 
job and put local drug firms, hospitals and BNHI itself under a 
spotlight.  U.S. firms are trying to calibrate their next moves. 
End summary. 
 
Introduction 
------------ 
¶2.  During their December 18-19 visit to Taiwan that covered the 
full range of economic and trade issues, Assistant USTR Timothy 
Stratford and Deputy Assistant USTR Eric Altbach discussed 
pharmaceutical and other health sector trade issues with the 
Department of Health (DOH) and the Bureau of National Health 
Insurance (BNHI).  They also met with local representatives of U.S. 
pharmaceutical firms.  Other issues and meetings are reported 
Septel. 
 
Prosecutor Raids Make Them Nervous 
---------------------------------- 
¶3.  The Bureau of National Health Insurance is in a state of 
upheaval.  Prosecutors have raided hospitals, drug suppliers, and 
BNHI itself.  The prosecutors are investigate fraudulent drug 
transaction pricing reporting which results in BNHI reimbursing 
hospitals and clinics amounts in excess of the actual cost of drugs. 
 Prosecutors have "discovered" what the USG and industry have been 
complaining about for years:  Some drug firms and hospitals 
overstate the cost of their drug transactions in order to claim 
higher reimbursements from the Bureau of National Health Insurance 
(BNHI).  Most of these cases are believed to involve low cost 
generics produced in Taiwan which are reimbursed at rates close to 
those of name-brand drugs.  These excess payments are known in 
Taiwan as the "black hole."   In particular, prosecutors are looking 
at data submitted last year as part of the 5th Price Volume survey, 
which is used to set reimbursement levels for individual drugs made 
by the insurance system to medical care providers. 
 
¶4.  Initial ramifications of the investigation are clear:  BNHI's 
CEO has been replaced by a technocrat with a strong financial 
background, and BNHI staff warn of more personnel shuffles to come. 
Vice Minister of Health Chen Shih-chung has publicly stated that the 
prosecutors' investigation revealed systemic problems and that BNHI 
needed to reevaluate its finances. 
 
¶5.  So far more than 12 hospitals are involved, including some of 
Taiwan's largest private hospitals.  Although six BNHI employees 
have been interviewed, no one at BNHI is yet a target in the 
investigation.  The scope of the investigation continues to expand. 
One U.S. industry rep reports "rumors" that U.S. and European firms 
may have been investigated, but BNHI is unaware of any foreign firms 
under investigation. 
 
Impact on U.S. Firms 
-------------------- 
¶6.  On December 20, the Prosecutor's Office and the Department of 
Health held a joint news conference and announced that drug firms 
and hospitals who wished to resubmit corrected data would be able so 
do before a January 22, 2007 deadline.  U.S. industry is already 
working to try to evaluate how to respond.  The instructions specify 
that firms are to disclose all benefits, discounts, rebates or other 
considerations that firms make to drug buyers.  These could include 
items such as donations to a hospital-affiliated charity, conference 
sponsorships, administrative fees levied by the hospital, or 
 
TAIPEI 00000136  002 OF 004 
 
 
anything else of value paid or charged by buyer or seller. 
 
¶7.  Although foreign firms are seen by BNHI as largely complying 
with reporting requirements, U.S. firms tell AIT they are working 
hard to make sure that they report all data accurately.  In the 
past, they say, it was not always clear which information needed to 
be reported.  They are also concerned how the data will be used.  It 
is possible, they fear, that new data could lower prices further. 
 
Industry Meets USTR 
------------------- 
¶8.  On December 19, AUSTR Stratford and DAUSTR Altbach met with 
representatives of US drug firms.  The representatives stated that 
the investigation as had the potential to force improvements in the 
quality of the data gathered in the Price Volume Survey.  They also 
hoped it would encourage movement towards the goal of Actual 
Transaction Pricing (ATP).  At the same time, they also hope that 
the investigation and any efforts to correct data reporting would be 
as transparent as possible. 
 
¶9.  Industry reps stressed the need for BNHI and USTR to implement 
the working groups as agreed in earlier TIFA meetings (REFTEL) in 
order to deal with the system's long-term reform goals, namely the 
separation of dispensing and prescribing (SDP) and actual 
transaction pricing (ATP).  They also urged BNHI to continue 
consultations with industry and with AIT as the DOH contemplates any 
major changes to the health care insurance system. 
 
