US embassy cable - 05TAIPEI1881

C O N F I D E N T I A L SECTION 01 OF 04 TAIPEI 001881 
 
SIPDIS 
 
STATE FOR EAP/RSP/TC 
STATE PASS AIT/W AND USTR, USDOC FOR 
4431/ITA/MAC//AP/OPB/TAIWAN/MBMORGAN 
 
E.O. 12958: DECL: 04/20/2015 
TAGS: ECON, ETRD, TW 
SUBJECT: TAIWAN'S NATIONAL HEALTH INSURANCE: TUNING UP A 
BROKEN DOWN VEHICLE 
 
REF: A. 04 TAIPEI 4021 
 
     B. TAIPEI 478 
 
Classified By: Director Douglas Paal, Reasons 1.4 b/d 
 
1.  (SBU) Summary:  Facing a severe budget shortfall for 2005 
that is projected to increase dramatically in coming years, 
the Taiwan Bureau of National Health Insurance (BNHI) and the 
Department of Health in April began to implement several 
measures designed to increase revenue and cut expenses.  Even 
together, the changes do not come close to closing the 
National Health Insurance (NHI) financing gap.  Public 
response to individual measures to increase revenue has been 
muted thus far, but BNHI officials tell us continued concern 
over political fall-out is preventing Taiwan,s leadership 
from approving badly needed increases in Taiwan,s health 
insurance premium rate.  A premium increase and changes in 
co-payment requirements could bring BNHI's books back into 
the black, but only radical reform of the NHI system will 
eliminate the "black hole", the pricing differential between 
the official NHI reimbursement price and what hospitals 
really pay suppliers for medical equipment and 
pharmaceuticals.  Medical facilities use this price 
differential to subsidize their administrative costs.  In the 
meantime, BNHI's efforts to control spending through capping 
reimbursements are pushing many hospitals toward bankruptcy 
and inspired more than 30,000 medical workers to take to the 
streets on April 20.  End Summary. 
 
2. (U)  AIT met with BNHI Vice President Lee Cheng-hua April 
14 to discuss NHI's recent moves to address the agency's 
projected FY05 budget shortfall of NT$171 billion (approx. 
US$5.5 billion).  This estimate does not include an 
additional NT$40 billion that BNHI claims it is owed by the 
cities of Taipei and Kaohsiung under a local expense-sharing 
scheme that both municipalities have refused to pay since 
2002.  Part of that deficit will be covered by the last of 
Taiwan,s legislatively mandated NHI reserve fund (NT$74 
billion).  But even after all reserves have been exhausted, 
NHI is still expected to face a NT$97 billion deficit in 
2005, and a NT$253 billion deficit in 2006.  Under the 
sobriquet of the "Multiple Tune-Up Policy", BNHI has created 
a plan to continue near-term operations by cutting costs and 
incrementally raising revenues through a series of piecemeal 
measures. 
 
============================ 
Chipping away at the deficit 
============================ 
 
3. (U)  As a first step towards chipping away at its budget 
deficit, BNHI in February announced it had shifted NT$11 
billion in public health expenditures back to the Department 
of Health.  Beginning on April 1, BNHI raised the upper limit 
on salary subject to NHI premiums from NT$87,600/month to 
NT$131,700/month.  This means upper income earners now pay 
health premiums calculated on a higher base salary.  BNHI 
expects this reform to generate an additional NT$3.4 billion 
in revenue for 2005.  BNHI also revised its policy for 
calculating premiums for public employees including military 
and civil servants and teachers.  Prior to April 1, premiums 
for government employees were calculated based on 82% of 
their basic salary.  Beginning in April, the premium is 
calculated based on 87% of their basic salary.  There have 
been no public demonstrations nor has there been significant 
public comment about these increases. 
 
4. (SBU) BNHI also hopes the legislature will approve a plan 
to double the excise tax on tobacco products from NT$5 to 
NT$10 during the current session.  Lee told AIT he foresees 
no significant opposition in the LY to such a move.  A 
proposal to reallocate a portion of revenue collected from 
emission taxes to support the NHI was rejected by LY members 
and has been dropped.  Finally, BNHI would like to raise 
outpatient co-payments at bigger hospitals in metropolitan 
regions.  This would meet the dual goals of raising revenue 
for NHI and encouraging patients to visit smaller hospitals 
and clinics for routine outpatient care, freeing larger 
hospitals to focus on treatment of more serious cases.  BNHI 
projects this could raise NT$5.3 billion in 2005.  This 
proposal is opposed by consumer groups concerned about 
convenience and quality of care and by hospitals. 
 
