Industry Focus: Tending the Flock -- A Survey of the Pharmaceutical Sector
by Jim Boyce
Taiwanese are happy with the health-care system, but there's danger in them there pills. Not only is the national health insurance system plan facing bankruptcy, but foreign drugmakers say they are being unfairly treated, and the ultimate losers will be patients and the economy.
Lee Mei-hua, a thirty-something businesswoman, was feeling under the weather and decided on a quick trip to the doctor for some pills. Health insurance card in hand, she arrived at one of Taipei's finest hospitals and set out on a journey that, from having her blood pressure checked at the front door to getting her prescription filled, included 18 stops. She climbed stairs and rode down escalators, twice negotiated a dim and slippery hallway, and overcame several instances of being misdirected. Along the way, she carried a fistful of forms, handing them off one by one to the appropriate departments. Most impressively, she did it all while disoriented - at least that was the diagnosis made at stop ten before she was sent on her way. But Lee is a trooper, and 75 minutes later she emerged onto the street a bit worse for wear but nevertheless happy, with a purse full of colorful pills.
From Lee's adventures, you might conclude that using Taiwan's medical system is an ordeal. But most Taiwanese are content with the system, surveys over the last five years regularly reporting a satisfaction rate of 65% to 75%. Understanding why is as simple as looking at the national medical insurance card that Lee has in her hand. Since 1995 when the Bureau of National Health Insurance (BNHI) opened its doors, doctor visits and prescriptions for the 96.2% of the population holding such cards have been cheap. Lee's co-payment fees for both medical attention and drugs, for example, came to a grand total of NT$150. For most people it's a cost worth a little inconvenience.
Unfortunately, all is not well with the BNHI. It has been losing NT$2 billion per month and facing bankruptcy. That both the Kaohsiung and Taipei city governments have failed to pony up nearly NT$10 billion each they collected on behalf of the bureau doesn't help. Neither does the relatively low amount Taiwan spends on health care. At 5.4% of GDP in 2000, it trailed behind the U.S. (13%), Japan (7.8%), and South Korea (5.9%).
But also undermining the system is overuse - with pills as the embodiment of the problem. If Lee Mei-hua knows a bargain when she sees it, so too do most Taiwanese. They averaged 14.8 outpatient doctor visits in 2000, almost five times more than Americans. And they don't expect to leave empty handed. They rarely do, the result being that pharmaceuticals took up a huge 24.8%, or NT$84.7 billion, of the BNHI's budget in 2001.
To rescue the BNHI, the cabinet-level Department of Health (DOH) announced last month that it will boost premiums and co-payments from September. It also recently started to implement "global budgets," intended to cap the amount of no-strings- attached money that health care providers like hospitals and clinics can get.
While such measures might help, they fall far short of what is needed to reform the system, say representatives of foreign research-based drug companies. You might have expected that all those prescriptions would make drug company executives happy, but they are highly critical of how Taiwan's health care system deals with pharmaceuticals. No doubt, their attitude stems partly from the fact that the majority of the drugs prescribed here are off patent, hardly a lucrative niche for original drug makers. That's within a market big enough to warrant eager attention: In 2000, Taiwan's pharmaceutical market ranked 21st globally, with US$2.5 billion in sales. But the foreign drug lobby cautions that the problems it faces in Taiwan will, if not addressed, ultimately harm the consumer.
Take Lee Mei-hua's case again. Forget for a moment that her drugs were cheap. A bigger question: Are they the right ones? Getting drugs approved in Taiwan is an ordeal, say the companies, with the government requiring excessive local clinical trials and product information requested by no other country. As a result, the best drug for Lee may be unavailable because it's still making its way over the regulatory hurdles.< br>
But even if the drug is approved for use in Taiwan, Lee won't necessarily get it. Hospitals regularly ask pharmaceutical companies for discounts, knowing that they can keep the difference between what they pay for drugs and what the BNHI gives them in reimbursements. This arrangement, say the companies, encourages hospitals to patronize drug makers who provide the best deal, not necessarily the best products - with people like Lee again disadvantaged.
What's more, goes the argument, the situation is exacerbated by how drugs are dispensed. Lee's 18 stops included those to the doctor and the pharmacist, both of whom are employed by the hospital. With hospitals making money on the drugs they sell, it doesn't take a logician to see the incentive for doctors to prescribe more and more medication - whether patients really need it or not.
The question also arises of whether Lee is leaving the hospital with real drugs. The true scope of counterfeit pharmaceuticals in Taiwan is largely unknown, but raids by the police and checks by the health authorities have confirmed their presence in the market. So far, at least, they seem largely confined to mom-and-pop-style pharmacies, but the potential for their spread exists, especially since the government has been lax in cracking down on and punishing the counterfeiters. The lingering question: How long will it be before someone such as Lee dies because of fake drugs?
Underlying all of these arguments is a general resentment by the companies at what they say is the government's lack of respect for innovation. They see it not only in the lenient sentences to drug counterfeiters, but also in the way the authorities allow hospitals to play off foreign drug makers, who have huge R&D costs, against local generics manufacturers, who do not. In the end, argue the companies, this state of affairs will discourage or even drive out foreign investment by drug companies and thus jeopardize Taiwan's stated goal of becoming a power in biotech, an industry that thrives best in an atmosphere that promotes and protects innovation.
The industry's arguments sound pretty damning. But there are at least two sides to every story and the government has its own, the central theme being that it is dedicated to protecting Taiwan's citizens. Despite its undeniable problems - and which national health programs have not faced problems? - Taiwan's system has been operating reasonably efficiently in bringing the public quality care. The government also says it has already acted to address many of the foreign drug companies' complaints. New drug-approval regulations have been enacted to lower the entry barriers, for example, and the authorities say these stand up well in comparison with the practices in other countries. As to clinical trials, officials say these are only required in cases where the physical reaction to the drug in an Asian population needs to be checked.
