Taiwan’s Medical Care at a Crossroads

Pressures on a emergency services are but one of the issues facing Taiwan's medical industry.

For the time being, the National Health Insurance program is on a solid financial footing. But demographic shifts will pose greater challenges in the years ahead as Taiwan becomes an aged society with the need for increased care for the elderly. What are some of the ways Taiwan can try to cope with those pressures?

Taiwan has won wide acclaim for the quality and affordability of its healthcare system, a single payer model based in part on Medicare in the United States. In 2009, Nobel-Prize winning economist Paul Krugman called the Taiwanese healthcare system “the best in the world,” and in 2014 HSBC’s Expat Explorer survey ranked Taiwan the best location for foreigners to receive medical treatment.

The National Health Insurance (NHI) system has now reached an age of maturity, having celebrated its 20th anniversary on March 1 this year. Despite frequent concerns about the long-term financial solvency of the program, the NHI has long since achieved widespread acceptance in Taiwan, with an approval rating consistently remaining within the 80th  percentile in recent years. Yet even Taiwan’s Ministry of Health and Welfare (MOHW) admits there is plenty of room for improvement. On its 2014 Quality of Health scorecard that compared Taiwan with OECD countries, the ministry gave a D rating – the lowest possible – to “patient experience,” with multiple areas in cancer and acute care also receiving C or D ratings. “Patient experience” looked primarily at the amount of time physicians gave to each patient, as well as the quantity and quality of the information communicated to them.

A quick perusal of online blogs, newspaper comments, or Facebook posts also provides plenty of examples of discontent with certain aspects of the system, such as low physician and nurses’ salaries, long wait times, and overcrowded facilities, to name but a few. These shortcomings are undoubtedly related to the NHI’s less than solid financial status. Healthcare expenditure in Taiwan stands at 6.6% of GDP, despite a pledge by President Ma Ying-jeou during his 2008 campaign to raise the figure to 7.5%. Seven years later, spending on Taiwan’s medical care remains far behind the OECD average for developed countries of 9.3% of GDP. Reaching just the 7.5% target would require additional spending of some US$4 billion a year.

Until recently, the NHI program faced a chronic budget deficit. The system began to run in the red in 1999, four years after its establishment, and by 2012 the system had accumulated debt approaching NT$100 billion (about US$3.3 billion), even though the program is supposed to be required by law to maintain a one-month cash reserve. Political concern about voter reaction made it difficult to call for an increase in premiums.

But in 2012, successive rounds of negotiation finally produced the Second Generation NHI, which mandated supplementary premiums on non-salary revenue such as high bonuses, rental income, and stock dividends. Since then, NHI’s financial situation has improved dramatically, and the surplus continues to grow. As of June last year, the system had recorded a surplus of NT$99 billion.

Unfortunately, this new-found financial stability is unlikely to last long, challenged in large part by the major demographic shift taking place in Taiwanese society. Roughly 12% of the population is now over 65 years old, and by 2017 – the year in which NHI’s present surplus is projected to end – the elderly will reach 14% of the population, officially making Taiwan an “aged society.” In 2025, roughly one in five Taiwanese will be over 65.

Government funded exercise classes are helping to prolong wellness and mitigate the impact of a rapidly aging society.
Government funded exercise classes are helping to prolong wellness and mitigate the impact of a rapidly aging society.

“In the long run, not only Taiwan, but every country will encounter the problem of an aging population,” says Chu Tung-kuang, Director-General of the MOHW’s Department of Social Insurance. “We need to slowly accept relatively larger expenditures for maintaining health.”

The elderly already account for a disproportionate share of the NHI budget. A study conducted by Taiwan’s China Medical University in 2010 found that on average, outpatient care for the elderly was 3.4 times more costly than outpatient care for the younger population, while elderly inpatient care was seven times more expensive. The ease with which Taiwanese can access medical services may partially account for the high cost. A 2011 study by physicians affiliated with Taipei Veterans General Hospital concluded that Taiwan’s elderly visited hospitals an average of 27 times per year, with a mean cost to the system of NT$1,155 per visit. In 2011, spending on treatment for the elderly accounted for 34% of NHI’s expenditures.

Caring for the elderly

To help meet the approaching budget crunch, the government is now focusing on improving preventative care and promoting healthy living habits for senior citizens. “We try to reduce their disabilities and need for long-term care,” explains MOHW Secretary General Shih Chung-liang. “We engage in health promotion in the community and promote exercise to foster the health of the elderly population.”

