The strengths of Taiwan’s hospital system are its accessibility and low cost. But from those same factors flow some of the difficulties with the system. The out-patient clinics tend to be greatly overcrowded, and the medical personnel overworked and underpaid. Patients get little personal attention from physicians, the latest innovative medical and pharmaceuticals are not always available, and a big burden is placed on the families of those hospitalized.

Some maintain that these are necessary trade-offs given Taiwan’s current level of economic development. Others say the public should demand a system in which the quality of treatment is the paramount goal, not financial savings.

BY DON SHAPIRO  

Ask healthcare professionals about the comparative strengths and weaknesses of Taiwan’s hospital system, and the answer will probably make the point that they are really two sides of the same coin.

Foremost on the positive side is the convenience and accessibility of the system. Patients in the United States with a non-urgent ailment often have to wait weeks for an appointment, but their counterparts in Taiwan can usually be sure of getting to see their physician of choice, even at a major medical center, the same day.

The second-most frequently cited advantage is the relative low cost of the service. Due to Taiwan’s universal National Health Insurance (NHI) program, the registration fee plus co-payment for out-patient treatment at a leading hospital is the equivalent of only about US$13. And using the kind of “cost-down” skills that Taiwan perfected over the decades in the manufacturing sector, hospitals have managed to reduce the total cost of many procedures to surprising levels – only NT$6,000, for example, for an appendectomy that would probably run US$6,000 in the United States. 

Yet accessibility and low cost bring with them some significant trade-offs. Out-patient clinics tend to be so crowded that physicians are burdened with an immense workload. While earning only a fraction of the income of doctors in the United States, they typically see at least three times as many patients (often upwards of 50 in a half-day session) – with the result that each patient gets an average of just a few minutes of the physician’s time. Patients often feel treated like part of a factory assembly line. “Sometimes the doctor doesn’t even make eye contact – he just keeps looking at the computer screen,” notes J.F. Rachel Lu, a professor of healthcare management at Chang Gung University.

For in-patients, the hospital cost structure can also mean a heavy burden on the family. Many services that in the West would be performed by nurses or orderlies are typically not covered in the Taiwan system, so relatives generally take turns providing bed-side assistance in looking after the patient’s personal needs. “There’s a saying in Taiwan that if anyone in the family becomes seriously ill, the whole family gets hospitalized,” says Chang Ly-yun, a sociologist at Academia Sinica specializing in healthcare issues.

The alternative is to hire a caregiver, which could cost up to NT$2,200 a day for two shifts. “If you’re hospitalized for 10 days, that can really add up,” says Chang, who is also chairman of the Taiwan Healthcare Reform Foundation. “It’s an example of how costs are transferred to the patient.”

Most hospital administrators contend that their institutions do a satisfactory job at the “curing” aspect of healthcare, though conceding that financial constraints limit their ability to meet the same standard when it comes to “caring.” While acknowledging that “doctors are under a lot of pressure in seeing so many patients,” for instance, Dr. Chen Ming-fong, the superintendent of National Taiwan University Hospital (NTUH), says that physicians at Taiwan’s hospitals “have learned to adapt to the situation and still maintain acceptable quality and a good doctor-patient relationship.”

But Chen, who is concurrently president of the Taiwan Society of Internal Medicine, is also a strong advocate for continuous efforts to raise quality standards. Another proponent of hospital reform, Dr. Andrew T. Huang, president and CEO of the Sun Yat-Sen Cancer Center in Beitou as well as professor of medicine at Duke Medical Center in the United States, argues that most hospitals are so busy managing for efficiencies and cost control that they pay too little attention to monitoring more vital indicators such as recovery and survival rates.

Huang and others have also urged greater attention to the quality of the medical tests being performed. Increasingly these tests are being outsourced to independent laboratories, but whether done in-house or outside, there are potential pitfalls that need to be avoided. “If hospitals consider that they have sufficient volume, they will tend to keep this function in-house, but that raises questions of whether the manpower is enough,” says Chang Ly-yun. “Doing medical tests is not like performing a factory operation. If technicians are overloaded, it leads to defects.” As for outsourcing, the quality of the lab and its equipment is often unknown. She notes that the Taiwan radiology association a few years ago tried to help assure the standards of X-ray labs, but gave up when the labs proved not to be very cooperative. 

Is innovation rewarded?

