TAIWAN TIFA: SESSION 4: PHARMA AND MED DEVICES

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 001874

SIPDIS

SIPDIS

STATE FOR EAP/RSP/TC, STATE PASS USTR FOR DEPUTY USTR
BHATIA FROM DIRECTOR YOUNG

E.O. 12958: DECL: 05/26/2031
TAGS: ECON TW
SUBJECT: TAIWAN TIFA: SESSION 4: PHARMA AND MED DEVICES

REF: TAIPEI 1727

Classified By: AIT Deputy Director David J. Keegan, Reason 1.4 b


1. (C) Summary: The U.S. side requested that pharmaceutical
price adjustments not be implemented until there were
consultations to review both data and methodology, and a
formal dialogue on healthcare system reform. Taiwan's Bureau
of National Health Insurance (BNHI) stated its willingness to
receive input from the U.S. side, but insisted that it lacked
justification to significantly delay price adjustments. The
Taiwan side was noncommittal regarding entering into a formal
consultative dialogue on broader outstanding issues. This
session concluded with the U.S. side noting that work at
higher levels might be needed to narrow the differences. End
summary.


2. (C) The Fifth U.S.-Taiwan TIFA meetings led by Deputy
U.S. Trade Representative (DUSTR) Ambassador Karan Bhatia
took place in Taipei on May 25 and 26, 2006. This cable
reports on Session 4, which covered pharmaceutical and
medical device issues. This session was co-chaired by Deputy
Assistant U.S. Trade Representative (DAUSTR) Eric Altbach and
Franco Huang (Chih-Peng),Director General (DG),Bureau of
Foreign Trade (BOFT),Ministry of Economic Affairs (MOEA).


3. (C) Altbach opened by saying the U.S. side attached great
importance to the issues under discussion. He stated that,
while there is progress to report in many areas,
pharmaceutical policy is one of the principal area in which
we have not made progress in narrowing our differences. He
noted that the U.S. pharmaceutical industry is among the most
engaged in monitoring U.S.-Taiwan economic and trade
relations and that the U.S. industry believes that its
prospects in Taiwan are getting worse. Altbach added that
our relationship in this area was deteriorating and that it
is important to make sincere efforts in resolving outstanding
problems.


4. (C) Altbach offered two proposals to resolve outstanding
problems in this area: 1) That price adjustments resulting
from the fifth Price/Volume Survey (PVS) not be implemented
until the two sides can consult to review the data and
improve the methodology; and 2) That the two sides agree to
undertake a formal dialogue covering the broader issues of
health care system reform with participation of AIT, TECRO
and private sector stakeholders. Altbach pointed out that
these proposals would not simply benefit U.S. industry, but
are also good for Taiwan patients and for the financial
well-being of Taiwan's healthcare system.

Price Volume Survey
--------------


5. (C) Altbach specifically noted that a standstill of the
PVS pending a thorough review of the survey's methodology
with AIT, TECRO and industry would enhance the credibility of
the PVS findings. He concluded by noting that the TIFA
pre-meetings had failed to advance the agenda and that an
unsuccessful outcome would result in a failing grade for the
pharmaceutical session.


6. (C) Altbach then offered to "recast" our request for a
standstill in a way that preserves the substance of the
proposal but in language that might help the Taiwan side to
engage. The request was revised to read that implementation
of the price cuts not take place until both sides have
undertaken a "thorough review," which:

-would require "some time";
-would cover both validity of the data and the underlying
methodology;
-would involve consultations with AIT and private sector
stakeholders, including innovative, research-based
pharmaceutical companies; and
-would involve a review of the R-zone and the therapeutic
groupings


7. (C) Bureau of National Health Insurance (BNHI) Vice
President (VP) Lee Cheng Hua responded as follows:

-The BNHI had erceived many critical assessments of the PVS
including the American Chamber of Commerce's White Paper,
which focused on the black hole, price discrepancy phenomenon.

-He said that the PVS had taken place four times and industry
such as Pharma and IRPMA were always involved in the process.
He also said that AMCHAM, IRPMA, and U.S. Pharma were always
welcome to comment on current and future PVS.

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-He maintained that the fifth and current PVS was ongoing and
there was not enough evidence or data from the U.S. that
problems were widespread.

-Using dubious logic, Lee claimed that the PVS procedure
provides special consideration for patented products. All
the patented products are sourced from abroad and therefore,
Lee incredibly claimed, no action by Taiwan generic
manufacturers can negatively impact the imported patented
drugs.

-Lee also proclaimed BNHI would like to improve the paperwork
and would respond to companies who had specific questions
about therapeutic grouping.

-If anyone reports improper pricing of off-patent compounds
BNHI will request the competent authorities to undertake a
formal investigation.

-Lee concluded that BNHI was trying to close the black hole
and get to actual transaction pricing (ATP) which is what
U.S. Pharma has also been seeking. Lee produced several
statistics that he said demonstrated the success of U.S.
pharmaceuticals in Taiwan, including that the percentage of
patented products had increased from 15 to 30 percent of
imports over the past 9 years and that the total market share
for imports had increased from 50 to 60 percent.


8. (C) Altbach reiterated the U.S. continues to have
concerns over methodology. He then asked Lee to confirm
whether they would hold to the July 1 implementation date.