Talks with government officials add to the impression that solutions to health care issues are rarely black and white. Unlike most other industries where key issues can be wrestled with chiefly in economic terms, health care is one where profits meet head on with matters of life and death, of culture, and even of sovereignty - a people's right to choose how they look after themselves. Thus, on many levels, the debate largely seems to be a matter of perspective. After all, the gap between the U.S. and some European countries' health care systems rivals in size that between the U.S. and Taiwan.
Lee Mei-hua's journey hints at where some of the issues lie - in a health insurance system that lets pill-happy people get their prescriptions cheaply, for example, and in hospitals where a conflict of interest exists between those writing the prescriptions and those filling them. Both the government and the companies should find plenty of common ground in addressing these issues. After all, they both stress that their goal is to serve the best interests of the patients.
Are they valid regulations or unnecessary trade barriers? When it comes to the newest rules for new drug approvals, the local government and foreign firms find themselves at loggerheads.
"When I say `Jump,' you ask `How high?'" is the classic line from a drill sergeant to his new recruits. Foreign drug companies could probably relate to that situation, but in their case it would be the DOH saying "Hand over data," and their being expected to ask "How much?" If nothing else, many companies see the latest rules for new drug approvals as ultimately translating into regulatory delays. And if delays occur, are they deliberate or due to governmental caution in the interests of public health? Two cases - "validation data" and "bridging studies" - serve to illustrate the issue.
Before approving a new drug, health authorities understandably want to ensure that the product is being made in safe conditions. Until recently, Taiwan did this by asking foreign companies to produce a Certificate of Pharmaceutical Product (CPP), a document provided in the U.S. by the Federal Drug Administration (FDA), which ranks among the world's most stringent approval bodies. If a drug passes muster with the FDA, went the thinking, it should pass anywhere.
But then Taiwan changed its procedures. In May 2001, it decided to ask for "validation data" as well. Instead of just requiring a CPP for new drug approvals, it began to require supplementary data on how those drugs were being manufactured. What's more, it wanted this data even for products that had already been approved, and noncompliance would be grounds for suspension of the business license.
As Wong Hui-po, director general of the DOH's Bureau of Pharmaceutical Affairs (BOPA), explains it, the change was driven by the department's inability to do on-site inspections of drug production facilities, since so many of them are abroad. "We have more than 10,000 imported drugs on the market," she says. "We have to have something we can evaluate them on, besides the CPP." The process should be to everyone's benefit, she says. "If the paper inspection is okay, we won't do a site inspection. This saves the companies and the government some effort."
But American drug companies don't see it that way. To begin with, they argue that BOPA's measures go far beyond international norms. Most countries that do not inspect sites do accept a CPP. At most, they ask for a summary report of a few dozen pages. By complicating the process with validation data, companies fear, the DOH will tie them up in endless paper pushing. How many pages will be needed, for example, to satisfy Taiwan when the production of a drug switches plants due to a merger or acquisition?
Although the bureau and the foreign drug industry have come up with a standard, more simplified template for submitting data, many pharmaceutical executives wonder whether they will later be asked for supplementary information. And they are uneasy about the lack of specificity in the BOPA's requests. Explains Carol Cheng, Chief Operating Officer of the International Research-based Pharmaceutical Manufacturers Association (IRPMA), "The requirements for [providing data] are not clear and the review standards are not clear, so it seems like the rules will be made case by case."
BOPA's Wong takes issue with the foreign companies' complaints. To begin with, she says domestic companies come under much stricter regulations, requiring them to begin the approval process 18 months earlier and to go through both on-site and paper inspections. Even the paper inspection is tougher for locals, she says: "[Most of them] submit huge amounts of inspection data." Foreign companies, she says, need only submit a 200-page summary report.
Chairman T.C. Tien of the Taipei Pharmaceutical Manufacturers' Association (TPMA) agrees with Wong. "Nearly all of the [foreign] pharmaceutical manufacturers claim to have a really rich amount of validation data. It should be easy for them to submit a report as local pharmaceutical firms do." Both he and Wong argue that the validation process has been a big burden for the domestic companies, one reason why their numbers have shrunk 30% since the end of 2000.
As to the alleged vagueness of the validation process, Wong says the foreign firms haven't even given the system a chance - it only went into effect on June 10 and already they are complaining about the possibility of being asked for extra data. While conceding that in the past the DOH sometimes requested additional data when reviewing new drug applications, Wong says all too often the manufacturers failed to submit full information the first time. "Some companies supplied reports prepared here by their local agents. How can an agent really know what the company is doing?" she asks.
Clearly the government and industry are butting heads on many of these issues. They don't even agree on how long it takes to get a drug approved. Ask an executive and the answer is likely to be 12 months, mainly attributable to government delays. Ask Wong and she'll tell you five months, "if the submission is complete." Any longer is due to company negligence, she says, adding that "most of the time the data is insufficient."
It all adds up to a headache for multinational drug company executives, who would love to return to the good old days when the DOH accepted a CPP as validation status. Even a site inspection is preferable to submitting more and more documents, says Carol Cheng, especially as they have to be prepared for Taiwan alone. What matters most to the firms is preventing delays to drug approvals, and preparing validation data won't l help. In fact, with both American companies and the U.S. government regarding the rules as superfluous, the issue is shaping up as a potential trade dispute. Will it come to the U.S. government accusing Taiwan of using validation data as a "technical barrier to trade"?
Wong counters that Taiwan has good reason to be cautious. She cites the case of Schering-Plough, fined US$500 million by the U.S. FDA in May for poor production practices at its U.S. and Puerto Rico plants. And, she points out, this is not an isolated case, as the FDA also fined Wyeth-Ayerst Laboratories US$30 million in 2000 and Abbott Laboratories US$100 million in 1999.
For now, negotiations are the order of the day. This summer USTR officials got a sense of how hard the slogging can get when they managed to extract just one minor concession out of Taiwan: A six-month period during which companies submitting registration information won't be penalized for omitting data. But it wasn't easy - the final session on the issue took more than seven hours.
Aside from validation data, the government and the foreign drug companies also have their differences over what are known as "bridging studies." At stake is how clinical trials done on members of one ethnic group, say Caucasians, can be applied to members of another, say Asians.
