VZCZCXRO9358
PP RUEHCN RUEHGH RUEHVC
DE RUEHIN #2326/01 2880846
ZNR UUUUU ZZH
P 150846Z OCT 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 7125
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 TAIPEI 002326 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/TC 
STATE PASS AIT/W, USTR FOR CHRIS WILSON, COMMERCE FOR 4430/ITA/MAC, 
TREASURY FOR OASIA/TTYANG AND HAARSAGER 
 
E.O. 12958: N/A 
TAGS: ETRD ECON TW
SUBJECT: TAIWAN PHARMA: LITTLE DOMESTIC SUPPORT FOR PRICE REFORMS 
 
Reftel: Taipei 2257 
 
Summary 
------- 
 
¶1.  (SBU) Taiwan implemented its National Health Insurance (NHI) 
system in 1995, and its health-care system comprises six large 
public medical centers, 16 large privately-owned medical centers, 
and 417 regional and district hospitals. U.S. pharmaceutical 
manufacturers' current top reform priorities are changes to the 
Taiwan Bureau of National Health Insurance (BNHI) drug-reimbursement 
system that would require hospitals to use a standard purchasing 
contract for pharmaceuticals, actual transaction pricing (ATP) for 
all drug purchases, and the separation of drug dispensing and 
prescribing (SDP) so that hospitals have less incentive to drive 
down drug prices.  Based on conversations with system stakeholders 
including doctors, hospital administrators, and NGOs, progress on 
each of these changes will likely be difficult because there is 
little domestic constituency for reform.  Because Taiwan has no 
major international drug manufacturers, hospitals that rely heavily 
on profits from BNHI drug reimbursements, and consumers who are 
largely satisfied with the convenience and coverage of the current 
system, there is limited support for change. Progress on reform will 
therefore require continued U.S. engagement with Taiwan authorities 
and other key stakeholders.  End summary. 
 
Doctors Push More Funding... 
---------------------------- 
 
¶2. (SBU) Taiwan's doctors advocate increased coverage for drugs, 
especially for chronic diseases such as diabetes and cancer.  In a 
recent meeting with econoff, Dr. Delon Wu, top advisor to the 
privately-owned Chang-gung Hospital and a former hospital director, 
said that NHI's budget is too small to sustain the system, and that 
recent increases in premiums and co-payments are not covering rising 
NHI costs, especially for drugs.  In order to maintain a 
comprehensive NHI, Wu believes that premiums must double, noting 
that Korea--whose level of economic development is comparable to 
Taiwan's--charges taxpayers twice as much per month.  Dr. Lai 
Gi-ming, Director of the Office of Collaborative Medical Affairs at 
the National Health Research Institutes (NHRI), recently made the 
same point to econoff, lamenting that Taiwan's six-percent ratio of 
NHI expenditure to GDP compares poorly to Japan's 9.6 percent and 
Korea's 13 percent. 
 
¶3. (SBU) Chang King-ren, President of the Chinese Oncology Society, 
gave econoff data from his research showing that spending on 
cancer-fighting drugs is only 0.4 percent of BNHI's budget. 
Chang-gung Hospital's Delon Wu agrees, complaining to econoff that 
due to insufficient budgets, BNHI sets limits on payments for drugs 
used to treat cancer, and that since such drugs are usually more 
expensive than other pharmaceuticals and are used over longer 
periods, BNHI under-serves cancer patients.  Both doctors argue that 
BNHI must increase premiums and reduce payments for non-chronic 
drugs in order to spend more on chronic-illness drugs. 
 
...and Patients Agree 
--------------------- 
 
¶4. (SBU) Patients' rights groups agree with doctors that drug 
spending in Taiwan is too low, and call for increased funding for 
chronic-illness drugs such as those used for cancer and diabetes. 
Formosa Cancer Foundation advisor Dr. Hsieh Ruey-kuen recently told 
econoff many cancer drugs that physicians want to prescribe are not 
covered by the NHI and are therefore paid by patients themselves, a 
practice that is too costly for many patients and forces some to 
seek out cheaper but less effective treatments.  Hsieh, a cancer 
specialist at Mackay Memorial Hospital, provided data from Mackay 
showing that 60 percent of its tumor patients are paying part or all 
of their drug costs, and said his contacts at Taipei Veterans and 
National Taiwan University Hospitals have told him that the rate at 
their hospitals is even higher. 
 
¶5. (SBU) In an October 4 meeting with econoff, Ly-yun Chang, 
Chairwoman of Taiwan's largest NGO focusing on overall healthcare 
reform, the Taiwan Health Reform Foundation (THRF), said that THRF 
is also pushing for more NHI spending on cancer drugs.  She pointed 
out that instead of allowing doctors to prescribe the most suitable 
treatment for individual cases of cancer, BNHI's reimbursement rules 
require cancer patients to start with so-called "first-level" 
chemotherapy, and if this treatment is not successful, NHI will pay 
for additional, "second-level" chemotherapy, likewise authorizing 
reimbursement for the more intense--and expensive--"third-level" 
treatments if the second-level chemotherapy proves ineffective. 
 
