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Cablegate: Taiwan's Plan to Cut Health Costs Worries Phrma

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 TAIPEI 004882

SIPDIS

STATE FOR EAP/RSP/TC, STATE PASS AIT/W AND USTR, USTR FOR
WINELAND, WINTERS AND STRATFORD, USDOC FOR
4431/ITA/MAC/AP/OPB/TAIWAN/MBMORGAN AND JDUTTON

E.O. 12958: N/A
TAGS: ECON ETRD TW ESTH
SUBJECT: TAIWAN'S PLAN TO CUT HEALTH COSTS WORRIES PHRMA

REF: TAIPEI 4685

1. Summary: In the first of what are promised to be regular
bimonthly meetings between Taiwan's Bureau of National Health
Insurance (BNHI), AIT, and local heads of U.S. pharmaceutical
companies, BNHI explained in detail its current proposal to
expand a pilot reimbursement cap program. Makers of
innovative pharmaceuticals are concerned that expanding the
"global budget" program will encourage hospitals to switch to
lower-cost/higher-margin generic drugs and reduce
prescriptions of patented products. End Summary.

2. Representatives of U.S. pharmaceutical companies in
Taiwan joined AIT in a meeting chaired by BNHI CEO Dr. Liu
Chien-hsiang to discuss BNHI's plans to extend "global
budgeting" to all hospitals and medical centers in Taiwan.
Global budgeting is the term used to describe reimbursement
caps imposed by BNHI. Medical providers are guaranteed a
certain amount of funding from BNHI, but if their claims
exceed that amount they are reimbursed at a reduced rate or
not at all. BNHI's goal is to encourage the hospitals to
operate more efficiently while simultaneously reining in
medical spending growth that threatens to bankrupt Taiwan's
health care system. However, experience from implementing
global budgeting on a trial basis beginning in 2004 shows
that hospitals respond to BNHI budget caps by limiting
purchases of innovative pharmaceuticals and switching from
innovative drugs to lower-cost/higher-margin generics that
may be less effective. Some hospitals were also accused of
"patient dumping," i.e., refusing to admit patients with
chronic ailments or needing high-cost treatments or forcing
them to repeatedly shift hospitals. Taiwan's Department of
Health (DOH) acted quickly to impose punitive sanctions on
any hospital engaging in patient dumping, but anecdotal
reports suggests the practice still occurs. There were no
penalties for drug switching, and it would likely be
impossible to impose such penalties.

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The Latest Global Budget Plan
=============================

3. DOH is confident that its newly proposed expansion of the
global budget system has taken into account lessons learned
from the pilot implementation program and will limit
opportunities for abuse. It strives to provide
predictability, encourage competition, and promote
transparency. Hospitals can choose a guaranteed
reimbursement of between 80% and 90% of their costs (July
2004 to June 2005 base period.) Hospital expenses over the
chosen guaranteed amount will then be reimbursed on a
floating scale up to a cut-off point that is determined by
the chosen guarantee level. A lower guaranteed level results
in a higher cut-off point (up to 115% of the base period
reimbursement) while a higher guaranteed level means a lower
cut-off (105% of the base period for those that chose a 90%
guaranteed level.) Any expenses above the individual
hospital cut-off point will not be reimbursed, but will be
considered when budgets are allocated the next year. To
avoid patient dumping, BNHI is proposing that claims for
certain cases designated as acute or severe be fully
reimbursed, regardless of the guaranteed limits, and that the
individual hospital cut-off points be adjusted upward.

4. To encourage competition and to ensure that patients have
the opportunity to benefit from new and innovative
pharmaceuticals, BNHI has earmarked 5% of the NHI budget
specifically for purchase of new products. This amount is
separate from reimbursements provided under the global budget
proposal and is meant to encourage hospitals to increase
their use of innovative but more expensive products. BNHI
also proposes to create a mechanism to closely monitor
hospital expenditures in real-time that will allow it to
adjust payments to reward or penalize hospital practices.
Hospital representatives are encouraged to join BNHI to
create regional co-management teams to improve communication
and transparency and create peer-control mechanisms.

Consultation not leading to Consensus
=====================================

5. BNHI has already held four meetings with hospital
representatives, consumers and health care experts to discuss
the plan. However, some large medical centers are reluctant
to accept a BNHI proposal that they reportedly believe will
limit their earning potential and entail increased monitoring
from BNHI. BNHI had hoped to implement the new plan
beginning January 1, but opposition from the medical centers
has delayed implementation indefinitely. BNHI was to meet
with hospital representatives December 9 for further
discussions.

6. Taiwan-based representatives of U.S. pharmaceutical
companies were pleased to finally have the opportunity to
hear directly BNHI's proposal, but were disappointed that
they had not been informed earlier. BNHI CEO Liu responded
that the plan was still not finalized and that BNHI felt that
it would have been premature to share earlier versions of the
global budget proposal. AIT Econoff made the point that
early consultation was the best way to head off potential
concerns and suggested that implementation of the proposal be
delayed to allow companies a chance to respond. Liu agreed
that information-sharing was important and promised to give
the U.S. pharmaceutical company representatives some time to
review this new information. He did not, however, give any
specific date. Liu welcomed the chance to have regular
meetings with U.S. pharmaceutical company representatives and
AIT and promised to do his best be available to chair each
meeting.

Comment: Minimize the Negatives
===============================

7. Comment: U.S. pharmaceutical companies were taken by
surprise in November when word of the new global budget
proposal leaked out. Misunderstanding and mistaken
assumptions about how the program would operate were
compounded by a lack of communication with BNHI. This
meeting was industry's first chance to hear directly from
BNHI what the expanded global budget proposal would entail.
Company representatives will join AIT to discuss the details
of the program with staff-level DOH drafters in the next week
with the goal of mitigating the negative effects of the
expanded global budget program on innovative pharmaceuticals.
However, BNHI appears to be committed to implementing the
program in the near future. It is unlikely that
pharmaceutical companies will be able to stop implementation
of this plan. CEO Liu's willingness to engage with the
international community is encouraging and a marked departure
from the lack of interest BNHI displayed in the recent past.
These bimonthly meetings (the next is tentatively scheduled
for February) could serve as a valuable new forum for AIT and
the pharmaceutical industry to work with the DOH and BNHI to
tackle both immediate and long-term problems. End comment.
PAAL

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