===================================== 
Bank loans to fill the short-term gap 
===================================== 
 
5. (SBU) BNHI's dire financial situation has forced the 
bureau to turn to the banking sector for funding.  According 
to Lee, BNHI in February borrowed NT$80 billion from a 
consortium of eight Taiwan banks on commercial terms.  The 
loan carries a market rate of interest of 1.1% and will cover 
the gap caused by the failure of Taipei and Kaohsiung to pay 
their share of municipal health expenses, to cover over 
reimbursements to hospitals (NT$27 billion), and to provide 
BNHI with one month of working capital (NT$13 billion). 
Opposition legislators have criticized BNHI for borrowing 
money from the private sector and warned that future premium 
increases should not be used to pay interest on the debt. 
 
================ 
A penny saved... 
================ 
 
6. (U)  BNHI also plans to cut its reimbursement costs 
through stricter management of services.  The introduction of 
integrated circuit (IC) health cards in 2003 allowed BNHI to 
more easily monitor health system usage and identify those 
patients whose usage of health services appears unusual or 
excessive.  Those users whose patterns of activity raise red 
flags will be monitored by BNHI to identify problems.  By 
actively discouraging the commoen practice of 
"doctor-shopping" and scrutinizing suspicious prescription 
drug usage, BNHI hopes to deter fraud and discourage patients 
and medical providers from abusing the healthcare system by 
repeated unnecessary doctor visits, lab tests, and 
prescriptions.  BNHI plans to aggressively investigate fraud 
and will work with DOH to increase public education and 
awareness of the appropriate use of the healthcare system. 
 
7. (U)  Official statistics from BNHI show that the average 
Taiwan resident visits a doctor over 15 times per year and 
takes away 4 prescriptions each time.  In an attempt to 
control drug expenditures, BNHI is considering de-listing 
1200 over-the-counter (OTC) medications currently eligible 
for reimbursement.  Beginning in July 2005, BNHI will no 
longer reimburse hospitals or patients for these 
pharmaceuticals.  In 2004, BNHI spent NT$2.3 billion to cover 
non-prescription drugs.  Consumer groups and local 
pharmaceutical associations oppose this reform, arguing that 
Taiwan patients need professional guidance to ensure 
medicines are taken properly. 
 
8. (C)  For several years, BNHI has used price/volume surveys 
(PVS) to review its reimbursement rates and to adjust these 
rates periodically to reflect actual prices paid by hospitals 
to distributors.  Pharmaceutical companies in Taiwan are 
actively opposing reimbursement reductions expected to follow 
the latest PVS.  The International Research Pharmaceutical 
Manufacturers Association (IRPMA) believes the PVS and 
subsequent reimbursement cuts are non-transparent and has 
joined Taiwan,s five other pharmaceutical associations in 
refusing to provide price and sales volume data on 802 
products requested by BNHI.  Instead, they have proposed an 
across the board 2.5% reimbursement cut on virtually all 
pharmaceutical products, potentially saving BNHI 
approximately NT$2.75 billion, a figure they believe is 
equivalent to what BNHI would save after implementing PVS 
inspired reimbursement cuts.  BNHI has agreed to consider the 
proposal, but BNHI Vice President Lee told AIT that the 
industry proposal was too stingy and would not result in 
sufficient savings for BNHI.  He suggested a proposal in the 
5-7% range would be more likely to pique BNHI's interest. 
However, even this would have a minimal impact on BNHI's 
overall deficit. 
 
============================================= === 
...doesn't mean much when you're losing billions 
============================================= === 
 
9. (C)  These measures, even taken together, do not come 
close to closing BNHI's fiscal gap.  But political 
considerations continue to block an increase in health 
insurance premiums, the one reform that would quickly bring 
Taiwan,s NHI back into the black.  The current premium is 
set at 4.55% of wages and was last raised in September 2002, 
a move that faced heavy public opposition and cost then 
Health Minister Lee Ming-liang his job.  BNHI has the 
authority to increase premiums to 6% of wages without 
legislative approval but was unwilling to do so during last 
year's election season.  BNHI economists believe an immediate 
increase to just over 5% could keep the NHI afloat for 
another 2-3 years without necessitating major systemic 
reforms.  With LY elections next scheduled for 2007, BNHI was 
considering proposing premium increases in 2005, according to 
Lee.  However, newly installed Premier Frank Hsieh reportedly 
told BNHI President and CEO Liu Chien-hsiang that the current 
political situation made discussion of premium increases 
difficult to consider.  Instead, BNHI will instead pursue its 
"Multiple Tune-up Policy" while it attempts to build 
consensus for a premium increase sometime in 2006. 
 