Doctors, Hospitals Don't Support Major Reforms 
--------------------------------------------- -- 
 
TAIPEI 00002326  002 OF 003 
 
 
 
¶6. (SBU) However, doctors do not support specific reforms to NHI, 
including standard purchasing contracts, SDP, or other changes to 
the price-volume survey (PVS) methodology that BNHI uses to control 
drug reimbursement costs.  Doctors, and the hospitals that employ 
them, are overly-dependent on revenues derived from the difference 
between the lower prices they have negotiated with drug companies 
and the higher amounts that BNHI reimburses for the same drugs--the 
source of the so-called "Black Hole" in Taiwan's pharmaceuticals 
budget.  Hospitals in Taiwan do not disclose how much money they 
make from this gap, but Dr. Chi-chou Liao, Director General of the 
Taiwan Department of Health (DOH) Bureau of Pharmaceutical Affairs 
(BOPA), told econoff that large public and private hospitals in 
Taiwan such as Chang-gung and Taiwan University Hospital make about 
two-thirds of their profits from prescriptions, and the hospitals 
therefore oppose standardizing contracts or instituting ATP--both of 
which would shrink this price gap--as well as SDP, which would take 
away the bulk of their drug business by making patients fill 
prescriptions at non-hospital pharmacies. 
 
¶7. (SBU) When econoff asked Chang-gung Hospital's Dr. Wu about the 
Black Hole, he agreed that hospitals rely heavily on income from 
drugs, but asserted that the problem is not that hospitals purposely 
generate profits through their pharmacies, but rather the local 
tradition that doctors charge not for visits, but for the drugs they 
prescribe.  Doctors therefore prescribe drugs at almost every visit, 
while at the same time patients expect to be given drugs whenever 
they see a doctor--including for minor conditions like colds. He 
believes that the way to reduce the Black Hole in BNHI drug expenses 
is therefore not standard contracts, SDP, or ATP, but rather 
changing attitudes that encourage over-prescription. 
 
¶8. (SBU) Even doctors who want to lower BNHI costs by reducing this 
price gap believe that BNHI's recent efforts to require hospitals to 
use standard contracts (reftel) will not be effective, even if 
adopted by all major hospitals.  A local medical contact told us 
that if drug makers use standard contracts to secure more favorable 
prices from hospitals on individual drugs, hospitals will erect 
bureaucratic obstacles to dissuade their doctors from prescribing 
these now less-profitable drugs, a criticism that BOPA's Dr. Liao 
recently echoed to econoff. 
 
Patient Rights Group Agrees on Contracts, Pushes Other Reforms... 
--------------------------------------------- --------- 
 
¶9. (SBU) THRF Chairwoman Chang also cast doubts on the effectiveness 
of standard contracts.  She said that while THRF does not oppose 
requiring hospitals to use a standard contract, she alleged that 
Taiwan's hospitals commonly keep two books to hide how much they 
actually pay for drugs, and that requiring standardized contracts 
will therefore not force hospitals to reveal their true spending. 
She also reasons that since Taiwan's hospitals have too much market 
power, they will still be able to squeeze drug makers for lower 
prices. Chang said that pushing for standard contracts is not, 
therefore, a priority for the Foundation. 
 
¶10.  (SBU) THRF does support SDP, however.  Currently, due to 
hospitals' reluctance to release prescriptions to patients as well 
as varying and confusing prescription formats, hospitals effectively 
monopolize drug dispensing.  Chang believes that standardizing 
prescription formats and requiring hospitals to release all 
refillable and chronic-disease prescriptions to patients would both 
encourage patients to use local pharmacies and enable local 
pharmacists to better understand and meet patients' prescription 
needs.  THRF is aware that while some small pharmacies may not be 
able to carry as wide a selection of drugs as large hospitals--and 
likewise won't have the sales volume to enable them to compete on 
price for some drugs--they believe that it is an essential first 
step toward overcoming the Black Hole problem.  Despite hospital 
opposition, Chang is also optimistic that SDP could happen in the 
near future, noting to econoff that while DOH and BNHI officials 
would never "dare" to mention SDP six years ago out of fear of a 
backlash from hospitals, both are starting to explore ways to 
implement at least partial SDP. 
 
¶11. (SBU) THRF is also pushing for pharmacies to print detailed 
descriptions of prescribed drugs, their effects, and the cost to 
both the patient directly on labels or packaging of prescribed 
pharmaceuticals.  Chang thinks that such labels would be the most 
efficient way to promote both safe drug use and price transparency. 
 
 
...But Has Little Political Influence 
-------------------------------------- 
 
¶12. (SBU) However, Chang lamented that, compared to Taiwan's various 
doctor and hospital associations, THRF has almost no influence with 
 
TAIPEI 00002326  003 OF 003 
 
 
the Legislative Yuan (LY). She also noted that the general public is 
satisfied with the convenience, coverage, and low out-of-pocket 
costs of the current system.  The average citizen is therefore not 
concerned about drug-pricing issues, and since patients prefer to 
get their drugs directly from the hospital pharmacies, many are not 
in the habit of asking for copies of their prescriptions to use for 
refills at local pharmacies.  According to a THRF survey done in 
2004-2005, 80 percent of patients polled were satisfied with the 
current drug-dispensing situation.  Patients, therefore, are not 
putting pressure on the LY or BNHI to push hospitals to give up 
their drug-dispensing functions. 
 
Comment 
---------- 
¶13. (SBU) Doctors in Taiwan--and the hospitals that they work 
for--form the most powerful domestic medical interest group, and 
since they do not support the reforms advocated by foreign 
original-drug manufacturers, progress toward such reforms will 
require sustained U.S. engagement with Taiwan authorities and major 
stakeholders.  End comment.