With approval by the Executive Yuan on June 4 of a new form of long-term-care insurance, Taiwan has also committed to providing increased protection and care for the elderly and infirm. The new program will offer such services as in-home care, chauffeuring, counseling, and caretaker training to help those who live alone but are unable to manage without assistance. Although advanced age is not a requirement for receiving this service, MOHW expects that the elderly will be the main beneficiaries.

“The number of people who need the long-term insurance is quite low – 3% – but those who need it will probably need it their entire lives,” says Chu, adding that an estimated 800,000 people will initially qualify “but that population will slowly increase.”

At the outset, the long-term insurance will carry a premium roughly one-sixth that of the NHI. Those with a monthly salary of NT$50,000 would pay a premium of NT$180.

Roughly 12% of the population is now over 65 years old, and by 2017 – the year in which NHI’s present surplus is projected to end – the elderly will reach 14% of the population, officially making Taiwan an “aged society.”

Fortunately, most of Taiwan’s elderly are vigorous and healthy, and policies aimed at maintaining this level of health are proving efficacious. “About 20% of the aged population needs long-term-care services,” says Secretary General Shih. “We’ll try to expand the size of the healthy population beyond the current 80% of the aged.”

Besides decreasing future reliance on the healthcare system, the government is considering other ways to hold down costs to solve the budget gap. Some of these proposals are bound to be highly controversial. For example, NHI resources primarily target “end-stage” patients, such as the very old or terminally ill. For these patients, continuing treatment prolongs life at an ever-increasing cost, while quality of life declines dramatically. “Should we actually encourage this?” asks Director-General Chu. “Or should we encourage everyone to use relatively natural methods?” He concludes that there is no easy answer to the dilemma, but that continuing the present course is likely to be financially untenable in the long term.

In addition, “there is currently discussion on whether foreigners should receive the same benefits as Taiwanese,” says Chu. “Some Taiwanese people believe that government subsidies should focus on people from our own country. Others think that regardless of nationality, as long as you live in Taiwan you should receive benefits.”

The financial squeeze on the NHI system also has a direct impact on the types of treatments available to patients in Taiwan. Because of the low reimbursement prices the system offers, new and innovative drugs and medical devices often enter this market much later than in other countries. The International Research-Based Pharmaceutical Manufacturers Association (IRPMA) notes that when compared to what is known as the A-10 level, a benchmark based on data from 10 developed countries, Taiwan’s reimbursement prices for new drugs are only 44% that of the A-10 median, down from a high of 89% when NHI was inaugurated in 1995.

The low level is largely due to the NHI’s system for determining drug prices. The price ceiling for drugs in the 1A “breakthrough” category is capped at the median price for the drug’s reference country, such as the United States. For the 2N and 2V categories – non-breakthrough drugs – the average reimbursement rate is 60% that of the reference country’s median price. In addition, the National Health Insurance Administration (NHIA) has instituted various other policies aimed at curbing new-drug expenditures. One that the pharmaceutical industry has considered particularly unreasonable is a policy that regards only drugs with patents on their chemical compounds as protected from sharp price cuts. Other types of patents, such as those on processes, do not qualify, even though they are recognized by Taiwan’s Intellectual Property Office.

Aside from low prices, the approval rates for new drugs are low as well. Only 62% of new-drug applications receive approval, and only 42% for oncology drugs. And because manufacturers are discouraged by the low reimbursement prices, many of those drugs are never launched in the Taiwan market. Of all medicines registered in OECD countries, only 37% are available in Taiwan, well below the OECD average of 54%.

Not just low, but slow

The situation is further complicated by Taiwan’s slow reimbursement process. New drugs must apply an average of 1.7 times for reimbursement; for cancer drugs, the figure is even higher at an average of 3.1 submissions. The multiple submissions, combined with a lengthy review process, contribute to a long delay for drugs entering Taiwan. New medicines on average wait 18 months for reimbursement, while cancer products face a minimum of two years.

“Taiwan’s relatively small, and if the pricing is not good, it’s harder to convince headquarters to give you the support you need. I don’t think Taiwan can be ignored, but it can be deprioritized.”

Low reimbursement prices, low rates of approval, and a slow reimbursement process – a condition that IRPMA refers to as “low, low, slow” – combine to make Taiwan a less favorable market for the pharmaceutical industry. In a survey last year, a majority of IRPMA member companies reported that their head offices consider Taiwan a “high risk” market for launching new drugs, for fear that the low price levels will be used by other countries in their reference pricing.

“Companies are not in such a hurry to be in the first tier for introducing drugs to the market, particularly because of pricing,” says Huang Weng-foung, a professor of pharmacological economics at Yang Ming University and a leading authority on pharmaceutical pricing in Taiwan.