Yet another trade-off is the impact on the availability in Taiwan of new, state-of-the-art medical devices or the latest innovative pharmaceuticals. Members of AmCham Taipei’s Medical Devices and Pharmaceutical Committees have consistently complained in their sections of the Chamber’s annual Taiwan White Paper that the reimbursement prices offered by the Bureau of National Health Insurance (BNHI) are among the lowest in the world, discouraging companies from introducing advanced products into this market. “At most companies when you want to launch a new product, it has to go through a regional pricing committee,” says Li-Shin Wang, managing director of Johnson & Johnson Medical Taiwan and co-chair of the AmCham Medical Devices Committee. “When they see that the price in one country is too low, they would rather not sell it than risk affecting the price throughout the whole region.” Over the past two years, he says, a clear trend has developed of fewer new items being launched in Taiwan.

According to Wang, the problem often lies in BNHI’s lumping together of simple and sophisticated products having basically similar functions, and then according the same price to all products in that category. “It’s like saying that a Mercedes and a Chevrolet are both cars, so the price should be same,” he notes. “It’s unfair for the high-quality products.”

Periodically – usually every other year – BNHI puts both drugs and medical devices through an exercise known as the Price-Volume Survey (PVS). In theory the objective is to ensure that reimbursement rates reflect the real prices that hospitals are paying the vendors, but in practice the process is a means for the healthcare authorities to hold down expenditures in an NHI system that is running deeper and deeper into the red. The sixth such PVS and round of price cuts is due to take place this year. 

 “Over the past decade, some prices have dropped by over 50%, and no company has that kind of profit margin,” says Wang. As a result, the medical device manufacturers have had to cut back drastically in the kind of training programs they previously offered to Taiwanese surgeons in new techniques. “We used to put a lot of investment into cross-border knowledge transfer – holding conferences and inviting overseas experts to give seminars, sharing information on new surgical procedures,” adds Wang. “But now with our margins cut, we have to decrease our investment in training in this market.”

Asked about the tendency of industry to withhold advanced products and reduce training because of low prices, NTUH’s Chen says “I’ve been facing the problem.” It is not only the manufacturers who suffer from the consequences of low pricing, but also the hospitals, he notes. “We complain to the government that the price should be reasonable. The companies say it is too low, and the government that it’s too high. That is not for us to judge – but we believe it should be reasonable.”   

Compounding concerns about whether patients’ interests are being placed first is the very structure of Taiwan’s hospital sector, in which institutions affiliated with major business groups are playing a more and more crucial role. As the accompanying chart makes clear, the island’s hospital operations are becoming increasingly centralized, with the total number of hospitals dropping by more than one-third – from 835 to 530 – between 1986 and 2007. The number of public hospitals declined very slightly over that period (from 85 to 80), while the number of proprietary, privately owned hospitals contracted by half. The only category to show growth – increasing by nearly 85% – was ownership by not-for-profit foundations, including those funded by big business groups.

At the same time as the number of hospitals was declining sharply, the quantity of hospital beds in Taiwan grew by 86.5% from 1986 to 2007. Most of that expansion was in the non-profit category, where the average hospital scale more than doubled from 248 beds to 540.  

The dynamics behind those changes are understandable. In part, they are due to the uniform fee schedule under the NHI system, so that hospitals must compete based on volume, not price. In addition, they are a function of Taiwan’s economic development. A generation ago – before the advent of the MRT, comprehensive freeway system, high-speed rail, and other transportation advances – patients generally preferred to seek care from hospitals in their own small town or urban neighborhood. “Now transportation is no longer an issue, so distance doesn’t matter as much,” says Rachel Lu. “Since you pay the same NHI premium, where would you go? The perception is that the best quality of care – the best doctors, the best equipment, and all the tests available in one place – is at the big medical centers.”

The small local hospitals, typically owned and managed by a single physician or family, found their profits declining over the years under the twin pressures of NHI constraints and big-hospital competition. When the founders reached retirement age, if they had no offspring interested in taking over, they tended to shut down the operation in the absence of any prospective buyers. When they have stayed in business, it has often been in a niche role, such as transformation into a hemodialysis center.

The big get bigger

The most striking development in Taiwan’s hospital sphere over the past few decades has been the dominant role taken over by large-scale medical centers. A few of these giants are public institutions, notably NTUH, Veterans General Hospital, and the military’s Tri-Service General Hospital. Some others are run by religious-based charitable foundations, such as Mackay Memorial, Changhua Christian Hospital, Tzu Chi Hospital, and Taiwan Adventist.

