VZCZCXRO7611
PP RUEHCN RUEHGH RUEHVC
DE RUEHIN #0760/01 1750917
ZNR UUUUU ZZH
P 240917Z JUN 09
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 1815
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHHK/AMCONSUL HONG KONG 0690

UNCLAS SECTION 01 OF 04 TAIPEI 000760 
 
STATE PLEASE PASS TO AIT/W AND EAP/RSP/TC 
 
STATE PASS USTR/EALTBACH AND USTR/JRAGLAND 
 
USDOC FOR 4430/ITA/MAC 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KIPR TW
SUBJECT: Taiwan Pharma: 6th PVS Underway, Big Pricing Reforms 
Unlikely 
 
REF: A) 2007 Taipei 2326; B) 2007 Taipei 2498; C) 2008 Taipei 950; 
D) 2007 Taipei 2257; E) 2008 Taipei 572; F) 2007 Taipei 2551; G) 
Taipei 73 
 
 
Summary 
------- 
 
1.(SBU) The Taiwan Department of Health (DOH) Bureau of National 
Health Insurance (BNHI) will announce the results of the sixth 
price-volume survey (PVS) in July, and implement revised 
reimbursement prices in September.  BNHI is following through on a 
Ma administration campaign promise to reform Taiwan's overall 
Pharmaceutical Benefits Scheme (PBS), and will finalize PBS guidance 
in July.  Although original-drug manufacturers are unhappy with the 
current draft PBS reform, industry has failed to agree on a detailed 
counter-proposal. 
 
¶2. (SBU) The Bureau of Pharmaceutical Affairs (BOPA) wants to speed 
up drug-approval times by reducing documentation requirements, but 
the proposed conditions for reduced documentation are insignificant, 
and will likely be little-used by drug-makers.  Neither separation 
of dispensing and prescribing (SDP) nor patent linkage--two of 
industry's long-standing goals for Taiwan--have the support of 
Taiwan industry or bureaucracy, though a newly-established Taiwan 
Food and Drug Administration (TFDA) may make implementing 
patent-linkage in Taiwan more feasible.  BNHI continues to press 
industry and AIT to support LY passage of a draft law requiring 
hospitals to use a standard drug-purchasing contract.  End summary. 
 
Pricing Background 
------------------ 
 
¶3. (SBU) Taiwan implemented a 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. The 22 large medical centers 
dominate the pharmaceutical market, and are able to negotiate very 
low drug prices. Hospitals derive up to half of these revenues 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. BNHI, in turn, uses biannual price-volume 
surveys (PVS) to collect price data from hospitals and drug makers 
to use in calculating new, lower drug reimbursements. 
 
6th PVS Underway, Big Pricing Reform Unlikely 
--------------------------------------------- 
 
¶4. (SBU) Taiwan law requires hospitals that accept reimbursements 
from BNHI to provide price data for all pharmaceutical purchases. 
Foreign original-drug manufacturers, however, initially refused to 
supply pricing data in protest over past PVS methodology. After a 
pause in the PVS process to allow BNHI to collect views from 
industry, hospitals, and other stakeholders on reforming Taiwan's 
Pharmaceutical Benefits Scheme (PBS)--including hosting a December 
2008 industry-wide conference--in February, BNHI again requested 
that companies submit pricing data. 
 
¶5. (SBU) Lawyers for the foreign drug-makers' industry group in 
Taiwan, the International Research-based Pharmaceutical Manufactures 
Association (IRPMA), think BNHI does not have legal grounds to 
compel companies to submit price data. However, both IRPMA and 
AmCham Pharmaceutical Committee leaders asked member companies to do 
so as a show of industry's good will, and in March, all member 
companies submitted price data to BNHI. According to BNHI Vice 
President Lee Cheng-hua, the new reimbursement prices will go into 
effect on September 1. 
 
¶6. (SBU) Foreign original-drug manufacturers fear the sixth PVS, 
like the five before it, will significantly reduce reimbursements 
for their drugs, as well as start another round of price-cut demands 
from the large hospital groups.  Foreign firms, however, have been 
unable to reach consensus on how to respond concretely to BNHI's PVS 
methodology.  They will discuss instead their ideas on reforming the 
overall PBS, and their plans to commission an economic model on 
pharma pricing reform in Taiwan. 
 
PBS Reform Request Backfires 
---------------------------- 
 
7.(U) In response to a Ma campaign promise to reform Taiwan's 
overall Pharmaceutical Benefits Scheme (PBS) and resolve the price 
 
TAIPEI 00000760  002 OF 004 
 
 
gap problem, BNHI hosted a one-day drug-pricing conference on 
December 31, 2008.  Representatives from all eight major drug 
industry groups plus AmCham attended the conference, which produced 
a PBS reform outline now under study by BNHI. 
 