Specifically they highlighted four priorities for follow-up in the 
TIFA framework: 
 
--NEW DRUG PRICING - Industry believes that the process for 
approving and setting prices for new drugs is too time-consuming, 
and that prices are too low.  They criticized BNHI's new policy of 
three-tired pricing for breakthrough, me-too, and line extension 
drugs.  Industry recommended setting prices based average prices in 
OECD countries with GDP levels similar to Taiwan, removal of pricing 
tiers, and a renewed commitment to no therapeutic grouping. 
 
--ATTACKING THE BLACK HOLE THROUGH ATP AND SDP - Structural reforms 
are needed to eliminate the black hole, i.e. ATP and SDP.  Working 
groups to deal with these problems should start as soon as possible. 
 BNHI should implement a standardized contract as soon as possible 
to improve quality of transaction data.  As a first step for SPD, 
the DOH should require public hospitals to release prescriptions for 
chronic disease patients. 
 
--PATENT LINKAGE - There is currently no system of patent linkage in 
Taiwan.  Industry urges Taiwan to set up such a system that will 
protect an originator's rights while providing a safe harbor for 
generics to conduct registration trials. 
 
--FIGHT BALANCED BILLING - BNHI has proposed implementing balanced 
billing, which would give BNHI authority to set a price for a 
certain drug or class of drugs and allowing the patient to pay the 
difference for an alternative medication.  Firms believe that this 
will lad to a shrinking of drug expenditures and more hospital 
demands for discounts.  Balanced billing should only be considered 
after ATP is in place. 
 
Taiwan Health Officials Eager to work with USTR 
--------------------------------------------- -- 
¶10.  Immediately following the meeting with U.S. pharmaceutical 
firms, Stratford and Altbach met with Vice Minister of Health Chen 
Shih-chung and staff from the Department Health and BNHI.  The new 
president of BNHI did not attend the meeting.  Vice Minister Chen 
opened the meeting by reviewing U.S.-Taiwan consultations over the 
past few months on drug pricing.  Responding to U.S. concerns, BNHI 
had delayed the implementation of price cuts from the last price 
volume survey (PVS) to allow for consultations and was following 
through on commitments to improve PVS data accuracy. 
 
¶11.  Furthermore, DOH has already commenced working on the 
development of a standard contract and welcomed AIT/USG comments. 
 
TAIPEI 00000136  003 OF 004 
 
 
He stated that DOH planned to start with a voluntary standard 
contract and gradually move to its mandatory use.  He also noted 
that DOH was considering establishing balanced billing.  Amcham, he 
said, had proposed this idea one or two years ago.  (Note:  Vice 
Minister Chen is undoubtedly aware that U.S. firms are currently 
opposed to the idea.  End note) 
 
¶12.  Responding to questions about the ongoing investigation and the 
possibility of the need to gather revised transaction data, Chen 
noted, in line with the press conference of the following day, that 
companies would have the option of revising incorrect or incomplete 
data over the next month.  He added that he did not think that U.S. 
firms needed to worry since they had done accurate reporting. 
BNHI's Vice President Lee stated that any revised data submissions 
should have minimal impact on U.S. firms, noting that patented drug 
prices will only be affected by revisions to cost data for that 
particular drug.  Off-patent brand-name drugs could be affected by 
cost revisions of BA/BE generics, but because the number of BA/BE 
generics is relatively small their impact was expected to be 
marginal.  Prices of common generics, which face intense 
competition, will probably be most affected. 
 
¶13.  Stratford emphasized the importance of transparency, noting 
that as transparency increases, honesty and trust increase, causing 
costs to go down because firms operate more efficiently.  The U.S., 
Stratford noted, supports Taiwan's efforts to make reporting more 
honest and transparent. 
 
Starting the Working Groups 
--------------------------- 
¶14.  Stratford stated that he would like to get U.S.-Taiwan working 
groups started as soon as possible.  The uncertainty due to the 
investigation was one good reason for dialogue.  He asked when 
working groups could begin. 
 