But a uniquely Taiwan phenomenon seems to be the preponderance of resources in the hands of hospitals associated with business conglomerates. The enormous size of many of these institutions gives them a number of competitive advantages, including economies of scale and strong bargaining power in negotiating with suppliers.

The first such hospital to open was Chang Gung Memorial Hospital, established in 1976 by Wang Yung-ching (who passed away last October at the age of 91), founder of the huge Formosa Plastics Group. Wang’s father, whose given name was “Chang Gung,” died in the early 1960s following an intestinal obstruction. “It’s a problem that can be cured nowadays by a simple operation, but because of undue delay in getting treatment, his father died,” relates Dr. Delon Wu, the Top Adviser of the Chang Gung Healthcare System and currently president of the Taiwan Hospital Association. “After this experience, Wang vowed that such a thing should never again happen in Taiwan.”

In the following years, many other wealthy entrepreneurs followed Wang’s example in setting up foundations that established hospitals. Among the largest are the Cathay General Hospital, Far Eastern Memorial Hospital, Shin Kong Wu Ho Su Memorial Hospital, and the Chi Mei Foundation Medical Center in Tainan. But through continued expansion, Chang Gung remained the biggest of the big. Today it operates facilities in six locations (Taipei, Keelung, Kaohsiung, Chiayi, and two in Linkou); its total of nearly 9,000 beds is believed to make it the largest hospital organization in the world. According to Wu, last year’s gross income came to NT$46 billion (about US$1.3 billion).

Wang Yung-ching is widely credited with helping to make Taiwan’s hospitals more modern and professional. “Chang Gung was cleaner, brighter, and better organized than the existing hospitals, and it provided more information to patients,” notes Chang Ly-yun. “The waiting list became transparent – you didn’t need to use guanxi to get a hospital bed.” In addition, Wang banned the traditional practice (still found in many other hospitals) of physicians accepting red envelopes from patients to ensure priority treatment; the rule is strictly enforced at Chang Gung and violation is cause for dismissal.

Wang viewed paring down costs and promoting operating efficiency as a crucial mission, in part because that was how he managed all his enterprises and but also because he regarded the hospital’s primary aim as serving Taiwan’s working class (as indicated by the scarcity of expensive private rooms in Chang Gung hospitals). As the Chang Gung model of wringing the utmost cost savings out of every aspect of hospital operations was emulated – or even exceeded – by other institutions, says Chang Ly-yun, it led to what she calls “the dark side” of business involvement in Taiwan’s hospitals: the unintended consequence of an increasingly impersonal, profit-driven atmosphere. Bean-counters set policy at most hospitals, she says, and “physicians seldom stand firm to defend necessary expenditures on manpower and facilities to ensure a good quality of care.”

She and other health reformers are critical of a practice called Proportional Physician Fees (PPF), which reportedly was first adopted by Mackay Memorial some 30 years ago but has long since become common practice at most Taiwan hospitals. Under PPF, a substantial part of a doctor’s income is based on his production – the number of patients seen, the number and types of prescriptions written, the number of tests ordered, the number of referrals, etc. “Physicians are turned into a kind of high-class piecework laborer,” she laments.

  Administrators saw PPF as necessary to motivate staff physicians, who were more interested in doing research or running their own private clinics after hours, to actually see hospital patients. But those monetary incentives have aggravated the existing propensity in the Taiwan system to value quantity over quality; the Department of Health (DOH) has sought to rein in that tendency, with limited results, by placing a cap on the volume of a medical service that will be reimbursed at full price. With PPF, however, the problem remains of physician-induced demand. “It leads to unnecessary surgery, unnecessary diagnostic tests and drugs, and unnecessary follow-up visits,” says Lu.  

Business and healthcare

Reform-minded healthcare professionals tend to look at the proliferation of corporation-founded hospitals with mixed feelings. On the one hand they welcome the investment and management expertise the private sector has brought to the hospitals. But on the other, they worry that the fundamental humanitarian and altruistic character of medical care will be diluted. More concretely, they are concerned that the ostensibly not-for-profit hospitals have in fact served as cash cows for some business groups. Chang notes that the Taiwan Healthcare Reform Foundation has taken a strong stance that while it is not opposed to hospitals running a surplus per se, “the money should be used within the area of healthcare delivery and should not be transferred for other purposes.” She says the Foundation has collected data “from many different sources” showing that some companies have siphoned off money from affiliated hospitals.