From 1993 to the end of 2000, a company seeking new drug approval in Taiwan had to do a local clinical trial. But even the website of the Center for Drug Evaluation (CDE) - a nongovernmental organization that provides technical support to the DOH for drug testing - admits that such trials "may not be statistically significant to prove the safety and efficacy of the drug." That conclusion is not surprising, given that some of the studies included only 40 subjects.
As a result, at the start of 2001 Taiwan turned to bridging studies, to span the gap between a foreign company's clinical trial data and how the drug might affect the local population. In the 13 months ending January 2002, such studies were required in nine of the 21 applications for evaluations reviewed by the CDE. The reasons ranged from concerns over the optimum dosage for Taiwanese to a lack of data on Asian subjects.
But industry opinion is mixed on the value of these studies in Taiwan. Skeptics question how scientific, let alone useful, such trials will be. To begin with, are Taiwan's health authorities up to the task of deciding when such studies are needed? IRPMA's Carol Cheng has her doubts, saying that "determining when to do bridging studies is more difficult than determining when to do Phase III [for FDA approval]." One worry is that the government will act too cautiously, calling for bridging studies even in cases where a drug poses minimal risk. But some risk simply has to be accepted when approving a new drug, she says: "Regulatory approval is a balance between scientific benefits and risks [to the public]. That's why pharmaceutical companies have a post- market surveillance system."
Others in the industry adopt a more benign attitude towards the studies. Philippe Auvaro, chairman of the Pharmaceutical Committee of the European Chamber of Commerce Taipei (ECCT), says he can supply plenty of clinical data to Taiwan. "I am swimming in data, I am sleeping on data," says Auvaro, and suggests that the best solution is for companies to pull data on subjects of Asian background used in previous clinical trials in other countries. BOPA's Wong says she sees no problem with such data mining in principle: "If it's a way of accommodating the genetic issues, I don't see why we couldn't use data from European studies." Or American ones.
Auvaro says that during the ten years he was based in Japan, the foreign pharmaceutical industry there favored bridging studies because they eliminated the need for early trials. "It's strange to find that what was the golden goal in Japan is considered a nightmare in Taiwan," he says. In any case, he praises Taiwan for following the guidelines of the International Conference on Harmonization (ICH), which was established by the U.S., Europe, and Japan in 2000 to pursue standardization in the area of drug registration. In addressing the ethnic factors that arise during research and development, ICH procedures call for identifying just three large groups - Asians, Blacks and Caucasians. He says that unlike Korea, "where they ask for data on Koreans living in Korea," Taiwan asks only for data on "Asians," applicable internationally.
Carol Cheng says that both the validation data and bridging study issues are ultimately linked to Taiwan's ambition to be a biotech center. Part of the plan may be to develop the capability to do first approvals and first-rate clinical trials, in effect becoming the Asian equivalent of the U.S. FDA. But not only does Taiwan lack the human resources and expertise, says Cheng, but the country's current regulations are alienating the big multinational drug companies needed to bring the plan to fruition. Cheng refers to the burden of doing bridging studies as an example. They cost a lot to complete, and in the end the product may not even be launched in this market.< br>
As might be expected, BOPA's Wong insists that the one thing driving rules for new drug approvals is public health. But why shouldn't the government kill three birds with one stone? If it can simultaneously ensure public safety, address industry concerns such as the degree of clarity of government regulations, and create the bedrock for a biotech industry by establishing clinical facilities that companies want, then that seems like a win-win-win situation.
Do the island's health-care providers put profits ahead of patients when it comes to purchasing, prescribing, and dispensing drugs? The foreign pharmaceutical lobby thinks so.
You don't often hear businesspeople say that less emphasis should be given to profits, but that's the message of the foreign drug lobby in Taiwan. They say that the BNHI's drug reimbursement policy encourages hospitals to put monetary considerations ahead of patient health, and that allowing hospitals to engage in both writing and filling prescriptions creates an inherent conflict of interest.
The allure of Taiwan's drug market to big foreign firms is obvious. Besides ranking 21st globally, it is expected to continue to grow at a rapid clip - 16.6% annually through 2004, according to IMS Health, a major pharmaceutical consultancy.
But there are glaring problems in the health-care system. To forestall bankruptcy of the BNHI, the Department of Health last month announced plans to raise premiums from 4.25% to 4.55% of participants' monthly salaries, the first increase since BNHI was started in 1995, and it was accompanied by increased co-payments for patients for some services.
Another factor undermining the health-care system is overuse, typified by the excessive dispensing of pharmaceuticals. Multiplying the 14.81 outpatient doctor visits that Taiwanese averaged last year times several prescriptions per visit gives some idea of the problem. "Our people go doctor shopping" because health care is so inexpensive, says Chang Hong-jen, president and CEO of the BNHI. "They see Doctor A in the morning and Doctor B in the evening, but they never tell Doctor B about Doctor A." Since each physician prescribes medicine, the proportion of BNHI's budget that goes to drug reimbursements winds up being nearly a quarter rather than below 20% as Mao Ting-sheen, BNHI's deputy general manager, calculates it should be.< br>
Many drug company executives agree that too many prescriptions are being written. While the situation is partly due to cultural factors, such as the general reluctance among Taiwanese to leave the hospital without medication, and to cheap rates, it's also encouraged by the way hospitals make money, says Rob Smith, the new chairman of AmCham's Pharmaceutical Committee. "It's about getting as many outpatients through the system as possible," he says, noting that doctors typically see more than 100 patients a day, spending as little as two or three minutes with each one before sending them off with prescriptions.
BNHI policy facilitates this money-making machine, particularly when it comes to drugs. At the heart of the issue is what the drug companies refer to as "the black hole" - the gap between the price hospitals, clinics, and other health-care providers pay for drugs and the reimbursement amount they receive for them from the BNHI. Take a hypothetical hypertension product - Drug A. The BNHI sets the reimbursement rate for the drug at NT$10. A hospital purchasing department then asks Drug A's maker for some "bonus" goods, say 20% more, effectively cutting the unit price to NT$8. The hospital pockets the difference.
