Taiwan Today

People in Taiwan pay some of the lowest prices for medications compared with member countries of the Organization for Economic Co-operation and Development (OECD). The latest statistics from the OECD and the Cabinet-level Department of Health (DOH) show that in 2008, medicines in Taiwan cost an average of US$200 per person for the year, lower than the United States at US$897, Canada at US$806, the United Kingdom at US$452 and South Korea at US$297.

The privilege to enjoy such low-priced drugs largely has to do with Taiwan’s government-sponsored National Health Insurance (NHI) program, a mandatory health care plan for all Taiwan citizens who have established household registration in the country for at least four consecutive months and foreigners who have resident status. The NHI program provides affordable and wide-ranging medical services, including prescription drug coverage. Currently the typical premium is 5.17 percent of wages for employed workers, a fee shared by the insured person, the employer—if any—and the government. In fact, drug reimbursement has accounted for about a quarter of the NHI’s annual spending since the program launched in 1995, with payments reaching around NT$130 billion (US$4.3 billion) in 2011.

The NHI system as a whole, however, has run a deficit since 1998. As of the end of January this year the program had a cumulative NT$900 million (US$30 million) shortfall according to the DOH’s Bureau of National Health Insurance (BNHI), the agency operating and managing the NHI program. Although the BNHI expects the system to break even this year, spending on medication has come under scrutiny, in particular the bureau’s approach to reimbursing drug costs to medical facilities.

“As a nationwide and universal health care plan, the NHI program sets a uniform [reimbursement] rate for drugs for every clinic and hospital,” explains Sheen Mao-ting (沈茂庭), director of the Medical Review and Pharmaceutical Benefits Division of the BNHI. As almost all clinics and hospitals in Taiwan have their own pharmacies, it has become a common practice for patients to have their prescriptions filled at the same medical institute immediately after seeing a doctor. The system allows clinics and hospitals, especially larger facilities, to bargain with drug companies for discounted bulk purchases, which has had the effect of creating a price gap between the NHI reimbursement rate and the actual purchase prices. According to Sheen, the practice respects the market mechanism while the unit price set by the BNHI reflects the amount the government considers reasonable to pay for a specific type of medication.

Reining in Prices

To control spending on medication, since 2000 the BNHI has undertaken a periodic price volume survey and adjusted prices for drugs, although Sheen says the aim is not necessarily to eliminate the price gap. “The major goal of these measures is to help achieve and maintain the financial stability of the NHI program,” he says. By the end of February this year, seven large-scale BNHI surveys had saved more than NT$33.1 billion (US$1.10 billion), cutting reimbursement rates for hundreds to thousands of drugs each time.

Eva Teng (滕西華), spokeswoman of the National Health Insurance Civic Surveillance Alliance (NHICSA), acknowledges that the approach has kept the annual growth rate of pharmaceutical spending in Taiwan one of the lowest in the world in recent years, but says she is concerned about how it affects patients in the program. The NHICSA was founded in 2003 to monitor government policy related to the NHI program and consists of 13 nongovernmental organizations.

“The biggest flaw of the reimbursement policy and price adjustments is that the BNHI only places a cap on prices, not quantities,” says Teng, who is also a member of the NHI Supervisory Board, a committee charged with overseeing the operations of the NHI program and offering policy suggestions. Under such rules, Teng says that whenever the BNHI marks down prices for certain drugs, hospitals tend to replace them with medicines that have a higher markup in order to maintain profits. This can occur despite the fact that the latter drugs might not work as effectively or efficiently as less-profitable ones, she says. “The way some physicians prescribe medicine has been greatly influenced by how much of a profit [a hospital] can obtain from the markup [between a drug’s actual price and the NHI rate],” Teng says. According to her, this practice could also lead to over-prescribing, such as if a doctor were to replace an efficient, but low-profit medicine with a larger dose or greater number of less effective, but more profitable drugs. She says this is why there are five to seven times more medicines per prescription in Taiwan than in the United States, adding that taking unnecessary medicines could harm patients in the long run.

The BNHI’s Sheen argues, however, that no doctor would base a prescription on profits rather than professional knowledge because patients would not return for a second visit if the treatments they provided did not work well. “The public always has the choice of going to the medical institute they prefer [under the NHI system],” he notes.

