TAIWAN'S IMPENDING HEALTH CARE CRISES

UNCLAS SECTION 01 OF 03 TAIPEI 004021

SIPDIS

SENSITIVE

STATE FOR EAP/RSP/TC, STATE PASS AIT/W

E.O. 12958: N/A
TAGS: ECON PGOV TW ESTH
SUBJECT: TAIWAN'S IMPENDING HEALTH CARE CRISES



1. (SBU) Summary: The Taiwan Health care system is facing a
number of crises. The National Health Insurance system is
teetering on the edge of bankruptcy. The Department of
Health faces low morale, an inflexible and conservative
bureaucracy, a shortage of strong leadership, and an exodus
of the few good leaders it does have, including the Minister
of Health and the CEO of the Bureau of National Health
Insurance (BNHI). While the public is slowly becoming more
aware of fiscal threats to the health care system, the
political will necessary to push through reforms is
non-existent. The fiscal crisis at BNHI could be delayed by
an infusion of government support, but the lack of political
will to raise premiums and shortage of leadership at DOH
portend a difficult period ahead. End Summary.

Health Finances Shaky
=====================


2. (U) Taiwan's Bureau of National Health Insurance (BNHI)
faces a severe fiscal crisis in the coming weeks. According
to experts, at current premium levels it is estimated that
BNHI will run an average deficit of almost NT$23 billion
(US$675 million) every year for the next five years. The
BNHI reserve fund, designed to cover short term fiscal gaps,
reportedly will be exhausted by the end of 2004. The NHI
premium income (not the premium rate) increases by only four
percent per year, while expenses are increasing by six
percent each year. In the months before legislative
elections, no party was willing to consider the need for NHI
premium and co-pay increases. The Legislative Yuan is
scheduled to consider the BNHI budget December 23. Premier
Yu has publicly stated that there will be no increase in the
NHI premium rate during his tenure. However, there is
speculation that he will be replaced when the new legislature
is seated in February.


3. (SBU) Beginning in 2002, BNHI and the Department of
Health tried to address the fiscal shortfall by instituting
in phases a "global budgeting" system. Under this system,
hospitals are authorized a fixed amount of financial support
by BNHI based on their quality of service and number of
patients seen during a representative period (previous 1-3
months). This was supposed to increase hospital efficiency
and help BNHI stay afloat. But global budgeting has not been
able to stem the flow of cash from BNHI and has led to
protests from doctors at small and medium sized clinics that
they are being squeezed out of existence. Big hospitals also
complain that they are losing money at an unsustainable rate.



4. (U) Recently published figures from central Taiwan
hospitals show that total NHI claims by these hospitals from
July to September 2004 exceeded the global budget allocation
by almost 16 percent or NT$2.1 billion (US$64 million).
Local press reports that losses in the first three quarters
of 2004 at one large hospital were over NT$340 million (over
US$10 million). Another medical center in central Taiwan
reported losing NT$100 million (over US$3 million) in the
third quarter. Hospital administrators report CT and MRI
scans have decreased by 20 percent since 2003, presumably in
an effort to cut costs. Hospital purchase orders have been
canceled and expansion plans put on hold. The press reported
in July that some hospitals were turning patients away for
financial reasons. DOH later confirmed these reports to AIT
but insisted that the hospitals involved had been reprimanded
and the situation would not be repeated. Pharmaceutical
companies report a drastic decline in sales volume since July
as hospitals restrict access to more costly drugs or switch
to cheaper generic products. This has increased the already
heavy pressure on research pharmaceutical companies to cut
prices. The hospitals then use the difference between the
actual and BNHI reimbursement price (the "black hole") to
fund other operations.

Government Response Lacking Urgency
===================================


5. (U) The government, while acknowledging the problems, has
not yet taken steps to address them. Instead, it is
encouraging patients to change their health care habits by
utilizing community clinics and general practitioners for
their primary care needs, freeing hospitals to concentrate on
more serious needs. However, BNHI is not reimbursing these
clinics at a level commensurate with their costs. According
to the head of the Taiwan Community Hospitals Association,
while small clinics account for 80 percent of all medical
organizations in Taiwan, they receive only 20 percent of BNHI
reimbursements. Small hospitals and clinics are currently
being reimbursed by BNHI at an average rate of less than 50
percent, far below their larger counterparts. One hospital
administrator from Taidong reported to AIT that his hospital
had been reimbursed at only 17 percent of claims from July to
September 2004.

Rolls-Royce Service at a Yugo Price
===================================


6. (U) The fiscal problems of the National Health Insurance
are exacerbated by the inability of the Department of Health
to push forward solutions that would be politically
unpopular. According to BNHI, Taiwan currently spends only
six percent of GDP on health care, less than most OECD
countries (according to OECD statistics, the US spends about
12 percent of GDP on health care costs). Yet the level of
service covered by NHI is high, including not just doctor
visits but also tests, surgery, and pharmaceuticals for the
price of a small co-payment. Anecdotal reports suggest that
many Taiwan migrs maintain their Taiwan citizenship
specifically so they can return to take advantage of the
health care benefits in their old age. The solution to the
fiscal crisis must include some increase in premium and or
co-payments and a revision of the global budget system to
include some stop loss mechanism for health care providers.
The problem is not that Taiwan is spending too much on health
care, rather that patients are paying too little.