Foreign drug executives say the problem is magnified by the link between the doctors writing prescriptions and the pharmacists filling them. With the hospital employing both, and making money via the price gap, the concern is that the profit motive might interfere with deciding what's best for patients. Technically, the law is not being broken - the doctor is not filling the prescriptions, thus there is separation of functions. And as most government officials point out, changing the situation would involve leaping over high political hurdles, so don't expect any results soon. But the ethical problem at least has been recognized. Minister Without Portfolio Hu Sheng- cheng, who heads the Executive Yuan's Health Insurance Committee, says: "We should [separate prescribing and dispensing] not only because it's good medical practice, but because it also helps decrease the black hole" - which in turn will undermine the profit motive when it comes to prescriptions.
That makes the price gap the key issue, one that incenses the foreign drug makers and not only because it lowers their profits. They also see it as an attack on innovation, as downright illegitimate, and as putting people's health at risk.
To look at the innovation charge, it generally costs US$500 million to $700 million (pre-tax) to research and develop a new drug. Yet hospitals in Taiwan are allowed to play off original drug manufacturers against generic producers, who have no, or few, R&D costs and thus more room to slash prices.
As to legality, the original manufacturers claim that practices causing the black hole are contrary to Article 49 of the Health Insurance Act. As they interpret it, the act obligates the BNHI to reimburse hospitals for the actual purchase price of the drugs - no more and no less.
Then there is the argument that this all poses a risk to patients. In buying pharmaceuticals, looking for the best deals is not the same as seeking the best drugs. Thus, any incentive for hospitals to profit - via the price gap, for example - raises serious ethical questions.
One executive says the pressure for discounting starts from the time the drug is being considered for listing in the hospital formulary: "You could have the best cure for cancer and provide them with all the clinical data, and they'll say, `If you give me a 15% discount, I'll list it.'" This leaves drug companies in a "take it or leave it" situation. Most manufacturers provide the discount, because some profit is better than getting nothing at all, although whether it is enough to help original drug makers fund the R&D for future drugs is another matter.
The industry is so peeved that earlier this year it commissioned the London-based National Economic Research Associates (NERA) to do a study of the problem. According to the results, which were released in June, over NT$600 million is being sucked into the black hole per year. Even worse, the hospitals have become used to - some would say "addicted" to - this money for funding their operations.
Chang Hong-jen agrees that this price gap - known at the BNHI as the "pharmaceutical price differential" - is a problem. But he says that foreign drug firms are forgetting some history when they complain. In 1995 when the BNHI started, he says, both the local and foreign drug industries supported high reimbursement rates. In essence, this created a "false market," allowing hospitals to secure sizable discounts. Taiwan was following the model of Japan, he says, "the only industrialized nation where after a patent expires they still give a very high price and limit market conditions." This contrasts with most industrialized nations, where following expiration of a patent "they let the generics compete and within two years you see a dramatic drop in price of 50% to 80%."
Despite these high prices, foreign drug companies are quite unhappy with Taiwan's generics pricing, arguing that the price difference between original and other makers is too narrow. The most frequently cited numbers: "bio-equivalent" drugs get reimbursed at 90% of originals' prices and common generics at 80%. Philippe Auvaro puts it this way: "The problem isn't that you paid one company 100 [dollars], it's that you paid the generic 95. You won't find copies of a Louis Vuitton bag for sale at 95% of the original price." Unfortunately for the foreign firms, it's the prices and not the ratios that have been changing.
To date, the BNHI has dealt with the black hole through periodic cuts in the reimbursement rate. The key mechanism for doing this has been "price/volume surveys" in which local and foreign drug companies submit receipts showing their sales to health-care providers, the quantity of drugs supplied, and the price. The information is then used to adjust, usually downward, the BNHI's reimbursement rates. Take our fictional hypertension drug above. If the companies report their prices and volumes accurately, you would expect the BNHI to reduce its reimbursement price for the drug towards NT$8, thereby wiping out most if not all of the hospital's NT$2 take.
End of the problem? Not quite, because the hospitals then ask for more discounts, leading to another price/volume survey, and the cycle continues. In fact, the survey wrapped up in June was the third, following those in 1999 and 2000, with the price adjustments coming the following year - both on April 1, no less. And the resulting rate cuts aren't hurting only the foreign companies, notes the TPMA's T.C. Tien. He says the cuts were partly responsible for reducing the number of local drug makers from 200 to 140 during the past 18 months.
The surveys' accuracy has also come into question. After all, when honest reporting will likely lead to a decrease in profits, the temptation to fudge can be overwhelming. Or as Minister Hu puts it, "There are incentives to provide false data."
It's not surprising then that both the local and foreign drug makers accuse each other of cheating. One foreign drug company head says his company provided an honest report for the survey, but the local competitors did not, causing the reimbursement price for the company's original product to be lower than for the copies. "We complained to the BNHI, and they said they were very sorry, but there was nothing they could do," he says.
Tien has a different version of what is going on. "In nearly all cases, the locals are honestly reporting sales," he says, adding that they suffer more than the foreign firms do from price adjustments. The reason: Instead of discounts, multinationals sometimes provide hospitals with donations and free trips, and these do not figure into the price/volume surveys.
BNHI's Chang concedes that problems exist: "We heard many complaints of unfairness and I think certain of them have evidence." He says he is waiting until all the data is analyzed before deciding on what measures to take.
But he maintains that the current price/volume survey, which required companies to hand in their receipts by June and which should result in a September price adjustment, will be the most accurate yet. To begin with, the reports submitted will be checked against hospital and tax records. That means any discrepancies may bring a company tax trouble. And where companies are found or suspected to have fiddled with the numbers, Chang says he won't hesitate to call in the Ministry of Justice.
Even more controversially, he is considering publishing the receipts so that drug companies selling similar products can monitor each other. "One of the principles announced is transparency," he says. "And the companies know th
Under Observation
Taiwanese are happy with the health-care system, but there's danger in them there pills. Not only is the national health insurance system plan facing bankruptcy, but foreign drugmakers say they are being unfairly treated, and the ultimate losers will be patients and the economy.