¶8. (SBU) Over the following months, however, BNHI made no moves to 
implement the proposed changes.  In May, IRPMA sent a petition to 
DPP Legislator and former DOH Minister Twu Shiing-zher requesting 
Twu push BNHI to move forward on PBS reform.  Soon afterwards, Twu 
asked DOH Deputy Minister Cheng Shou-hsia to work with industry to 
finalize within three months a benefit scheme reform proposal, and, 
in late May, the Legislative Yuan (LY) Health and Environment 
Committee passed a Twu-backed non-binding resolution calling for the 
same. 
¶9. (SBU) In response to the LY pressure, BNHI notified industry in 
May that the Bureau plans to produce a final PBS reform plan in 
July, and asked for industry's input on the current draft plan. 
However, despite a series of industry-BNHI meetings over the past 
month, U.S. and other original-drug makers have failed to reach 
consensus on industry's PBS reform counter-proposal.  On June 5, 
BNHI again informed AmCham and PhRMA representatives that the Bureau 
will finalize the plan by mid-July, with or without industry input. 
Proposed CPP Changes Not an Improvement 
--------------------------------------- 
 
¶10. (U) A Certificate of Pharmaceutical Product (CPP) is a document 
provided either directly by the manufacturer or by the release 
country to attest that a drug has been approved for use in the 
release country, has been manufactured in compliance with food and 
drug safety in that country, and is labeled in the same manner as in 
the original country. In most cases, drug manufacturers will supply 
a CPP from a developed economy such as the United States or European 
Union market to the drug-approval authorities in a second market in 
order to demonstrate the drug is already for sale in another market, 
and thereby reduce the time and paperwork needed to gain approval 
for sale in the second market. 
 
¶11. (U) When a pharmaceutical company applies for regulatory 
approval to market a drug in a country, the authorities in that 
country typically ask manufacturers to supply one CPP as proof that 
the drug is approved for sale in another market.  Taiwan, however, 
requires CPPs from two countries.  The two-CPP requirement 
disadvantages U.S. firms because BOPA regards a CPP from the 
European Union as the equivalent of multiple CPPs, while the same 
document from the United States counts only as one CPP.  In 
addition, although CPPs from all countries follow a standard, 
WHO-approved format, Taiwan requires notarization of CPPs by the 
Taiwan representative office in the CPP-issuing country. 
 
¶12. (U) For the past two years, original-drug manufactures have been 
urging the DOH Bureau of Pharmaceutical Affairs (BOPA) to reduce the 
required number of CPPs to one in order to shorten the drug-approval 
process.  In response, BOPA recently announced plans to reduce the 
number of required CPPs from two to one if the manufacturer conducts 
two phases of clinical trials in Taiwan for the drug in question. 
[Note: Pharmaceutical companies conduct clinical trials to gather 
data on the safety and efficacy of new drugs or new indications for 
old drugs.  Typically, three phases are needed before a country's 
drug authorities will grant approval, with each successive phase 
including a larger group of subjects. End note.] 
 
¶13. (SBU) The deadline to submit public comments on the proposed 
changes was June 8. BOPA's Dr. Liao told econoff on June 5 that 
since the CPP requirement is an administrative guideline and not a 
law, once DOH decides on the final rule change, BOPA will be able to 
post the requirement within two weeks. 
 
¶14. (SBU) However, local general managers of American drug companies 
tell us that because Taiwan is a relatively small market, companies 
are unlikely to conduct extra trials in Taiwan just to take 
advantage of the reduced CPP requirement.  Instead, the companies 
will simply wait for a second country to issue a CPP for the drug 
and then apply for Taiwan approval.   In addition, because BOPA's 
plan would increase the required number of trial subjects for some 
of the phases, the change will often make doing clinical trials in 
Taiwan less attractive. 
 
¶15. (SBU) IRPMA member companies instead propose relaxing the 
requirement to one CPP if the company performs one phase of trials 
in Taiwan, or waiving the CPP requirement completely if a company 
conducts two clinical trials in Taiwan. On June 5, econoff discussed 
these alternatives with Dr. Liao, who agreed the latter change would 
be more attractive for companies, and urged manufacturers to take 
 
TAIPEI 00000760  003 OF 004 
 
 
advantage of the public comment period to submit their ideas. 
 
Still Little Support for SDP 
---------------------------- 
 
¶16. (SBU) Currently, when a patient sees a doctor in a Taiwan 
hospital, the patient will almost always fill his prescription at 
the pharmacy owned by and located in the hospital.  Because Taiwan's 
hospitals get much of their revenues from the difference between the 
lower prices they have negotiated with drug companies and the higher 
amounts that BNHI reimburses for the same drugs (ref A), hospital 
administrators and doctors have an incentive to both over-prescribe 
and push down contract prices for drugs.  Separating dispensing and 
prescribing (SDP) would eliminate this incentive. 
 
¶17. (SBU) The U.S. and Taiwan discuss SDP under the bilateral Trade 
and Investment Framework Agreement (TIFA), and Taiwan has done some 
small-scale SDP pilot programs.  However, Taiwan's powerful 
hospitals and doctors' associations do not support any move toward 
SDP because it would sap hospitals' revenues. During a recent 
AIT-hosted roundtable on SDP, hospital administrators and doctors 
again objected loudly to any such moves, and BOPA is not actively 
planning larger SDP initiatives.  Any progress toward SDP will 
require continued high-level engagement with the Taiwan 
authorities. 
 