Fleeing a Sinking Ship?
=======================


7. (U) The Department of Health is facing a leadership
vacuum. Minister of Health Chen Chien-jen was appointed
during the SARS crisis in 2003, and while a popular and
capable administrator, has not pushed for urgently needed
policy reforms in pricing, validation, and data protection
for innovative pharmaceuticals. Chen has announced he plans
to return to Taiwan University after the upcoming Legislative
Yuan elections. Although he recently has been relatively
outspoken about NHI's precarious fiscal position, his lame
duck status makes it difficult for Chen to do more than use
the bully pulpit of his office to warn of the impending
crisis. He has announced plans to convene public meetings to
discuss the future of NHI. Chen's replacement will be the
fourth Minister of Health in four years.


8. (SBU) The recent resignation of Deputy Minister of Health
and CEO of BNHI Chang Hong-jen is another blow to a ministry
that can ill-afford to lose capable administrators. Chang
led BNHI for almost 4 years and gained a reputation as the
"Teflon administrator" for cutting BNHI's administrative
costs to just 2 percent of operating expenses and for forcing
through price hikes in premiums and co-payments in 2002. His
resignation in October, in response to protests by more than
1000 doctors and small hospital administrators over the
implementation of global budgeting, surprised most observers.
Chang told AIT November 22 he had been seeking to step down
for several months in order to allow a new CEO to take the
reins at BNHI. After repeated urging by the Minister of
Health and President Chen he agreed to temporarily take on
the additional role of deputy Minister of Health in June

2004. However, he was growing increasingly concerned that he
would not be allowed to leave and took the protests as his
opportunity to step down to pursue a fellowship at a U.S.
university. Chang's colleagues suggest he stepped down in
order to better position himself for a more senior role later.


9. (SBU) The Director of the Bureau of Pharmaceutical
Affairs (BOPA) Wang Hui-po also submitted her resignation in
August, but she agreed to stay on until a replacement can be
found. Wang told AIT she "could no longer in good conscience
remain in (her) position when the leadership of DOH was more
concerned with finances and protecting international
companies than with the welfare of the Taiwan public." She
cited in particular the pressure from foreign pharmaceutical
companies for changes in Taiwan's validation procedures and
establishment of data exclusivity provisions. However, DOH
has been unable to find a successor and Wang is still in
place. Her future status is uncertain. Wang has not been
helpful to efforts to bring Taiwan into compliance with WTO
commitments on pharmaceutical data protection and has been a
major obstacle in efforts to simplify pharmaceutical
manufacturing validation procedures. However, the medical
device industry credits her for quickly resolving their
concerns about re-registration of imports. The position of
BOPA Deputy has been unfilled for several months.

Comment: Doctor's Don't Make Great Managers
===========================================


10. (U) Many DOH bureaucrats are reportedly drawn from the
ranks of medical doctors. Their expertise is in medical
practices and procedures, not management, and they are often
unwilling to listen to differences of opinion or explain
decisions. The result is a particularly inflexible
bureaucracy that issues edicts with little consultation or
explanation and is then forced to reluctantly backtrack when
crises spiral out of control. The initial mishandling of the
SARS crisis in 2003 led to some improvements in the
Ministry's procedures and readiness to control pandemic
disease, but the rapid spread of the disease at the beginning
stages was a direct result of DOH's bureaucratic inability to
coordinate a sound response. Irrational medical device
registration requirements, announced at the end of 2003 and
then modified after pressure from industry and the US
government, is another example of the DOH announcing a policy
change without sufficient consultation or forethought. The
2002 announcement of serious changes in regulations for
pharmaceutical registration, done without consultation with
industry, and the subsequent difficulties in reaching an
acceptable agreement on registration and inspection
requirements is yet another example.


11. (U) The regular turnover of Ministers, the resignation
of those officials who have demonstrated some leadership, and
the inflexibility of the DOH bureaucracy have combined to
make the DOH unwilling or unable to address many of the
serious shortcomings of Taiwan's public health care system
and make working with DOH a challenge. Long hours, low
wages, heavy workloads, recurring health crises, and
political pressures affect the staff morale and make it
difficult to recruit and retain capable professionals.


12. (SBU) Taiwan's impending health insurance crisis has
been obvious to health care administrators for some time.
DOH raised the issue in 2003 but met a brick wall in the LY.
Given the increasingly sour post-election partisan
environment, chances for the LY to agree on future needed
premium hikes are low. Efforts to implement global budgeting
are acknowledged by former BNHI CEO Chang Hong-jen as a
stop-gap cost-cutting measure that could only really be
effective if Taiwan's health care costs had already
stabilized. Global budgeting may have bought BNHI a few
months, but is not a solution. A government bailout could
prevent BNHI's fiscal collapse in the short term, but the
structural shortcomings of the health care system will
remain. With the departure of Minister Chen and CEO/Deputy
Minister Chang, the DOH and BNHI lack the leadership
necessary to lead the push for solutions and the inflexible
culture and low morale of the DOH will make reforms even more
difficult. Chang agreed that the bankruptcy and closure of
several hospitals may be necessary before there is political
will to address the root causes of this crisis.
PAAL