Lee Mei-hua, a thirty-something businesswoman, was feeling under the weather and decided on a quick trip to the doctor for some pills. Health insurance card in hand, she arrived at one of Taipei's finest hospitals and set out on a journey that, from having her blood pressure checked at the front door to getting her prescription filled, included 18 stops. She climbed stairs and rode down escalators, twice negotiated a dim and slippery hallway, and overcame several instances of being misdirected. Along the way, she carried a fistful of forms, handing them off one by one to the appropriate departments. Most impressively, she did it all while disoriented - at least that was the diagnosis made at stop ten before she was sent on her way. But Lee is a trooper, and 75 minutes later she emerged onto the street a bit worse for wear but nevertheless happy, with a purse full of colorful pills.
From Lee's adventures, you might conclude that using Taiwan's medical system is an ordeal. But most Taiwanese are content with the system, surveys over the last five years regularly reporting a satisfaction rate of 65% to 75%. Understanding why is as simple as looking at the national medical insurance card that Lee has in her hand. Since 1995 when the Bureau of National Health Insurance (BNHI) opened its doors, doctor visits and prescriptions for the 96.2% of the population holding such cards have been cheap. Lee's co-payment fees for both medical attention and drugs, for example, came to a grand total of NT$150. For most people it's a cost worth a little inconvenience.
Reviving the System
Unfortunately, all is not well with the BNHI. It has been losing NT$2 billion per month and facing bankruptcy. That both the Kaohsiung and Taipei city governments have failed to pony up nearly NT$10 billion each they collected on behalf of the bureau doesn't help. Neither does the relatively low amount Taiwan spends on health care. At 5.4% of GDP in 2000, it trailed behind the U.S. (13%), Japan (7.8%), and South Korea (5.9%).
But also undermining the system is overuse - with pills as the embodiment of the problem. If Lee Mei-hua knows a bargain when she sees it, so too do most Taiwanese. They averaged 14.8 outpatient doctor visits in 2000, almost five times more than Americans. And they don't expect to leave empty handed. They rarely do, the result being that pharmaceuticals took up a huge 24.8%, or NT$84.7 billion, of the BNHI's budget in 2001.
To rescue the BNHI, the cabinet-level Department of Health (DOH) announced last month that it will boost premiums and co-payments from September. It also recently started to implement "global budgets," intended to cap the amount of no-strings- attached money that health care providers like hospitals and clinics can get.
While such measures might help, they fall far short of what is needed to reform the system, say representatives of foreign research-based drug companies. You might have expected that all those prescriptions would make drug company executives happy, but they are highly critical of how Taiwan's health care system deals with pharmaceuticals. No doubt, their attitude stems partly from the fact that the majority of the drugs prescribed here are off patent, hardly a lucrative niche for original drug makers. That's within a market big enough to warrant eager attention: In 2000, Taiwan's pharmaceutical market ranked 21st globally, with US$2.5 billion in sales. But the foreign drug lobby cautions that the problems it faces in Taiwan will, if not addressed, ultimately harm the consumer.
Health Care Scares
Take Lee Mei-hua's case again. Forget for a moment that her drugs were cheap. A bigger question: Are they the right ones? Getting drugs approved in Taiwan is an ordeal, say the companies, with the government requiring excessive local clinical trials and product information requested by no other country. As a result, the best drug for Lee may be unavailable because it's still making its way over the regulatory hurdles.< br>
But even if the drug is approved for use in Taiwan, Lee won't necessarily get it. Hospitals regularly ask pharmaceutical companies for discounts, knowing that they can keep the difference between what they pay for drugs and what the BNHI gives them in reimbursements. This arrangement, say the companies, encourages hospitals to patronize drug makers who provide the best deal, not necessarily the best products - with people like Lee again disadvantaged.
What's more, goes the argument, the situation is exacerbated by how drugs are dispensed. Lee's 18 stops included those to the doctor and the pharmacist, both of whom are employed by the hospital. With hospitals making money on the drugs they sell, it doesn't take a logician to see the incentive for doctors to prescribe more and more medication - whether patients really need it or not.
The question also arises of whether Lee is leaving the hospital with real drugs. The true scope of counterfeit pharmaceuticals in Taiwan is largely unknown, but raids by the police and checks by the health authorities have confirmed their presence in the market. So far, at least, they seem largely confined to mom-and-pop-style pharmacies, but the potential for their spread exists, especially since the government has been lax in cracking down on and punishing the counterfeiters. The lingering question: How long will it be before someone such as Lee dies because of fake drugs?
Underlying all of these arguments is a general resentment by the companies at what they say is the government's lack of respect for innovation. They see it not only in the lenient sentences to drug counterfeiters, but also in the way the authorities allow hospitals to play off foreign drug makers, who have huge R&D costs, against local generics manufacturers, who do not. In the end, argue the companies, this state of affairs will discourage or even drive out foreign investment by drug companies and thus jeopardize Taiwan's stated goal of becoming a power in biotech, an industry that thrives best in an atmosphere that promotes and protects innovation.
A Second Opinion
The industry's arguments sound pretty damning. But there are at least two sides to every story and the government has its own, the central theme being that it is dedicated to protecting Taiwan's citizens. Despite its undeniable problems - and which national health programs have not faced problems? - Taiwan's system has been operating reasonably efficiently in bringing the public quality care. The government also says it has already acted to address many of the foreign drug companies' complaints. New drug-approval regulations have been enacted to lower the entry barriers, for example, and the authorities say these stand up well in comparison with the practices in other countries. As to clinical trials, officials say these are only required in cases where the physical reaction to the drug in an Asian population needs to be checked.
Talks with government officials add to the impression that solutions to health care issues are rarely black and white. Unlike most other industries where key issues can be wrestled with chiefly in economic terms, health care is one where profits meet head on with matters of life and death, of culture, and even of sovereignty - a people's right to choose how they look after themselves. Thus, on many levels, the debate largely seems to be a matter of perspective. After all, the gap between the U.S. and some European countries' health care systems rivals in size that between the U.S. and Taiwan.