Taiwan's drug prices have steadily fallen since the implementation of NHI.
Taiwan’s drug reimbursement rates have steadily fallen since the implementation of NHI.

Similar problems affect the medical device industry. “Taiwan’s relatively small, and if the pricing is not good, it’s harder to convince headquarters to give you the support you need,” says Dan Silver, general manager of Abbott Laboratories Vascular Division Taiwan and a co-chair of AmCham Taipei’s Medical Device Committee. “I don’t think Taiwan can be ignored, but it can be deprioritized” if companies pay less attention to this market, he notes.

While pricing policy remains an issue, he credits the Taiwan Food and Drug Administration (TFDA) with “getting more efficient, approving applications more quickly,” particularly for products already licensed in the United States or the European Union. But he cautions that medical device technology is constantly becoming more sophisticated, increasing the complexity of the approval process.

Speaking at a recent conference in Taipei on drug pricing policy, Frank Lichtenberg, a professor at the Columbia University Graduate School of Business and an expert in pharmacological economics, stressed that a de-emphasis on Taiwan’s medical care market by the international pharmaceutical industry could have a drastic effect on healthcare outcomes if it limits access to new drugs. “Having low barriers to use of drugs in general is not sufficient, if in fact the most innovative drugs are not available,” he noted in an interview. Even controlling for other factors, “in countries where access [to new drugs] has improved the most, we see the greatest increase in longevity,” he said, explaining that the introduction of new drugs to a market has historically accounted for almost 75% of the increase in life expectancy for developed countries.

Dr. Yang Chih-hsin, an oncologist at National Taiwan University Hospital, has calculated that each day of delay for a new cancer treatment roughly translates to the death of four cancer patients in Taiwan.

“Having low barriers to use of drugs in general is not sufficient, if in fact the most innovative drugs are not available.”

Another issue raised annually by the Pharmaceutical Committee in AmCham Taipei’s Taiwan White Paper concerns the need for stricter separation between the prescribing and dispensing of drugs. Most hospitals in Taiwan rely on profits from their in-house pharmacies for a substantial portion of their operating income. The result is a potential conflict of interest if decisions on which drugs to list in the hospital formulary are based on economic rather than medical considerations. The problem is exacerbated by the general practice in most hospitals in Taiwan of maintaining a fixed number of drugs in their formularies. When a new item is added to the inventory, a medicine previously available is dropped.

The large volume of drug purchases by major hospitals also gives them the power to demand discounts from the pharmaceutical companies, paying prices that are lower than the reimbursement rate set by the NHI, which are already far below the international median price.

Lack of oversight

According to the Taiwan Healthcare Reform Foundation, an advocacy organization devoted to promoting improved healthcare from the patient’s perspective, insufficient government management and oversight are largely responsible for many of the deficiencies in Taiwan’s healthcare system. The Foundation’s reform platform calls on the authorities to take such steps as instituting effective legal recourse for medical malpractice, ensuring that minors receive pediatric drugs instead of medication intended for adults, and requiring hospitals and clinics to provide clearer instructions on medicine bags to guide patients in properly medicating themselves.

Dr. Andrew Huang, president and CEO of the Koo Foundation Sun Yat-sen Cancer Center in Beitou, considers that a major problem in the Taiwanese healthcare system is the lack of oversight. “The real demon is the lack of SOPs [standard operating procedures],” he says. “No one follows SOPs.”

One consequence of that failure, he notes, is the prevalence in Taiwan of antibiotic-resistant bacteria. “Taiwan is full of ‘super bugs’ like Methicillin-resistant Staphylococcus aureus –MRSA,” says Dr. Huang. “In the average hospital in Taiwan, somewhere between 60 and 80% of the infections are resistant.”

A physician at Chang Gung Memorial Hospital in Linkou discusses drug resistant strains of bacteria that have emerged in Taiwan's hospitals.
A physician at Chang Gung Memorial Hospital in Linkou discusses drug resistant strains of bacteria that have emerged in Taiwan’s hospitals.

A report published in 2014 by MOHW notes that although the proportion of drug-resistant MRSA infections in intensive-care units declined from roughly 90% to 70% during the period 2003-2012, other types of resistant infections have become increasingly frequent. The incidence of drug-resistant Acinetobacter baumannii, a dangerous bacterium common in many hospitals around the world, increased from 17% to over 70% during the same period.

Dr. Huang attributes much of the growth in antibiotic-resistant bacteria to the misuse of antibiotics – such as their prescription by doctors in cases where they are unneeded, for example for the common cold. Although precise data is unavailable, a 2014 MOHW report suggested that antibiotics might be inappropriately prescribed in as much as 50% of cases. Dr. Huang adds that Taiwanese doctors generally prescribe only enough antibiotics to last three days, less time than needed for a full course of treatment, thus enabling resistant strains of bacteria to reproduce.