Bureaucracy Opposes Patent Linkage 
---------------------------------- 
 
¶18. (SBU) Taiwan lacks a patent-linkage notification requirement and 
allows generic-drug licensing before patent expiry, practices that 
foreign pharmaceutical manufacturers claim allow local generic drug 
makers to infringe on patent-holders' rights, as well as secure a 
higher initial reimbursement price from BNHI (ref B). 
 
¶19. (SBU) The U.S. and the Taipei American Chamber of Commerce have 
pushed the Taiwan authorities to implement a U.S.-style 
patent-linkage system that would continue to allow generic-drug 
testing before the original drug's patent expiration, but would 
include protections for the patent-holder's IPR and prevent 
generic-drug makers from licensing a generic form of a patented drug 
while the original patent is still valid. 
 
¶20. (SBU) The Taiwan pharmaceutical authorities, however, do not 
want to implement a U.S.-style patent linkage system.  On June 5, 
BOPA Director General Chi-chou Liao reiterated to econoff that BOPA 
does not think Taiwan needs to introduce patent linkage, since 
Taiwan's court system, including the specialized Intellectual 
Property (IP) Court (ref C) can efficiently resolve such IPR 
disputes.  As evidence, Liao pointed to a recent case in which 
Pfizer sued several local firms for releasing generic versions of 
Pfizer's Lipitor prior before the original drug's patent expired. 
Although Pfizer lost, Liao said the case shows the specialized court 
can effectively handle drug-related IPR disputes. 
 
BNHI Wants Industry, U.S. Support for Mandatory SC 
--------------------------------------------- ----- 
 
¶21. (SBU) In response to U.S. concerns about the lack of 
transparency in drug procurement by Taiwan hospitals, during the 
2007 TIFA meetings in Washington, Taiwan committed to implementing a 
mandatory standard contract (SC) that would require all hospitals to 
use the same contract for all drug purchases (ref D). 
 
¶22. (SBU) In September 2007, the Taiwan Executive Yuan(EY) forwarded 
to the Legislative Yuan (LY) draft legislation that would require 
hospitals to use an SC for pharmaceutical purchases.  If the law 
passes, BNHI would then finalize the text of the contract by 
administrative order.  The current draft SC 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. 
 
¶23. (SBU) According to IRPMA Chief Operating Officer Carol Cheng, 
hospitals do not support the current BNHI draft SC because it would 
bring more transparency to their current pricing practices, 
potentially reducing the pricing gap that funds their operations. 
Foreign original-drug manufacturers also object to the proposed SC 
language, which would codify a practice whereby hospitals 
automatically renegotiate price contracts with drug companies 
whenever BNHI announces new, lower prices. 
 
¶24. (SBU) Without industry or hospital support, the draft 
 
TAIPEI 00000760  004 OF 004 
 
 
legislation authorizing SC has languished in the LY since 2007. 
Acting BNHI President Lee has repeatedly asked IRPMA and member 
companies, as well as AIT, to lobby the LY for the proposed changes. 
 
 
Comment 
------- 
 
¶25. (SBU) Because Taiwan has no major new-drug makers, hospitals 
that rely heavily on profits from BNHI drug reimbursements, and 
consumers who are largely satisfied with the current system, there 
is limited domestic support for reforming pricing practices. In 
addition, with an economy in the doldrums and the national health 
care system at least USD two billion in the red (ref E), financial 
pressures will undercut any near-term move to spend more on 
reimbursement for on-patent drugs, or increase hospital funding in 
conjunction with implementing SDP. 
 
¶26. (SBU) Therefore, the U.S.' pharma priority in Taiwan should be 
support for low-cost reforms such as passing the draft standard 
contract (SC) legislation and implementing patent linkage.  While 
U.S. industry dislikes BNHI's current SC language, the U.S. should 
support passage of the bill authorizing BNHI to require that 
hospitals use SCs, while working with industry and the authorities 
to improve the draft SC language.  Because SC is one of two 
pharma-related TIFA topics, supporting SC plans could create 
momentum within BNHI for addressing other pharma issues under the 
TIFA rubric. In addition, although the Taiwan health bureaucracy 
does not favor implementing patent linkage, the upcoming merger of 
the DOH Bureau of Food Safety, Bureau of Pharmaceutical Affairs, 
Bureau of Food and Drug analysis, and the National Bureau of 
Controlled drugs into the Taiwan Food and Drug Administration (TFDA) 
offers a chance for fresh engagement with new TFDA leadership. 
 
¶27. (SBU) In the longer term, the U.S. should encourage Taiwan to 
foster the policies and environment needed to commercialize Taiwan's 
nascent biotech and biomedical industries.  The authorities have 
long identified biotech as a future strength of the Taiwan economy 
(refs F and G), and an indigenous biotech industry developing 
innovative drugs could kindle Taiwan interest in positive 
pharmaceutical pricing and IP reforms. End comment. 
 
YOUNG