Lee Mei-hua's journey hints at where some of the issues lie - in a health insurance system that lets pill-happy people get their prescriptions cheaply, for example, and in hospitals where a conflict of interest exists between those writing the prescriptions and those filling them. Both the government and the companies should find plenty of common ground in addressing these issues. After all, they both stress that their goal is to serve the best interests of the patients.
Seeking Approval
Are they valid regulations or unnecessary trade barriers? When it comes to the newest rules for new drug approvals, the local government and foreign firms find themselves at loggerheads.
"When I say `Jump,' you ask `How high?'" is the classic line from a drill sergeant to his new recruits. Foreign drug companies could probably relate to that situation, but in their case it would be the DOH saying "Hand over data," and their being expected to ask "How much?" If nothing else, many companies see the latest rules for new drug approvals as ultimately translating into regulatory delays. And if delays occur, are they deliberate or due to governmental caution in the interests of public health? Two cases - "validation data" and "bridging studies" - serve to illustrate the issue.
Before approving a new drug, health authorities understandably want to ensure that the product is being made in safe conditions. Until recently, Taiwan did this by asking foreign companies to produce a Certificate of Pharmaceutical Product (CPP), a document provided in the U.S. by the Federal Drug Administration (FDA), which ranks among the world's most stringent approval bodies. If a drug passes muster with the FDA, went the thinking, it should pass anywhere.
Have You Been Validated?
But then Taiwan changed its procedures. In May 2001, it decided to ask for "validation data" as well. Instead of just requiring a CPP for new drug approvals, it began to require supplementary data on how those drugs were being manufactured. What's more, it wanted this data even for products that had already been approved, and noncompliance would be grounds for suspension of the business license.
As Wong Hui-po, director general of the DOH's Bureau of Pharmaceutical Affairs (BOPA), explains it, the change was driven by the department's inability to do on-site inspections of drug production facilities, since so many of them are abroad. "We have more than 10,000 imported drugs on the market," she says. "We have to have something we can evaluate them on, besides the CPP." The process should be to everyone's benefit, she says. "If the paper inspection is okay, we won't do a site inspection. This saves the companies and the government some effort."
But American drug companies don't see it that way. To begin with, they argue that BOPA's measures go far beyond international norms. Most countries that do not inspect sites do accept a CPP. At most, they ask for a summary report of a few dozen pages. By complicating the process with validation data, companies fear, the DOH will tie them up in endless paper pushing. How many pages will be needed, for example, to satisfy Taiwan when the production of a drug switches plants due to a merger or acquisition?
Although the bureau and the foreign drug industry have come up with a standard, more simplified template for submitting data, many pharmaceutical executives wonder whether they will later be asked for supplementary information. And they are uneasy about the lack of specificity in the BOPA's requests. Explains Carol Cheng, Chief Operating Officer of the International Research-based Pharmaceutical Manufacturers Association (IRPMA), "The requirements for [providing data] are not clear and the review standards are not clear, so it seems like the rules will be made case by case."
The Government Disapproves
BOPA's Wong takes issue with the foreign companies' complaints. To begin with, she says domestic companies come under much stricter regulations, requiring them to begin the approval process 18 months earlier and to go through both on-site and paper inspections. Even the paper inspection is tougher for locals, she says: "[Most of them] submit huge amounts of inspection data." Foreign companies, she says, need only submit a 200-page summary report.
Chairman T.C. Tien of the Taipei Pharmaceutical Manufacturers' Association (TPMA) agrees with Wong. "Nearly all of the [foreign] pharmaceutical manufacturers claim to have a really rich amount of validation data. It should be easy for them to submit a report as local pharmaceutical firms do." Both he and Wong argue that the validation process has been a big burden for the domestic companies, one reason why their numbers have shrunk 30% since the end of 2000.
As to the alleged vagueness of the validation process, Wong says the foreign firms haven't even given the system a chance - it only went into effect on June 10 and already they are complaining about the possibility of being asked for extra data. While conceding that in the past the DOH sometimes requested additional data when reviewing new drug applications, Wong says all too often the manufacturers failed to submit full information the first time. "Some companies supplied reports prepared here by their local agents. How can an agent really know what the company is doing?" she asks.
Data Dilemmas
Clearly the government and industry are butting heads on many of these issues. They don't even agree on how long it takes to get a drug approved. Ask an executive and the answer is likely to be 12 months, mainly attributable to government delays. Ask Wong and she'll tell you five months, "if the submission is complete." Any longer is due to company negligence, she says, adding that "most of the time the data is insufficient."
It all adds up to a headache for multinational drug company executives, who would love to return to the good old days when the DOH accepted a CPP as validation status. Even a site inspection is preferable to submitting more and more documents, says Carol Cheng, especially as they have to be prepared for Taiwan alone. What matters most to the firms is preventing delays to drug approvals, and preparing validation data won't l help. In fact, with both American companies and the U.S. government regarding the rules as superfluous, the issue is shaping up as a potential trade dispute. Will it come to the U.S. government accusing Taiwan of using validation data as a "technical barrier to trade"?
Wong counters that Taiwan has good reason to be cautious. She cites the case of Schering-Plough, fined US$500 million by the U.S. FDA in May for poor production practices at its U.S. and Puerto Rico plants. And, she points out, this is not an isolated case, as the FDA also fined Wyeth-Ayerst Laboratories US$30 million in 2000 and Abbott Laboratories US$100 million in 1999.
For now, negotiations are the order of the day. This summer USTR officials got a sense of how hard the slogging can get when they managed to extract just one minor concession out of Taiwan: A six-month period during which companies submitting registration information won't be penalized for omitting data. But it wasn't easy - the final session on the issue took more than seven hours.
Building Bridges
Aside from validation data, the government and the foreign drug companies also have their differences over what are known as "bridging studies." At stake is how clinical trials done on members of one ethnic group, say Caucasians, can be applied to members of another, say Asians.
