Cablegate: Taiwan Pharmaceuticals - Mixed Progress On Standard

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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

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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

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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.

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