Although the proportion of drug-resistant MRSA infections in intensive-care units declined from roughly 90% to 70% during the period 2003-2012, other types of resistant infections have become increasingly frequent.

In 2013, responding to what MOHW called a “major challenge to patient safety,” its Centers for Disease Control began a national action plan involving 55 Taiwanese hospitals to reduce inappropriate prescriptions and improve hygiene. Preliminary reports show a mixed level of success: over the first half-year of the two-year program, rates of antibiotic resistance have already declined by 6.6%, though antibiotic usage dropped by only 2.3%.

A workshop on “Infection Prevention and Safety” sponsored by AmCham Taipei’s Public Health Committee in March featured an intensive discussion on the prevalence of healthcare-associated infections (HAI). Speakers highlighted the fact that in 2011, Taiwan became the second country after the United States to enact a law aimed at reducing needlestick injuries among healthcare professionals, an occurrence in which hospital staff are injured in the course of performing injections, frequently exposing them to dangerous pathogens. Data from 2013, however, shows that rates of needlestick injuries declined by only a half a percentage point during the two-year period since implementation began, from 3.9 to 3.4 incidents per 100 medical staff. Tellingly, only 5.5% of medical facilities were found to be adhering to the letter of the law.

Looking ahead

At a talk in Taipei in October last year, renowned Harvard Business School professor Michael Porter addressed how Taiwan’s medical care might be restructured in order to increase efficiency and ensure financial sustainability. He suggested that a major solution for many of the problems besetting Taiwan’s healthcare system would be the introduction of “bundled” payment to healthcare providers. This policy would replace the current fee-for-service approach, which provides no incentive to improve value, as all service is reimbursed, even additional care necessitated by inferior treatment to start with. Under bundling, there is no extra payment for poor treatment that requires additional procedures.

As a start, Porter urged the introduction of mechanisms to measure healthcare outcomes, such as the average length of inpatient stay and the frequency of surgical complications. This data would make it possible to identify the most successful treatments, physicians, and institutions, while also pinpointing the areas most in need of improvement.

Hospitals may be concerned that the fixed cost of a bundled payment may be insufficient to cover the expense of delivering long-term inpatient care.

“The money spent by the NHI has to be matched with the outcome,” says Andrew Huang, who has collaborated with Porter in studying healthcare management. To Dr. Huang, one of the biggest obstacles to be surmounted before bundled payment can be implemented is the lack of acceptance of diagnosis-related groups (DRG) by Taiwanese healthcare institutions. The system, which was developed in the United States in the 1980s, seeks to classify hospital cases by type of procedure (such as an appendectomy), setting a standard for the cost and degree of success of the treatment.

Adoption of DRG is a necessary prerequisite for institution of a bundled payment system, as it provides a metric to measure all of a hospital’s services. It then becomes possible to incentivize improved treatment by offering higher payment for above-average outcomes. At present, however, most Taiwanese hospitals are loath to embrace DRG due to the way in which it forces all institutions to conform to the same standard, Dr. Huang says.

Not everyone is convinced of the efficacy of bundled payments. Dr. Yang notes that for some treatments, such as breast cancer surgery and respiratory care, DRG has already been introduced on a trial basis. Based on that limited experience, he is concerned that some institutions may “tend to reject more complicated cases” in order to improve their record and thus earn more money.

The Consumers Foundation warns of the potential for misuse of bundled payments for complicated disorders.
The Consumers Foundation warns of the potential for misuse of bundled payments for complicated disorders.

If difficult cases are likely to erode a hospital’s profit margin, such patients are likely to be referred to smaller hospitals where, as Dr. Yang explains, the quality of care is liable to be lower than at a larger institution. On the other hand, hospitals may be concerned that the fixed cost of a bundled payment may be insufficient to cover the expense of delivering long-term inpatient care. For example, respiratory-care patients “need to be on life-time ventilators,” for which the current reimbursement from NHI is much lower than the actual cost, says Dr. Yang. He views DRG as being a feasible solution only if a more sophisticated reimbursement system is devised that takes complicated treatments into account.

Despite the many divergent viewpoints on how to reform the Taiwanese healthcare system, one common thread stands out: Taiwan should continue to invest in its future by adopting the most cutting-edge technology available. “The most important thing Taiwan can do is to embrace innovation and embrace technology,” advises Abbott Vascular’s Dan Silver. “New technology means improved care, better results, and lower long-term cost.”

 

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