From 1993 to the end of 2000, a company seeking new drug approval in Taiwan had to do a local clinical trial. But even the website of the Center for Drug Evaluation (CDE) - a nongovernmental organization that provides technical support to the DOH for drug testing - admits that such trials "may not be statistically significant to prove the safety and efficacy of the drug." That conclusion is not surprising, given that some of the studies included only 40 subjects.
As a result, at the start of 2001 Taiwan turned to bridging studies, to span the gap between a foreign company's clinical trial data and how the drug might affect the local population. In the 13 months ending January 2002, such studies were required in nine of the 21 applications for evaluations reviewed by the CDE. The reasons ranged from concerns over the optimum dosage for Taiwanese to a lack of data on Asian subjects.
But industry opinion is mixed on the value of these studies in Taiwan. Skeptics question how scientific, let alone useful, such trials will be. To begin with, are Taiwan's health authorities up to the task of deciding when such studies are needed? IRPMA's Carol Cheng has her doubts, saying that "determining when to do bridging studies is more difficult than determining when to do Phase III [for FDA approval]." One worry is that the government will act too cautiously, calling for bridging studies even in cases where a drug poses minimal risk. But some risk simply has to be accepted when approving a new drug, she says: "Regulatory approval is a balance between scientific benefits and risks [to the public]. That's why pharmaceutical companies have a post- market surveillance system."
Two Laps in the Data Pool
Others in the industry adopt a more benign attitude towards the studies. Philippe Auvaro, chairman of the Pharmaceutical Committee of the European Chamber of Commerce Taipei (ECCT), says he can supply plenty of clinical data to Taiwan. "I am swimming in data, I am sleeping on data," says Auvaro, and suggests that the best solution is for companies to pull data on subjects of Asian background used in previous clinical trials in other countries. BOPA's Wong says she sees no problem with such data mining in principle: "If it's a way of accommodating the genetic issues, I don't see why we couldn't use data from European studies." Or American ones.
Auvaro says that during the ten years he was based in Japan, the foreign pharmaceutical industry there favored bridging studies because they eliminated the need for early trials. "It's strange to find that what was the golden goal in Japan is considered a nightmare in Taiwan," he says. In any case, he praises Taiwan for following the guidelines of the International Conference on Harmonization (ICH), which was established by the U.S., Europe, and Japan in 2000 to pursue standardization in the area of drug registration. In addressing the ethnic factors that arise during research and development, ICH procedures call for identifying just three large groups - Asians, Blacks and Caucasians. He says that unlike Korea, "where they ask for data on Koreans living in Korea," Taiwan asks only for data on "Asians," applicable internationally.
Carol Cheng says that both the validation data and bridging study issues are ultimately linked to Taiwan's ambition to be a biotech center. Part of the plan may be to develop the capability to do first approvals and first-rate clinical trials, in effect becoming the Asian equivalent of the U.S. FDA. But not only does Taiwan lack the human resources and expertise, says Cheng, but the country's current regulations are alienating the big multinational drug companies needed to bring the plan to fruition. Cheng refers to the burden of doing bridging studies as an example. They cost a lot to complete, and in the end the product may not even be launched in this market.< br>
As might be expected, BOPA's Wong insists that the one thing driving rules for new drug approvals is public health. But why shouldn't the government kill three birds with one stone? If it can simultaneously ensure public safety, address industry concerns such as the degree of clarity of government regulations, and create the bedrock for a biotech industry by establishing clinical facilities that companies want, then that seems like a win-win-win situation.
Money versus Medicine
Do the island's health-care providers put profits ahead of patients when it comes to purchasing, prescribing, and dispensing drugs? The foreign pharmaceutical lobby thinks so.
You don't often hear businesspeople say that less emphasis should be given to profits, but that's the message of the foreign drug lobby in Taiwan. They say that the BNHI's drug reimbursement policy encourages hospitals to put monetary considerations ahead of patient health, and that allowing hospitals to engage in both writing and filling prescriptions creates an inherent conflict of interest.
The allure of Taiwan's drug market to big foreign firms is obvious. Besides ranking 21st globally, it is expected to continue to grow at a rapid clip - 16.6% annually through 2004, according to IMS Health, a major pharmaceutical consultancy.
But there are glaring problems in the health-care system. To forestall bankruptcy of the BNHI, the Department of Health last month announced plans to raise premiums from 4.25% to 4.55% of participants' monthly salaries, the first increase since BNHI was started in 1995, and it was accompanied by increased co-payments for patients for some services.
Health Care: Chronically Fatigued
Another factor undermining the health-care system is overuse, typified by the excessive dispensing of pharmaceuticals. Multiplying the 14.81 outpatient doctor visits that Taiwanese averaged last year times several prescriptions per visit gives some idea of the problem. "Our people go doctor shopping" because health care is so inexpensive, says Chang Hong-jen, president and CEO of the BNHI. "They see Doctor A in the morning and Doctor B in the evening, but they never tell Doctor B about Doctor A." Since each physician prescribes medicine, the proportion of BNHI's budget that goes to drug reimbursements winds up being nearly a quarter rather than below 20% as Mao Ting-sheen, BNHI's deputy general manager, calculates it should be.< br>
Many drug company executives agree that too many prescriptions are being written. While the situation is partly due to cultural factors, such as the general reluctance among Taiwanese to leave the hospital without medication, and to cheap rates, it's also encouraged by the way hospitals make money, says Rob Smith, the new chairman of AmCham's Pharmaceutical Committee. "It's about getting as many outpatients through the system as possible," he says, noting that doctors typically see more than 100 patients a day, spending as little as two or three minutes with each one before sending them off with prescriptions.
BNHI policy facilitates this money-making machine, particularly when it comes to drugs. At the heart of the issue is what the drug companies refer to as "the black hole" - the gap between the price hospitals, clinics, and other health-care providers pay for drugs and the reimbursement amount they receive for them from the BNHI. Take a hypothetical hypertension product - Drug A. The BNHI sets the reimbursement rate for the drug at NT$10. A hospital purchasing department then asks Drug A's maker for some "bonus" goods, say 20% more, effectively cutting the unit price to NT$8. The hospital pockets the difference.