¶15.  BNHI Vice President Lee stated that BNHI already held 
bi-monthly meetings with IRPMA, which included Japanese, European 
and American firms.  He offered to set up an additional channel for 
AIT or USG if it would be helpful.  Altbach suggested two working 
groups:  One to focus on a fair trade environment which would build 
on the work already done on the standard contact.  The other would 
focus on health policy matters such as counterfeit pharmaceuticals, 
SDP, and ATP.  He offered to present a more detailed proposal by mid 
January and suggested launching these groups by late January or 
early February 2007.  The Vice Minister agreed. 
 
Therapeutic Grouping 
-------------------- 
¶16.  AUSTR Stratford then turned to other issues raised by industry. 
 He noted although BNHI had not used therapeutic grouping in the 
last PVS, industry was concerned that BNHI was considering it for 
the future.  BNHI Vice President Lee stated that although the FIFTH 
PVS did not use therapeutic grouping, in the future BNHI will refer 
to the practice of other countries, and pointedly cited Australia, 
the EU and Canada.  He added that such therapeutic grouping would be 
related to competition between breakthrough, me too, and line 
extension (he called them "me three") drugs.  It was not a national 
treatment issue or an attempt to favor local firms. 
 
 
Timing for New Drugs 
-------------------- 
¶17.  Altbach then raised the issue of length of time it took for new 
drugs to get approved prices for the local market.  He noted that 
U.S. firms informed him that the period seemed to be getting longer. 
 USTR urged that this process move as fas as possible so that 
patients have access to the newest drugs and therapies as soon as 
possible.  Vice President Lee of BNHI replied that the goal was to 
get these procedures completed in 120 days, but the relevant office 
only had 15 staff members.  If they are pulled to participate on 
working groups, he said, it will further constrain their ability to 
respond quickly. 
 
Chiropractors 
 
TAIPEI 00000136  004 OF 004 
 
 
------------- 
¶18.  Turning away from drugs, AUSTR Stratford raised the concern 
that American-qualified chiropractors had difficulties practicing in 
Taiwan.  The U.S. understands that Taiwan has the authority to 
regulate medical care, but hopes that an appropriate mechanism can 
be found for chiropractors to practice in Taiwan.  The Vice Minister 
replied that chiropractic is considered medical behavior and 
therefore practitioners must have recognized academic training, pass 
a local exam and complete a residency.  Doctors, stated the Vice 
Minister, need a local regulatory framework.  Stratford noted that 
in the U.S. the system was able to distinguish between medical 
doctors and chiropractors and that Taiwan and the U.S. needed to 
find an appropriate mechanism to discuss and work on the issue. 
 
Medical Devices from China 
-------------------------- 
¶19.  AUSTR Stratford then raised the issue of Taiwan bans on imports 
of medical devices made in China.  This was affecting American 
firms.  As more and more top manufacturers transferred their 
production to China, these bans will have an increasing impact. 
Stratford noted that he would also raise the issue with the Minister 
for Economic Affairs, but also wanted to mention the issue at the 
DOH because of its broader health implications. 
 
Patent Linkage 
-------------- 
¶20.  Stratford raised the issue of patent linkage.  Vice Minister 
Chen responded that DOH was already working on the issue and had 
contacted a local law firm to assist them in reviewing the issue. 
He also asked for assistance from AIT to arrange consultations with 
the U.S. FDA to understand U.S. practice.  Stratford replied that 
this issue should also be an important part of our IPR dialogue and 
effective patent linkage would create confidence for more rapid 
introduction of new drugs and therapies for Taiwan patients. 
 
Comment 
------- 
¶21.  BNHI and the DOH have been put under enormous pressure due to 
the prosecutor investigation.  US firms believe that the 
investigation will help to push badly needed reforms, but are also 
cautiously evaluating how to respond to requests for more 
information that stem from a judicial investigation.  The Vice 
Minister was echoing conventional wisdom when he said that U.S. 
firms are seen as having already properly and completely disclosed 
price data, but firms are concerned that calls for additional 
information may capture costs that will be difficult to quantify and 
evaluate - such as conference sponsorships - and may lead to further 
price cuts.  Firms are also concerned that with BNHI under severe 
financial trouble, this next year could be unpredictable.  It will 
be very important for the U.S. to stay engaged with DOH and BNHI 
over the next few months so we can have an early voice in the 
discussion of any possible reforms. 
 
YOUNG