Benefits for Big Hospitals

Over the years, supporters of the current reimbursement system have justified the profits medical institutes obtain from drug prices as a way to improve the quality of their medical services. The money is seen as making up for the shortfall in funds for hospitals’ operational costs, as reimbursement rates for diagnoses and other forms of treatment in Taiwan are generally considered too low by those in the industry. Hsieh Wu Chi (謝武吉), superintendent of Ai Ren Hospital in Kaohsiung City, southern Taiwan, says that the reimbursement system mostly benefits large medical centers, however. Big hospitals are more likely to get better prices from pharmaceutical companies because they purchase large quantities of drugs at one time, says Hsieh, who is also the secretary-general of the Taiwan Community Hospital Association. “For small hospitals, clinics and pharmacies, on the other hand, the drug price gap is practically nonexistent,” he says. “Sometimes small hospitals even lose money by purchasing certain drugs.” Hsieh says that Ai Ren, a 28-bed medical facility, pays a higher fee than the NHI reimbursement rate for about 300 to 400 drugs.

According to Hsieh, this situation has held back the development of most community-based hospitals and forced some to shut down or reopen as private clinics. Although clinics also face difficulties in negotiating big discounts from drug companies, Hsieh says they have the option of applying for reimbursement based on the number of days they fill a patient’s prescription, regardless of the type or number of drugs prescribed. Hospitals, on the other hand, must bear the loss if they fail to get a lower price per drug than that set by the BNHI.

Hsieh also says that the BNHI’s pricing policy has begun to limit the number of new drugs introduced into the Taiwanese market. The bureau groups drugs together based on their formula, regardless of whether they are proprietary or generic. The agency then sets a single reimbursement rate after considering the average price of all medicines in the same group. The majority of new and patented drugs are imported. “The prices for proprietary drugs have been cut so low that many overseas drug makers are concerned that [low] sales prices in Taiwan would affect their trading prices in other countries,” Hsieh says, explaining that health care providers in those places would also ask for the same low prices. “As a result, they’d rather sell new drugs first to neighboring countries like mainland China, South Korea and Southeast Asian nations before exporting them to Taiwan.” According to statistics from the BNHI, the average price of proprietary drugs in Taiwan is only 28 percent of that in the United States.

Chen Shih-hsiung (陳世雄), chairman of the Taipei-based Chinese Association for Pharmaceutical Agents (CAPA), shares the sentiment, saying that “post-patent brand-name drugs are the most affected by the NHI price cuts.” Chen questions the BNHI’s approach to pricing, saying that distinctions should be made between the quality of medicines. “Drugs made of the same chemical formula are not necessarily all the same quality as there are original branded versions and generics, including those produced by manufacturers who follow procedures and standards of PIC/S and those that don’t,” Chen says. PIC/S, or the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme, is an international network dedicated to promoting Good Manufacturing Practice (GMP). GMP standards are designed to ensure the quality of products, particularly pharmaceuticals, in many countries. Chen adds that since the quality of drugs available in Taiwan varies, the government should employ different criteria for drugs from different manufacturers when deciding the reimbursement rates. According to Chen, some makers of proprietary drugs have already chosen to withdraw from the Taiwanese market because they failed to turn a profit under the NHI policy. “If this situation continues, we’re concerned that people in Taiwan will have no quality drugs to use in the future,” he says.

The BNHI’s Sheen argues that Taiwan’s pharmaceutical sector has reached a level where manufacturers are able to produce high quality generic drugs that can substitute for the more expensive original proprietary drugs very well. Sheen admits that the BNHI cuts the price of off-patent proprietary drugs by a larger amount than that of generics, but says the reason is so that more funding can be contributed toward purchasing new drugs.

