VZCZCXRO4828
PP RUEHCN RUEHGH RUEHVC
DE RUEHIN #2257/01 2752251
ZNR UUUUU ZZH
P 022251Z OCT 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 7015
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHHK/AMCONSUL HONG KONG 8583

UNCLAS SECTION 01 OF 02 TAIPEI 002257 
 
SIPDIS 
 
STATE PLEASE PASS TO AIT/W AND EAP/RSP/TC 
 
STATE PASS USTR/DKATZ AND USTR/CWILSON 
 
USDOC FOR 4430/ITA/MAC 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON TW
SUBJECT: Taiwan Pharmaceuticals - Mixed Progress on Standard 
Contracts 
 
REF: TAIPEI 1788 
 
Summary 
------- 
 
1.(SBU) In response to U.S. concerns about the lack of transparency 
in drug procurement by Taiwan hospitals, the Taiwan Executive Yuan 
(EY) has forwarded to the Legislative Yuan (LY) draft legislation 
that would require hospitals to use a common standard contract for 
pharmaceutical purchases.  This standard contract would require full 
disclosure of the actual price and allow the Bureau of National 
Health Insurance (BNHI) to more accurately establish real 
transaction prices in their price surveys.  The bill is opposed by 
the health care industry and local pharmaceutical firms, and with 
elections approaching, it is unlikely to become law before the end 
of the LY session.  End summary. 
 
New Draft Law Good News for U.S. Pharma 
--------------------------------------- 
 
¶2. (SBU) On September 5, the EY forwarded a number of proposed 
amendments to the National Health Insurance Law to the Legislative 
Yuan for consideration.  In this package was a provision requiring 
hospitals and clinics to use a model standard contract for all drug 
purchases.  This model contract would require all payments, rebates, 
incentives, and other financial considerations to be declared in the 
contract.  The intent is to bring more transparency to the drug 
procurement process and allow BNHI to more accurately survey 
transaction prices and set reimbursement levels.  Under the current 
system, hospitals benefit from a price gap, often called the "black 
hole," between the actual transaction price they pay for a drug and 
an often higher reimbursement price set by BNHI.  This discrepancy 
can be because the reported price does not reflect rebates, hidden 
discounts or other financial considerations provided by the seller 
and not noted in the contract. 
 
¶3. (SBU) The U.S. has advocated the implementation of a mandatory 
standard contract.  Taiwan agreed in principle, but in the past has 
argued that it would take time.  Instead, BNHI and the Department of 
Health have told AIT that they supported a phased-in approach to 
implementation, first seeking voluntary compliance. 
 
Strong Opposition by Local Health Care Industry 
--------------------------------------------- -- 
¶4. (U) Five days after the EY approved the draft amendment, Taiwan's 
five hospital and clinic associations--the Taiwan Hospitals 
Association, the Taiwan Medical Center Association, the ROC Regional 
Hospitals Associations, the Taiwan Regional Hospitals Association, 
and the Taiwan Private Medical Institute Association--publicly 
attacked the plan in a front-page ad in the United Daily News, one 
of Taiwan's largest-circulation Chinese-language newspapers.  The 
associations charged that the proposal favored foreign 
pharmaceutical firms and other foreign interests at the expense of 
Taiwan's patients; could be in violation of the Taiwan 
constitution's protections of the principles of free and fair trade; 
and could put smaller and more remote community hospitals out of 
business by raising the price for drugs. 
 
Patients Might Like It, Though 
------------------------------ 
 
¶5. (SBU) So far only one domestic interest group has come out in 
favor of mandatory standard contracts -- the Taiwan Healthcare 
Reform Foundation (THRF), a patients' rights organization.  THRF's 
spokeswoman Cyajing Chen told AIT that in their view the hospital 
industry should not reap large profits from writing drug 
prescriptions, and that since patients have the right to the best 
drugs available, physicians should not have an incentive to 
prescribe certain drugs based on profit margins for the hospitals. 
They believe that under the current system, patients--who lack the 
professional knowledge to know when one drug is less effective than 
another--are the only losers. 
 
BNHI to Sweeten SC Deal 
----------------------- 
 
¶6. (SBU) In response to opposition to the plan, BNHI has offered to 
sweeten the deal, offering an extra five percent bonus to hospitals 
using the standard contract.  On September 11, International 
Research-based Pharmaceutical Manufacturers' Association CEO and 
Secretary General Carol Cheng told econoff BNHI Vice President Dr. 
 
SIPDIS 
Cheng-hua Lee will also encourage public hospitals to implement the 
standard contract voluntarily.  BNHI had already received 
commitments from two of Taiwan's largest public hospitals - 
--Veterans Memorial and Tri-Services General-- to implement standard 
 
TAIPEI 00002257  002 OF 002 
 
 
contracts. 
 
¶7. (SBU) Cheng told econoff that if BNHI implements this policy at 
the same time that the Department of Health (DOH) announces the 
start of the new round of data collection for the next Price-Volume 
Survey (PVS)--which we expect will be in early 2008--the extra 
incentive may be enough to entice hospitals to take the deal 
regardless of the outcome of the standard-contract amendment in the 
LY. 
 
 
A Good Idea, but Not Now 
------------------------ 
 
¶8. (SBU) Dr. Chien-fang Tseng, Deputy Director-General of the DOH 
National Bureau of Controlled Drugs, called standard contracts a 
political hot-potato.  She thinks that the LY will likely wait until 
after this winter's LY and presidential elections to consider 
changes to the national health insurance system. 
 
¶9. (SBU) IRPMA's Cheng is also pessimistic about the proposed 
amendment's near-term chances for passage.  If the EY sends the bill 
to the LY, she says, hospital associations and local drug 
manufacturers will try to mobilize friendly legislators to prevent 
the LY from voting on the amendment this term.  Although IRPMA's 
lobbyists have been told the standard contract amendment will be a 
"priority" for the LY, the LY has identified 82 priority issues for 
the remaining months of the session, and since passing the 
central-government budget will take up the majority of the LY's 
time, IRPMA's LY contacts estimate that there will only be time to 
consider 5-10 non-budget amendments before the winter recess begins 
on December 31.  [Note: The LY sends bills that it fails to vote on 
by the end of a term back to the EY. End note.] 
 
¶10. (SBU) IRPMA told us that to have any chance to get this passed, 
AIT and other representative offices--together with Amcham, the 
European Chamber of Commerce Taipei (ECCT), and perhaps local allies 
such as the Taiwan Healthcare Reform Foundation--should push the 
Taiwan authorities and LY to keep the standard contract amendment as 
a single, stand-alone amendment and to make sure that it becomes one 
of the top-10 priority bills for this session. 
 
Comment 
------- 
 
¶10. (SBU) This draft law is a positive step, as are BNHI's efforts 
to offer incentives to gain voluntary compliance and defuse 
opposition by local industry, and probably means that a standard 
contract provision will eventually become law, even if it is an 
uphill battle this session.  AIT will continue to work with U.S. 
pharmaceutical firms, Amcham, and other foreign representative 
offices to push for passage of the bill.  End comment.