10. (C) Minister of Health Hou Sheng-mou acknowledged that 
the current policy does not address the core problems of the 
NHI.  But he hopes that by implementing a series of small 
changes he can buy time to build consensus for a 
"revolutionary" reform that will create a second-generation 
NHI system that will tie premiums to household income instead 
of salary and increase charges as health care usage 
increases.  In a March 20 press interview, Hou briefly 
discussed the need for reform of insurance rates and 
suggested that in a society with an aging population and 
changing medical technology it is impossible to keep 
insurance rates pegged at the same rate.  Although Hou took 
pains to emphasize the need to guarantee to the people that 
the money would be used effectively, he insisted that 
premiums must be increased in order to maintain the viability 
of the system.  BNHI Vice President Lee told AIT that he 
believes to ensure the fiscal health of the NHI was to change 
the law to allow premiums to be adjusted automatically to 
reflect inflation and increasing healthcare costs.  Taiwan 
politicians lack the courage to risk political opposition and 
approve necessary premium increases, he said, insisting it 
was better to take the responsibility out of their hands. 
 
=========================================== 
Doctors Protest BNHI reimbursement policies 
=========================================== 
 
11. (U)  Doctors and other medical personnel held a very 
large demonstration April 20 to protest the NHI's current 
reimbursement policy.  AIT Econoff estimates over 25,000 
people, from all parts of the island, rallied at the Chiang 
Kai-shek Memorial and marched to the Legislative Yuan to 
oppose BNHI imposed reimbursement caps (known as "global 
budgeting") and a BNHI demand that hospitals refund NT$30 
billion in disputed reimbursement payments.  Protesting 
medical workers say that the implementation of "global 
budgeting" is driving hospitals into bankruptcy, forcing them 
to cut salaries and services.  When asked, they insisted they 
were not opposed to the NHI system, but that they could not 
effectively treat patients without adequate reimbursement 
from BNHI.  However, protesters informally surveyed by 
Econoff were generally unwilling to support increasing 
premiums and co-payments for patients, instead asking BNHI to 
more effectively use its current resources.  Chinese Medical 
Association (CMA) President Huang Nan-ho claims that under 
the current system hospitals are reimbursed for only 60 
percent of their costs, and that one-third of Taiwan's 700 
hospitals and medical centers are on the verge of bankruptcy. 
 BNHI's recent announcement that they would request refunds 
of reimbursements from several hospitals which were overpaid 
previously is further fueling the medical workers protest. 
Organizers had predicted that 12,000 medical workers would 
participate in the protest and were surprised that the actual 
participation was more than double expectations. 
 
=========================================== 
Hospitals want Suppliers to Feel their Pain 
=========================================== 
 
12. (C) As BNHI's financial position continues to 
deteriorate, the pressure from hospitals on medical suppliers 
to provide further discounts is increasing.  In concert with 
BNHI's request that medical facilities return disputed 
over-reimbursements from 2003-4, Taiwan's biggest public 
hospital (Veterans General Hospital) has already informed 
pharmaceutical suppliers that they must make cash "donations" 
to the hospital based on their sales in those years. 
Pfizer's Taiwan representative alleges that most have already 
complied. 
 
=============================== 
Comment: Living in a Black Hole 
=============================== 
 
(C) 13.  Comment: BNHI continues to search for ways to get 
out of the financial straitjacket imposed by the combination 
of rising healthcare costs and fixed premiums.  Taiwan spends 
only 6 percent of GDP on healthcare (compared to 15 percent 
in the US) and Taiwan residents are frequent users.  97 
percent of residents are covered  by the NHI.  BNHI believes 
that the only way to keep the system afloat in the near term 
is to pass the pain on to hospitals and medical suppliers, 
including pharmaceutical companies, by capping payments to 
hospitals and by continuously reducing reimbursement prices 
for medical supplies.  Hospitals then squeeze suppliers by 
negotiating further discounts and pressing for "donations", 
creating a spread between the actual and reimbursement price 
(the black hole) that they count on to cover their 
administrative expenses. 
 
14.  (C) As BNHI's financial position continues to 
deteriorate, the pressure from hospitals on medical suppliers 
to provide further discounts will increase, expanding the 
"black hole" in the near term.  Without it, Taiwan's national 
health insurance system would face collapse.  The NHI needs 
radical reform to shift more of the burden of healthcare 
costs to consumers, who receive high quality care at prices 
US consumers would find staggeringly low, by increasing 
premiums to better cover operating expenses and co-payments 
to reduce frivolous use of services.  Until hospital expenses 
can be met from transparent revenues, efforts to implement 
transaction price reimbursements that could eliminate the 
black hole are unlikely to succeed.  Given the timidity of 
Taiwan politicians on changes to the healthcare system, it is 
likely that only the imminent collapse of the system will 
open the door to this kind of radical reform.  End comment. 
PAAL