Echoing Sheen’s comments, P.H. Huang (黃柏熊), chairman of the Taiwan Pharmaceutical Manufacturer’s Association and president of Taipei-based Johnson Chemical Pharmaceutical Works Co. Ltd., notes that it is a common trend around the world to increase the use of generic drugs. He believes the quality of locally produced generic medicines is on par with that of imported brand names. “All generic drugs have to go through studies showing bioavailability and bioequivalence to prove they are as effective as the original proprietary drugs before they can hit the market,” Huang says. Although Taiwan is not a member of PIC/S, in 2010 the DOH’s Food and Drug Administration asked all of the country’s drug manufacturers to bring their facilities, equipment and production procedures in line with PIC/S standards by the end of 2014. The move is set to give a further boost to the quality of locally manufactured drugs, according to Huang.

For that reason, Huang hopes that the BNHI will not set the reimbursement price too low for locally produced generic drugs so as to allow manufacturers a reasonable profit. Moving up to PIC/S standards requires a large investment of funds for building more factories and purchasing more equipment, he says. “The NHI rate is usually on the low side, not to mention that the BNHI continues to lower it following the bureau’s market price surveys every other year,” Huang says. “Some drug manufacturers have moved some of their operations to making supplements instead, which I call a distorted development, because if everybody does that, eventually patients will have no medicines to use.”

Eva Teng believes a drastic change is needed in the NHI’s drug reimbursement mechanism. The current policy sees medical institutes, which want to gain as much profit as possible from the price gap, pressuring manufacturers for steep discounts, a situation that spawns vicious competition among drug makers, she says. “We’re concerned that if the market prices become too low, drug manufacturers might sacrifice the quality of their products, such as by using low quality ingredients, in order to stay profitable,” Teng explains. The NHICSA spokeswoman says she was disappointed with the 2011 amendments to the NHI Act. The changes are due to take effect in July this year. The amendments “failed to change the basic approach of drug reimbursement,” she says. “Neither did they address fundamental problems of the premium system.”

Greater Transparency

Nevertheless, Teng acknowledges several amendments will have the benefit of increasing the transparency of the program’s policymaking process. For example, the new rules allow delegates representing the general public to attend Supervisory Board meetings such as those in which board members discuss which drugs should be covered under the system. “Also, the meeting minutes will be required to be made public under the new NHI system,” Teng says.

The BNHI’s Sheen points to the implementation of a health technology assessment as a major change in the new NHI system. The assessment will be conducted before the government decides which new medicines to include under the program and is designed to give the NHI’s finances more stability. “It’s an evaluation to help make sure the drugs covered by the program are cost-effective,” Sheen says. Teng says the success of the policy will depend on how the assessments are performed and by whom. She therefore urges the BNHI to settle on detailed guidelines for the plan quickly and calls for the rules to be made public.

In the bigger picture, however, the NHICSA continues advocating the establishment of a very different reimbursement mechanism, suggesting the program fix the maximum profit hospitals can make from drug reimbursement at 15 percent. Teng says the current price gap is much higher—ranging between 25 and 40 percent. “We estimate that 15 percent is a reasonable margin to pay hospitals for their costs of shopping for and managing their drugs,” Teng says. “If the BNHI sets this cap and demands any additional profits be returned to the NHI program, hospitals will become less dependent on the earnings from drug procurement and doctors will be less likely to base their prescription decisions on profits.” She adds that despite the fixed margin, the BNHI could still have the option of rewarding hospitals with a certain percentage of the savings from drug purchases if they do an exceptional job in bargaining with pharmaceutical companies and have honestly reported their purchasing prices. The bureau should also consider ways to prevent over-prescription such as by regulating the quantity of medicines prescribed rather than controlling only the price of drugs, she says.

In the long run, Teng says pharmacists have to play a more active role in Taiwan’s health care system to ensure the better use of medicines. The government should encourage the routine release of all outpatient prescriptions so that more patients will get them prepared at independent pharmacies instead of hospitals, she says. “In that way, patients could maintain a record of their drug use at a pharmacy, and pharmacists could really exercise their professional judgment to prevent overlapping prescriptions and wasteful drug use.”

Separating drug prescription from dispensing in the same institution could also relieve the pressure on doctors from management personnel, who handle the procurement of medicines for hospitals. More importantly, Teng says, such a move would help ensure that doctors base prescriptions on nothing else but their professional knowledge and best understanding of a patient’s health. That could be the most effective way to guarantee safer medicine use for residents in Taiwan, she says.

Write to Audrey Wang at audrey@mail.gio.gov.tw