9. (C) VP Lee stated that the PVS was scheduled for July,
but if industry had concerns BNHI could take this into
account, noting that this may result in a delay of a few
weeks. He stated that the timing was not an absolute but
that the PVS price adjustments would be implemented on time
with consensus from industry. He noted that in the past BNHI
has generally consulted directly with individual U.S. firms,
but in the future they would be happy to include AIT, AMCHAM
and PHARMA in discussions about PVS.


10. (C) Altbach responded that just receiving concerns was
insufficient and that industry's concerns needed to be
addressed. He noted that U.S. industry would not be able to
provide a comprehensive set of proposals by July 1.


11. (C) VP Lee replied that they would like more specific
input from the U.S. side. Otherwise any BNHI action to delay
the PVS would be unfounded. He asked for details on the
concerns of the U.S. industry with the methodology of the PVS.


12. (C) Altbach noted that he could ask U.S. industry to
produce more specific written input. But he noted that if
our industry thinks this exercise is just pro-forma and that
BNHI intends to implement the adjustment in July regardless
then this would be seen as a "failed outcome of TIFA."
Altbach said that what we require from BNHI is 1) a timeframe
for the review and 2) an acknowledgement that the price
adjustment would not take place until the review is completed
and necessary reforms implemented. Pressed by VP Lee as to
how much time the U.S. side wanted, Altbach said as much time
as would be necessary for a thorough review, given the
seriousness of the issues, perhaps one year.


13. (C) VP Lee responded that he could not answer at this
time. He suggested that AIT ECON and COMM may be able to
help with the review process.


14. (C) Altbach responded that perhaps higher level
intervention may be needed at this point and reemphasized
that it is necessary to move forward on other issues such as
the R-zone and therapeutic grouping, as well as on
implementing the more formal dialogue on issues such as SPD
(separation of prescribing and dispensing) and ATP (actual
transaction pricing).


15. (C) DG Huang offered an alternate option. He proposed a
two-stage process: 1) continue the PVS, while accepting
comments for the viability of data with a high probability of
a time delay; and 2) regularly obtain industry input for the
next PVS. He noted both sides wanted to narrow the price
gap, but the PVS had been publicly announced and approved and
must be seen as being on schedule. He inquired if this type
of understanding and language was acceptable.


16. (C) Altbach replied that while the TIFA public outcome
statement is fully open to negotiation, a commitment to

TAIPEI 00001874 003 OF 003


regular meetings on how to improve the PVS by instituting a
fair and transparent system acceptable to all concerns was
paramount. There should be a common understanding between
the U.S. and Taiwan on the need for a delay of the fifth PVS.
He urged that sufficient time be allocated for industry to
prepare its concerns, for BNHI to conduct its analysis and
implement the results.


17. (C) DG Franco Huang interjected that VP Lee was not
authorized to address any changes to the timing of the PVS.
He noted that time was short, but he was hoping that
acceptable language could be found for the TIFA outcomes
statement. Altbach and DG Huang agreed that this discussion
would need to go to higher levels.

Formal Healthcare Dialogue
--------------


18. (C) Altbach proposed establishing a formal, ongoing
dialogue on healthcare regulatory and financing issues such
as PVS, separation of prescribing and dispensing (SPD),
actual transaction pricing (ATP) and other issues. This
dialogue would include AIT, TECRO and the private sector.


19. (C) U.S. Department of Commerce (USDOC) Office Director
of Taiwan and Korean Affairs Brenda Carter-Nixon initiated
discussion on SPD noting that its implementation was the
first step in eliminating the black hole. Carter-Nixon also
called for an explanation of the regulatory requirement for
SPD. Taiwan Bureau of Pharmaceutical Affairs (BOPA) Director
General (DG) Chi-Chou Liao responded that this was a systemic
problem, that ATP is needed to resolve the issue.
Carter-Nixon noted that the motivation to over prescribe was
based on profit incentives rather than medical need.


20. (C) VP Lee said U.S. health maintenance organizations
have clinics as well as pharmacies. He stated that U.S.
firms would bear the brunt of the changes if SPD was
implemented in Taiwan because most of U.S. pharmaceutical
sales are to large hospitals. He did note that if a pharmacy
is located next to a clinic, it must be able to prove the
clinic is not involved in its business.


21. (C) Altbach again noted that this topic was good
candidate for discussin in a formal dialogue process to
exchange experiences from the two systems. VP Lee replied
that BNHI was open to talk to anyone as they always have
been. (Comment: Though specifically asked several times, VP
Lee did not directly respond to the request for formal
dialogue. End Comment)

Patent Linkage - Movement
--------------


22. (C) Altbach briefly noted that a separate discussion had
reached agreement to hold discussions on how to move toward a
patent linkage system and to send two Taiwan officials to the
U.S. Food and Drug Administration (FDA) and the U.S. Patent
and Trademark Office (PTO) for training on the U.S.
patent-linkage process.


23. (C) Altbach concluded the session by reviewing the
positions and stating that dialogue between senior officials
might be necessary in order to resolve differences.


24. (U) This cable was reviewed by USTR prior to
transmission.
YOUNG