Foreign drug executives say the problem is magnified by the link between the doctors writing prescriptions and the pharmacists filling them. With the hospital employing both, and making money via the price gap, the concern is that the profit motive might interfere with deciding what's best for patients. Technically, the law is not being broken - the doctor is not filling the prescriptions, thus there is separation of functions. And as most government officials point out, changing the situation would involve leaping over high political hurdles, so don't expect any results soon. But the ethical problem at least has been recognized. Minister Without Portfolio Hu Sheng- cheng, who heads the Executive Yuan's Health Insurance Committee, says: "We should [separate prescribing and dispensing] not only because it's good medical practice, but because it also helps decrease the black hole" - which in turn will undermine the profit motive when it comes to prescriptions.
"Black Hole" Blues
That makes the price gap the key issue, one that incenses the foreign drug makers and not only because it lowers their profits. They also see it as an attack on innovation, as downright illegitimate, and as putting people's health at risk.
To look at the innovation charge, it generally costs US$500 million to $700 million (pre-tax) to research and develop a new drug. Yet hospitals in Taiwan are allowed to play off original drug manufacturers against generic producers, who have no, or few, R&D costs and thus more room to slash prices.
As to legality, the original manufacturers claim that practices causing the black hole are contrary to Article 49 of the Health Insurance Act. As they interpret it, the act obligates the BNHI to reimburse hospitals for the actual purchase price of the drugs - no more and no less.
Then there is the argument that this all poses a risk to patients. In buying pharmaceuticals, looking for the best deals is not the same as seeking the best drugs. Thus, any incentive for hospitals to profit - via the price gap, for example - raises serious ethical questions.
One executive says the pressure for discounting starts from the time the drug is being considered for listing in the hospital formulary: "You could have the best cure for cancer and provide them with all the clinical data, and they'll say, `If you give me a 15% discount, I'll list it.'" This leaves drug companies in a "take it or leave it" situation. Most manufacturers provide the discount, because some profit is better than getting nothing at all, although whether it is enough to help original drug makers fund the R&D for future drugs is another matter.
The industry is so peeved that earlier this year it commissioned the London-based National Economic Research Associates (NERA) to do a study of the problem. According to the results, which were released in June, over NT$600 million is being sucked into the black hole per year. Even worse, the hospitals have become used to - some would say "addicted" to - this money for funding their operations.
Chang Hong-jen agrees that this price gap - known at the BNHI as the "pharmaceutical price differential" - is a problem. But he says that foreign drug firms are forgetting some history when they complain. In 1995 when the BNHI started, he says, both the local and foreign drug industries supported high reimbursement rates. In essence, this created a "false market," allowing hospitals to secure sizable discounts. Taiwan was following the model of Japan, he says, "the only industrialized nation where after a patent expires they still give a very high price and limit market conditions." This contrasts with most industrialized nations, where following expiration of a patent "they let the generics compete and within two years you see a dramatic drop in price of 50% to 80%."
Despite these high prices, foreign drug companies are quite unhappy with Taiwan's generics pricing, arguing that the price difference between original and other makers is too narrow. The most frequently cited numbers: "bio-equivalent" drugs get reimbursed at 90% of originals' prices and common generics at 80%. Philippe Auvaro puts it this way: "The problem isn't that you paid one company 100 [dollars], it's that you paid the generic 95. You won't find copies of a Louis Vuitton bag for sale at 95% of the original price." Unfortunately for the foreign firms, it's the prices and not the ratios that have been changing.
A Vicious Circle
To date, the BNHI has dealt with the black hole through periodic cuts in the reimbursement rate. The key mechanism for doing this has been "price/volume surveys" in which local and foreign drug companies submit receipts showing their sales to health-care providers, the quantity of drugs supplied, and the price. The information is then used to adjust, usually downward, the BNHI's reimbursement rates. Take our fictional hypertension drug above. If the companies report their prices and volumes accurately, you would expect the BNHI to reduce its reimbursement price for the drug towards NT$8, thereby wiping out most if not all of the hospital's NT$2 take.
End of the problem? Not quite, because the hospitals then ask for more discounts, leading to another price/volume survey, and the cycle continues. In fact, the survey wrapped up in June was the third, following those in 1999 and 2000, with the price adjustments coming the following year - both on April 1, no less. And the resulting rate cuts aren't hurting only the foreign companies, notes the TPMA's T.C. Tien. He says the cuts were partly responsible for reducing the number of local drug makers from 200 to 140 during the past 18 months.
The surveys' accuracy has also come into question. After all, when honest reporting will likely lead to a decrease in profits, the temptation to fudge can be overwhelming. Or as Minister Hu puts it, "There are incentives to provide false data."
It's not surprising then that both the local and foreign drug makers accuse each other of cheating. One foreign drug company head says his company provided an honest report for the survey, but the local competitors did not, causing the reimbursement price for the company's original product to be lower than for the copies. "We complained to the BNHI, and they said they were very sorry, but there was nothing they could do," he says.
Tien has a different version of what is going on. "In nearly all cases, the locals are honestly reporting sales," he says, adding that they suffer more than the foreign firms do from price adjustments. The reason: Instead of discounts, multinationals sometimes provide hospitals with donations and free trips, and these do not figure into the price/volume surveys.
BNHI's Chang concedes that problems exist: "We heard many complaints of unfairness and I think certain of them have evidence." He says he is waiting until all the data is analyzed before deciding on what measures to take.
A Fair Evaluation?
But he maintains that the current price/volume survey, which required companies to hand in their receipts by June and which should result in a September price adjustment, will be the most accurate yet. To begin with, the reports submitted will be checked against hospital and tax records. That means any discrepancies may bring a company tax trouble. And where companies are found or suspected to have fiddled with the numbers, Chang says he won't hesitate to call in the Ministry of Justice.
Even more controversially, he is considering publishing the receipts so that drug companies selling similar products can monitor each other. "One of the principles announced is transparency," he says. "And the companies know th