Unlike Chang Gung, where Wang Yung-ching provided the hospital with its own land and a hefty endowment, some of the other conglomerate-related hospitals have rented the land or buildings from private companies or individuals connected to the group – leading to suspicions of purposeful overpayment. Similarly, major pieces of medical equipment may be leased from the same companies or individuals at higher than market rates.

Deputy Health Minister Chen Tzay-jinn says the government is cognizant of this problem and has been trying to take steps to deal with it. He notes that amendments to the Medical Services Law four years ago stipulated that hospitals of more than 300 beds must be organized as NGOs, with financial statements submitted to the DOH. “We’ve been trying to review those financial reports to guarantee that no money-laundering situation is occurring,” says Chen. If the DOH finds reason to suspect that a hospital is paying unreasonable amounts for rent, for example, it will send a task force to evaluate the situation; if a solution cannot be negotiated, the Department would then require the hospital to purchase the property rather than continue renting.

“The process is just starting,” says Chen. “We’ve found some cases, but implementation is difficult. The hospitals may go to members of the Legislative Yuan to apply pressure on us by asking ‘How can you say this is unreasonable?’ There’s room for interpretation, so politically this is a tough issue.” But Chen says the DOH will continue with its efforts to curb the “commercialized trend in medical service,” out of fear that if hospitals are “totally market-driven” it will increase the financial burden for the NHI.

Is there more that could be done to make Taiwan’s hospitals more patient-focused? One widespread sentiment in the healthcare industry is that given Taiwan’s current level of economic development, the current situation is realistically the best that can be hoped for. Expressing that view, Chang Gung’s Delon Wu says: “Considering the financial burden, we can’t expect to change things until our per capita GDP doubles from the current US$16,000 a year.”

Deputy Minister Chen, agreeing that sustained economic growth is needed to provide sufficient resources for the health system, appears worried about the potential impact of the current economic slump, noting that new investment in hospitals had already been slowing in recent years.

Various healthcare experts, however, have voiced suggestions for basic reforms that could be implemented at the current stage of economic development. Among the most outspoken is the Sun Yat-Sen Cancer Center’s Huang, who sees the need for change starting with the way Taiwan selects and educates its future doctors. Currently students enter medical school straight out of high school, forcing them to make that career choice at the age of 17 or 18. They have high scholastic achievement, says Huang, but if they are not “self-motivated and genuinely interested in people,” they will be unsuitable for the profession. NTUH’s Chen echoes Huang’s hope that a U.S.-style approach could be adopted – teaching medicine as a graduate-level program after a liberal arts college education – to give medical students a more holistic, well-rounded view of life and to ensure they are mature enough to make a sound career decision.

Further, Huang urges hospital administrators to reward physicians not by the quantity of work they do but by the outcome. They need not worry about the impact on the bottom line, he says, because if a hospital develops a reputation for successful treatment, patients will flock to it. Similarly, he argues, the BNHI should base more of its reimbursement to hospitals on quality indicators rather than merely on numbers. To date, that is done for only a few procedures. For example, Huang says that after five years of effort, in 2001 he persuaded the DOH to implement reimbursement for breast cancer based on a performance scheme in which 15 separate indicators are measured. But despite good results, the model has not yet been applied to other ailments such as diabetes.

Another suggestion is to readjust the system so that more resources are earmarked for major ailments such as heart disease, cancer, and stroke. Currently treatment for the common cold eats up 16% of the national health expenditure, while cancer gets only half that amount. With the NHI covering only part of the cost of cancer treatment, the out-of-pocket charges can easily reach NT$60,000 a month and “some people may be unable to continue with therapy,” says Huang.

“The system was designed to cover everything,” adds NTUH’s Chen. “But maybe a better way would be just to provide insurance for more serious situations, and for mild ailments like the common cold you’d pay by yourself.”

Last year the annual convocation of Academia Sinica, the highest scholarly body in Taiwan, expressed concern about the future of Taiwan’s healthcare system and instructed the institution’s president, the distinguished biochemist Wong Chi-huey, to commission a study. A report has been prepared under Andrew Huang’s direction, with input from 10 experts, and is due to be delivered to Premier Liu Chao-shiuan this spring. When the report is released, it is likely to stimulate constructive debate both among healthcare professionals and the general public that may help spur rethinking about Taiwan’s hospital system and broader healthcare program.

Taiwan Hospitals — a Brief History

Modern Western medicine was introduced to Taiwan in the nineteenth century courtesy of medical missionaries, the best known being the Canadian Presbyterian George Leslie Mackay. The first hospitals were built during the half-century of Japanese colonial rule, beginning with the establishment in 1895 of what is now National Taiwan University Hospital (under the Japanese it was known as the Taipei Imperial University Medical School Affiliated Hospital).

