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Cablegate: Taiwan Pharma: Little Domestic Support for Price Reforms

DE RUEHIN #2326/01 2880846
P 150846Z OCT 07





E.O. 12958: N/A

Reftel: Taipei 2257


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.

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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.

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.

© Scoop Media

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