Cablegate: Taiwan Tifa Follow Up - Drugs - Short Term

VZCZCXYZ0008
RR RUEHWEB

DE RUEHIN #2947/01 2360915
ZNR UUUUU ZZH
R 240915Z AUG 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 1813
INFO RUEHBJ/AMEMBASSY BEIJING 5577
RUEHUL/AMEMBASSY SEOUL 8041
RUEHKO/AMEMBASSY TOKYO 7966
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF AGRICULTURE WASHDC
RUEHGV/USMISSION GENEVA 1758

UNCLAS AIT TAIPEI 002947

SIPDIS

SIPDIS

STATE PASS USTR
STATE FOR EAP/TC,
USTR FOR BOLLYKY AND ALTBACH,
USDOC FOR 4431/ITA/MAC/AP/OPB/TAIWAN/JDUTTON
USDA/FAS FOR SHEIKH/MIRELES

E.O. 12958: N/A
TAGS: ECON ETRD EIND TW
SUBJECT: TAIWAN TIFA FOLLOW UP - DRUGS - SHORT TERM
PROGRESS, LONG-TERM WORRIES

REF: TAIPEI 2570

Summary
-------
1. As part of TIFA follow-up meetings, Deputy Assistant
U.S. Trade Representative Eric Altbach and delegation
discussed pharmaceutical issues with the Department of
Health (DOH) and the Bureau of National Health Insurance
(BNHI) as well as local representatives of U.S.
pharmaceutical firms. These firms, while concerned about
achieving the long-term goals of separating prescribing and
dispensing (SPD) and actual transaction pricing (ATP), were
pleased with progress they had made with DOH and BNHI in
anticipation of the DAUSTR meetings. DOH agreed not to
change the R-zone from the current 15% and eliminated
therapeutic groupings of drugs. The DOH also agreed not to
seek price cuts for several specific drugs. In the meeting
with DOH, DAUSTR Altbach stressed the need to make the Price
Volume Survey (PVS) more predictable, accurate, and
transparent, and to consult with all stakeholders. DOH
agreed to improve data collection in the future. Regarding
the current PVS, Altbach urged DOH to apply the Merck Index
1982, as opposed to Merck Index 1984 as proposed by DOH.
DOH noted that they were prepared to be flexible on this
point. DAUSTR stressed the need to make meaningful progress
on SPD and ATP and suggested additional discussions, via
DVC, before the final PVS results are announced on October
1. AIT will follow up with DOH on DVC timing and other
issues as well as continue to reiterate that real progress
needs to be made under the TIFA process. Meaningful
progress on ATP and SPD will be difficult. Other
(non-pharmaceutical) issues discussed by delegation reported
septel. End Summary.

US Industry sees some progress from TIFA dialogue
--------------------------------------------- ----
2. As a lead up to meeting with DOH, DAUSTR Altbach met
with local representatives of US pharmaceutical firms. They
stated that in anticipation of the TIFA follow up meetings,
DOH had already met with them several times and had offered
some concessions. They stated DOH had agreed not to change
the R-zone from 15%, as opposed to an earlier suggested
8.5%. (The R-zone is the acceptable discount - expressed as
a percentage of the government reimbursement rate - which a
hospital receives from a drug distributor.) They also noted
DOH had agreed to eliminate therapeutic groupings of drugs
for pricing purposes, and not to seek price cuts for several
specific drugs. The patent-term for pricing purposes was
still under discussion (reftel).

3. DOH previously announced that for the 5th PVS, the Merck
Index 1984 would be used to determine whether or not to
consider a drug on-patent for pricing purposes. The PVS
study of two years ago, however, used the Merck Index 1980.
Moving to the Merck Index 1984 would result in 2-years' loss
of patent coverage for pricing purposes. After extensive
discussions, DOH had told industry that they were
considering a compromise and shifting to Merck Index 1983.
Industry is still pushing for Merck Index 1982, to be
consistent with the patent-term in prior surveys.

But industry still has plenty to worry about
--------------------------------------------
4. While pleased with the progress made in talks with DOH
in advance of the DAUSTR visit, industry continues to raise
concerns about the PVS and its accuracy and transparency.
Several industry representatives had raised concerns about
the new "C-survey," which is an additional comparison of
data reported by distributors and hospitals. Significant
discrepancies are pulled for further investigation and
referred to the Ministry of Justice. While most of the
investigations seemed to involve local companies, several
international firms stated that they also had one or two
drugs on the list. Industry was concerned that they had not
seen any criteria for inclusion in this survey. It is still
sometimes not clear what data needs to be reported, they
pointed out. It is also not clear what possible
administrative or criminal penalties they might face, if
any, as a result of this survey. One initiative that might

improve the accuracy of data collection, they suggested, was
for DOH to mandate hospitals and drug suppliers use a
standard contract that capture all payments surrounding the
transaction to clarify the true cost hospitals pay for each
drug.