“The Japanese established 13 general hospitals around the island, building up the preliminary model for Taiwan’s medical and public-health services,” explains Dr. Chen Tzay-jinn, deputy minister of the Department of Health.

Following the island’s return to the Republic of China after World War Two, the war-damaged economy was desperately short of resources to put into healthcare. But assistance received from the U.S. Economic Aid Program, World Bank, and U.N.-affiliated organizations helped to stabilize social conditions and spur economic development. In the early years, more almost 90% of the hospitals were government-run, and most of the rest were religious charitable institutions.

Chen notes that progress in infectious disease control, family planning, and other aspects of public health provided the underpinnings for Taiwan’s success in raising economic productivity and therefore prosperity. As a vibrant private sector came into existence, an increasing number of private hospitals were established. Now about 85% of the hospitals, accounting for almost two-thirds of the hospital beds, are privately owned. 

In the mid-1980s, the government launched a Medical Service Providers Development Program to encourage the private sector to build hospitals in rural, remote, or otherwise “resource-poor” areas. Investors were able to borrow from state banks at subsidized interest rates. “A lot of good medium-sized hospitals were created,” says Chen, providing the infrastructure that enabled the government to launch the universal National Health Insurance program in 1995. “If people in remote areas had to pay the same insurance premium but still travel for hours to get to a good hospital,” he points out, the NHI system could never have gained enough public support to get started.

— By Don Shapiro

Decentralizing Dispensing

The key to resolving some of the most aggravating problems in Taiwan’s healthcare system, AmCham’s Pharmaceutical Committee has been arguing in recent years, is to establish a clear-cut division between the prescribing and dispensing functions for drugs. If hospitals operate their own large-scale pharmacies for out-patient service, the Committee has maintained, the profit margins available to the hospital – rather than the optimal treatment for the patient – may influence the types of drugs that get prescribed.

But reform has long been resisted by the hospitals and clinics, which fear that the loss of income could have a severe negative impact on their operations. The medical profession has also questioned whether Taiwan’s pharmacies are sufficiently equipped to take on the role of primary dispenser of medication for life-threatening ailments.

But gradually it appears that at least modest progress is being made toward achieving SDP (the Separation of Dispensing from Prescribing). In recent years, for example, the Bureau of National Health Insurance (BNHI) has been encouraging hospitals to release prescriptions for such chronic diseases as hypertension and diabetes to community pharmacies. That would be a major convenience for many patients who – for the two months each quarter in which they don’t need to see their physician in the out-patient department – otherwise  coulld still have to go to the hospital just to pick up their medication.

In addition, there is considered to be a healthcare benefit: the community pharmacist can be expected to take the time to remind patients about the correct dosage, a function rarely performed by the harried staff in the crowded hospital pharmacies.

Beginning in 2003, steady improvement in the proportion of chronic-disease prescriptions released to community pharmacies was listed among the Quality of Care (QOC) criteria by which the Department of Health evaluates hospitals. As a result, the release rate rose from 8.6% in 2003 to nearly 21% in 2007. Although BNHI last year stopped including this category in the QOC indices, the release rate is still being monitored and must be reported every six months to the NHI Supervisory Commission.

Now the question becomes how to carry the momentum forward. To address that issue, a one-day conference entitled “How Can Taiwan Implement SDP Without Affecting Hospital Operations?” was held in February, with participation from government officials, pharmaceutical industry and hospital representatives, and academics. AmCham Taipei was one of the co-organizers, along with the American Institute in Taiwan, Chung-Hua Institution for Economic Research, Council for Economic Planning and Development, and Taiwan Institute of Economic Research.

The symposium grew out of last year’s Taiwan Competitiveness Forum sponsored by the same five organizations. As with the Forum, the purpose was to generate ideas and stimulate discussion, not to reach conclusions or agree on recommendations.

In its presentation, however, the Taiwan Healthcare Reform Foundation stated that following generally successful efforts in Taiwan over the past seven years to improve drug labeling, raise public awareness of health issues, and improve pharmacies’ professionalism and manpower, the time is now ripe to implement SDP. But to prepare for that day, it urged the nations’ pharmacy associations to take even more stringent steps to ensure that only licensed pharmacists are preparing and dispensing prescription medications.

— By Don Shapiro