Taiwan Hospitals Controlling Costs While Fighting Disease

Aside from the large medical centers that enjoy significant economies of scale, many Taiwanese hospitals have been faced with financial difficulties due to rising costs. Many smaller hospitals have closed or merged, and the survivors have been looking for ways to cut expenses and increase revenues. The proportion of healthcare expenditures paid by patients out of pocket rather than through the National Health Insurance system has been rising steadily.

Taiwan’s 480 hospitals increasingly are becoming financially overstretched. A quarter of a century after Taiwan’s National Health Insurance system was launched to provide universal healthcare, more and more medical services are becoming privatized – and sometimes profit-driven – as hospitals seek to drum up revenues in a highly competitive environment.  

By OECD standards, Taiwan’s spending on healthcare is quite low, coming to only 6.1% of GDP, says Rachel Lu Jui-fen, a professor of health care management at Chang Gung University. In contrast, average healthcare spending as a share of GDP across the OECD nations was around 8.8% before the onset of the coronavirus pandemic.

While Taiwan’s National Health Insurance scheme does cover most basic healthcare costs, patients are increasingly paying out of pocket for certain treatments and pro-cedures conducted at Taiwan’s hospitals.

Taiwan maintains a “single payer” healthcare system in which most health costs are covered by a sole public institution, the National Health Insurance Administration (NHIA) under the Ministry of Health and Welfare. All hospitals are required to have contracts with the NHIA, which serves to keep healthcare spending relatively low by ensuring there is only one buyer. It also pressures contracted providers, including hospital managers and doctors, to keep their spending within a set total known as the global budget.

In practice, however, overall healthcare expenditures in Taiwan are expected to greatly exceed this year’s global budget of NT$752.6 billion (about US$26 billion) and will continue to soar to over NT$1 trillion, Lu predicts. She estimates that National Health Insurance accounts for only about 56% of the total healthcare expenditure, with the remaining 44% from patients’ out-of-pocket payments and private health insurance. 

“Hospitals are struggling, and they look for their own strategy to survive in this highly competitive and highly regulated healthcare market,” Lu says. She estimates that hospital expenditures account for about 70% of the NHIA’s global budget, while Dr. Lee Wui-chiang, director of the Department of Medical Affairs and Planning at Taipei Veterans General Hospital (TVGH), puts this figure at 67%.

According to Lee, around 30% of Taiwan’s hospitals are classed as public institutions and 70% are privately run. Whether public or private, they come under the same single-payer NHIA reimbursement payment scheme. The only major difference, Lee says, is that public hospitals take on more social and public health responsibilities and have more connections with the government. They have taken a frontline position during the coronavirus pandemic. 

The government usually uses a “fee-for-service” payment system, in which healthcare providers are reimbursed according to the number and type of services they provide. In order to keep expenditures within the global budget, providers are awarded points for completed work, with the points then converted into New Taiwan dollars.

One of the main flaws of the fee-for-service payment system is that it incentivizes quantity of care over quality. It also encourages the provision of services that have a high profit margin under the NHIA system. 

Jonathan Tepeng Tseng, chief of the Department of Dermatology and head of the International Priority Care Center at Taiwan Adventist Hospital, says he sees 80 to 90 patients during a normal four-hour shift. After the points he is awarded are converted, he is paid roughly NT$80 per patient. 

For the patient, however, not all ailments are covered equally under the system. Andrew Huang, the pioneering founder and CEO of the Koo Foundation Sun Yat-sen Cancer Center, notes that while Taiwanese can walk into a clinic any time and get a common cold treated cheaply with NHI, “if you get cancer, at least 44% of the cost is paid out of pocket.” 

Cost-containment pressures

Tung Yu-chi, an associate professor with the Institute of Health Policy and Management at National Taiwan University (NTU), maintains that hospitals’ cost-control measures have already been expanded to the limit. She estimates that hospital revenues from patients’ out-of-pocket payments have increased from less than 5% before 2002 to the current 25%.

Source: Tung Yu-chi

To increase revenue, hospitals offer various private services or operate private clinics (see the accompanying story in this section). Tung notes that some hospitals are also adding treatments and equipment beyond what is covered by the NHIA. For example, only one kind of knee-replacement device is approved for NHIA reimbursement. If patients want a more up-to-date, state-of-the-art device, they must pay for it themselves.

Huang of the Koo Foundation suggests that the pursuit of profit at some hospitals may be coming at the expense of optimal patient care. His center recently created a method of managing breast cancer that shortened the duration of radiation treatments from six to an average of three weeks, while still providing patients with the same care and health outcomes. Huang asked the NHIA to change the funding system for this treatment to reflect the shorter duration, but many radiation oncologists objected as it would reduce their reimbursements by two-thirds. As a result of the pressure, the NHIA left the system as is, he says.

Huang also notes that many Taiwanese hospitals are rushing to buy robots. Robotic surgery is less effective in reducing breast tumors than traditional surgery and much of it is not covered by the NHIA. Huang says that doctors only get paid roughly 50,000 points for traditional surgery but patients can be charged about NT$250,000 for robotic surgery. There is a temptation for surgeons to persuade patients to opt for robotic surgery just to earn more money, he says. 

Besides NHIA reimbursement, the government makes additional budget available for public hospitals, especially medium and small-sized hospitals in rural areas. In general, the amount of such budget has been decreasing in recent years, although hospitals this year received supplemental funding to help combat the coronavirus pandemic.