5. Although generally pleased with the results of their
consultations with DOH on the mechanics of the current PVS,
industry is pessimistic about DOH reaching the long-term
goals of separating prescribing and dispensing (SPD) and
actual transaction pricing (ATP). They urged the USG to
continue pushing DOH to make steps towards these goals. And
although they were pleased DOH had decided not to pursue
therapeutic grouping, they were still disappointed that DOH
groups their off-patent brand-name drugs with generics for
pricing purposes.

DOH wants to talk
-----------------
6. After meeting with industry, Altbach and delegation met
for three and a half hours and through lunch with Department
of Health officials led by Vice Minister of Health Chen
Shih-Chung and Bureau of National Health Insurance President
Liu Chien-Hsiang. The meeting covered the full range of
drug pricing issues - both immediate concerns over the
current PVS as well as long-term goals of SPD and ATP. The
discussions were friendly and open, and throughout the
meeting, there were several requests for continued
discussions at various levels. DOH officials emphasized
that Vice Premier Tsai Ing-Wen had taken a personal interest
in the TIFA pharmaceutical dialogue. (Note: Tsai told
AIT/T Director on August 16 that she had met with DOH and
that she had or shortly would also meet with industry
representatives from the U.S., the EU and Japan. End note.)

The 5th Price Value Survey - striving for accuracy,
transparency, predictability
--------------------------------------------- ----------------
-------------------
7. DAUSTR expressed appreciation that DOH and BNHI had been
actively engaged in consultations regarding the 5th PVS with
international pharmaceutical firms, stressing that the
survey should be transparent, predictable, and gather as
accurate data as possible. He urged DOH to continue to
consult with stakeholders and also to clarify what data is
required to be disclosed in the survey as well as to clarify
what penalties can be imposed for incorrect reporting. He
cited the "C-Survey" as an example. DOH officials reported
that the "C-Survey" was initiated after the Vice Premier
urged the Ministry of Justice to get involved in dealing
with fraudulent reporting. DOH officials were uncertain
what possible actions that the MOJ would take. DAUSTR urged
continued consultation on C-survey implementation and how
administrative and criminal penalties might be applied.

8. He suggested DOH could develop a standardized contact
for hospitals and drug suppliers that included all relevant
information and identified payments that could help increase
both transparency and data accuracy. BNHI Vice President
Lee stated that this was an excellent idea and that his
office was currently developing such a contract. He stated
that BNHI was serious about dealing with fraudulent and
misleading reporting. One official stressed the difficulty
of truly capturing all of the payments surrounding a
transaction, noting that sometimes drug suppliers make
payments into a separate entity as part of a transaction.
The Taiwan side further requested that they be able to
consult with the USG Health and Human Services Inspector
General to study US efforts to investigate and prosecute
false data reporting. Vice Minister Chen also reiterated the
importance of this issue, noting that Vice Premier Tsai
Ing-Wen had ordered DOH to study the issue of establishing
what he described as a "fair transaction" environment and
that he would be meeting soon with Taiwan's Fair Trade
Commission to seek their help in improving transparency and
accountability.

9. DAUSTR also urged the DOH to apply the principles of
consistency and predictability in applying patent-definition
for pricing purposes, stating that the USG viewed the Merck

1982 Index as being most consistent with past surveys since
it applied the same patent-term. DOH officials stated that
this issue was still under internal discussion.

10. Altbach also stressed the need to continue to take
meaningful steps to move to SPD and ATP. DOH officials
agreed that was also their goal, but that it would take
time. They highlighted several initiatives currently
planned or in place to move closer to this goal:
--requiring physicians to actually give their patients a
copy of any prescription so that they would have the choice
of filling it at any pharmacy.
--Auditing doctors every 3 months to insure that they are
complying with the policy
--Requiring local pharmacies to legally register their
ownership to increase the chance that they would separate
from physicians
--start a lottery system whereby patients could use
prescription receipts as lottery tickets. (Note: This sounds
hokey, but a similar lottery based on general tax receipts
is enormously popular in Taiwan. End note.)

Next Steps
----------
11. AIT will follow-up with DOH/BNHI and with USTR to set
up a DVC to review progress before the October 1
announcement of the PVS results. We will also further
investigate the possibility of DOH officials meeting with
our own HHS staff in Washington. We will also reiterate
with DOH that while we were generally pleased with the
dialogue to date, the USG will continue to look for real
progress and real reforms as part of the TIFA process.

Comment:
--------
12. The word has clearly gone out that the DOH needs to
actively engage the USG in the TIFA process. They were
prepared to talk about all aspects of their national health
care system, and made a real effort to work with industry in
anticipation of Altbach's visit. Progress on a more
transparent Price Value Survey, while welcome, is far from
reaching the long term goal of eliminating the PVS and
moving to SPD and ATP. DOH acknowledges that this will take
considerable time.

13. Although far from perfect, Taiwan's National Heath
Insurance Program is inexpensive and accessible, and is one
of the few popular programs of the current administration.
Any actions that raise prices to users or radically change
the system are likely to meet widespread political
opposition. It would take a significant and surprising
political commitment to implement these changes anytime
soon. As a counterbalance to current political realities,
however, the dramatically under-funded status of the program
means reform will - eventually - be necessary. With its
current level of financing, the program is unsustainable.
YOUNG

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