Healthcare Monopoly 4: Taiwan's NHI

The last presentation during the Conference of Generic Drugs in Asia (CGDA) 2011 held in Taiwan three weeks ago was made by Atty. Ivan Liu of YesChain Pharma Group, "To the Rescue of Taiwan NHI: Generic drug policy reformatted". Here are the main points that Ivan made:

Taiwan's National Health Insurance (NHI):
- launched in 1995 and has won international recognition since then
- covers 98 percent of Taiwan's 24 M population
- reimburses almost everything, including outpatient care, lab tests, prescription drugs, dental, TCM, day care for mentally ill, nursing home care, even magnetic resonance imaging (MRI) scan and organ transplant
- patients enjoy ready access to all levels of healthcare providers without suffering from wait lists seen in advanced countries

However, there are a number of problems and risks to NHI:
- explosive growth in reimbursement, from $6 B in 1995 to $18.7 B in 2011 (3x over 16 years)
- ratio of NHI reimbursement/GDP: 2.66 percent in 1995 to 3.9 percent in 2011
- with flat premium rate, yearly deficit warranted, $2 B loss accumulated since launching
- without change, NHI bankruptcy is guaranteed but politically not allowed

So the 2nd generation NHI was promulgated in January 2011: generate an extra $0.66 B annual income through broader based for premium calculation and 2 percent (hike) supplemental premium
- criticized for raising only income but downplaying wastes and non-essential reimbursements
- heavily attacked by employers and high income residents because they will pay the largest portion of premium increase.

Drug reimbursement policy is problematic:
- drug reimbursement in 2011 alone $4.7 B
- drugs/total reimbursement ratio is 25 percent, vs. OECD countries' average of only 15 percent
- 25 percent of dispensed drugs, virtually free upon filing prescriptions, wasted by patients (estimates by hospitals and pharmacies)
- more drugs dispensed means higher profit for big hospitals because
(a) they prefer branded to generic drugs,
(b) generics share only 20 percent of prescriptions while the same share 65 percent of all NHI reimbursed prescriptions
(c) fat margin as big hospitals exercised concerted procurement and big bargaining positions, get lowest drug prices while NHI reimbursement is fixed.
- thus, NHI as a social insurance acts like private insurance.

Ivan thinks the hike in premium is unnecessary -- if savings compared to the projected income increase of $0.66 B can be made:
- if NHI will reimburse branded drugs only at the price of generic drugs (of same active ingredients, dosage, form)

Ivan recommends the following for the Department of Health (DOH) and the big hospitals:
- Investigation Bureau, up to 5 years imprisonment for illegally benefitting a 3rd party (foreign pharma companies)
- Control Yuan has jurisdiction to designate corrective measures to DOH and impeach derelict government officials
- Fair Trade Commission (FTC) bans concerted action without prior approval, penalty up to $3 M
- Government Procurement Act prohibits big hospitals' concerted procurement singling out non-patented brand name drugs.

Over dinner that day (November 20, 2011), I sat next to Ivan and discussed with him my observations about his presentation as there was no more time for Q&A that afternoon. I said that it never fails, if you give something for free or at highly subsidized price, demand will always be larger than supply. The result where S > D is almost always a product or service deficit. That deficit has to be financed by the service provider -- in this case the Taiwan government -- through borrowings, what else.

He agreed. That is why the Taiwan government wants to raise the premium, which he and many others oppose. I go with his proposal: if wastes (by patients) and over-reimbursement (or over-pricing) by big hospitals and other healthcare providers can be controlled or at least minimized, the deficit can be addressed and erased and hence, there will be no need to raise the annual premium or subscription payment.

Aside from health, Ivan and I also discussed many other things, like intellectual property rights (IPR) but his specialization is on IT, not pharma IPR; political philosophy, bureaucracy, etc. Nice chat, Ivan, thanks.

So for me, here are the important lessons based on the Taiwan NHI:

1. Health insurance monopolization and nationalization almost always attracts wastes and inefficiencies. One important solution is to deregulate the health insurance sector, allow private health insurance to compete with government insurance, and do not force or coerce people to become members of the government NHI.

2. Healthcare competition will discourage and limit wastes and inefficiencies. If health insurance A will prioritize branded and expensive drugs and charge higher premium compared to health insurance B, C and D (the latter companies or groups prioritize cheaper generic drugs at lower premium), so be it.
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See also:

Healthcare Monopoly 1: France and Canada, September 06, 2010
Healhcare Monopoly 2: United Kingdom, February 17, 2011

Healthcare Monopoly 3: China, July 20, 2011 

Healthcare competition 1: Switzerland, August 28, 2010

Healthcare competition 2: Singapore, August 29, 2010
Healthcare competition 3: Hong Kong, September 02, 2010
Healthcare Competition 5: Thailand, September 24, 2010
Healthcare Competition 6: United States, May 05, 2011 

PhilHealth Watch 7: Deregulate PhilSick, October 09, 2011