Lee cites some of the cost-cutting measures he imposed at TVGH. Outsourcing services are used for janitorial and cafeteria staff, which saves the hospital from paying retirement costs, he says. The hospital has also enhanced efficiencies by forming a network with smaller community-level veterans’ hospitals. One-third of TVGH employees are hired on a contract basis, but that is for reasons of increasing manpower rather than cost-containment, since the quota of civil servants is fixed for each public hospital, Lee notes.

Chang Gung’s Lu sees a trend for respected public medical centers – the nation’s largest, research-focused hospitals – to solicit donations from private industry to fund special projects. A NT$4.5 billion heavy ion therapy center that TVGH is building to provide advanced cancer treatment is being financed in part by private donations from companies or wealthy individuals. “In many of these cases, they or their loved ones regained their health under our care,” Lee says.

The private donations make it possible to build the heavy ion therapy center without “crowding out investment in other critical care services,” Lee says. “Because the government cannot budget for it, we have to seek extra financial resources for advanced facilities, but this is not due to revenue shortfalls.”  

Since universal health coverage was first instituted in 1995, the number of district hospitals with fewer than 500 beds has been shrinking dramatically, from 568 in 1995 to 363 in 2018, according to data from NTU’s Tung. The number of clinics, regional hospitals, and large medical centers has doubled or nearly doubled during the same period.

Finding it hard to survive on the NHIA’s global budget alone, the remaining small district hospitals are engaging in other services such as home care for the elderly, Tung says. Some of them are also operating nursing homes, taking in elderly residents who can pay their own way. Alternatively, the hospitals can apply to use budget from the government’s Long-term Care 2.0 fund, which this year stood at nearly NT$40 billion.  

But TVGH’s Lee says the closure or merger of small hospitals represents only the first phase in a continuing development. In a second phase now underway, a few small-scale regional hospitals are struggling because of higher costs, and some may be unable to continue operating. Medical centers with 1,000 beds or more “are more likely to achieve economies of scale in cost containment and revenues under the fee-for-service payment scheme,” Lee says.

NHIA policy encourages patients to seek primary care at either clinics or district hospitals. To reduce the outpatient load at regional hospitals and medical centers, since 2018 those institutions have been required to cut their outpatient volume by 2% annually until a 10% reduction has been achieved in five years.

For some small-scale or rural regional hospitals, outpatient revenues tend to account for 60% or more of their total revenue. As a result, the decreased outpatient revenue threatens their survival. At the same time, these institutions need to maintain enough beds and manpower to meet the accreditation standard for regional hospitals.

“Therefore, a few hospitals intend to downgrade [to become district hospitals], but the MOHW and NHIA are keeping a watch on it,” Lee says. 

Lee urges more government support for the public hospitals, considering that they have been essential in the battle against COVID-19.

Some metropolitan hospitals are losing talent to private hospitals as revenues are falling, Lee says. To keep society safe from infectious diseases, he calls for maintaining the proportion of public hospitals at around 30%.

Tseng of the regional Taiwan Adventist Hospital says his hospital is dealing with the competition by focusing on certain procedures it does particularly well, such as tooth molding, jaw reconstruction, and breast cancer treatment.

The hospital is also adopting a more multidisciplinary approach by bringing specialists from different departments together in teams. “This should be the trend but I am not sure if all the hospitals are doing it,” Tseng says.

The aging population

Complicating the problems hospitals face is the burden created by Taiwan’s growing elderly population and low birthrate. According to NHIA data, people aged 65 and over account for 15% of the insured but consume 39% of the NHIA expenditures. This situation is only set to worsen, with Taiwan expected to become a super-aged society by 2025, when 20% of citizens will be aged over 65.

Lee of TVGH says his hospital is taking the lead in addressing this problem as it has the oldest patients in Taiwan on average. According to 2018 statistics, the median age was 61 for outpatients and 57 among inpatients, he says. TVGH’s Center of Geriatrics and Gerontology, founded in 2006, is a rare example of a Taiwanese hospital having this kind of specialized facility for aging-related issues. Instruction includes training workshops sponsored by the British Geratric Society.

Taiwan’s hospitals may find extra sources of revenue in providing care services for regional hospitals. the island’s rapidly increasing elderly population.

Lee says the center takes a multidisciplinary approach as the elderly may need to see “four doctors for four diseases.” Other measures the hospital has introduced include a golf-cart-style “shuttle bus” to transport the elderly between different buildings in the hospital complex and wider-than-normal restrooms to accommodate wheelchairs. Lee says the hospital has even adjusted the color and size of lettering in signage to make it easier for the elderly to read. 

Chang Gung’s Lu predicts the aging trend will push hospitals to focus more in future on cancer treatments, orthopedics, ophthalmology, cardiology, and urology. Tseng estimates that the number of doctors at Taiwan Adventist Hospital specialized in illnesses experienced by the elderly, such as oncologists and neurologists focused on dementia, has already increased by 5 to 10% over the past five years.

Telemedicine has also been an emerging trend for treating the elderly in Taiwan, although it is still not fully covered by National Health Insurance. Some hospitals have set up private telemedicine centers to help the elderly, such as the Telehealth Center at National Taiwan University Hospital, which offers remote management programs for patients with multiple chronic diseases. Nursing case managers can communicate with patients daily by telephone, and a standby medical team offers 24-hour support.

But some experts question the suitability of the fee-for-service model for treating chronic diseases, which Lee says account for more than 70% of the cases in Taiwan, rather than focusing on the quality of the treatment outcomes. 

According to Lee, the quality of care in Taiwan for chronic diseases, especially diabetes and hypertension, lags behind Japan and Korea. He notes that Taiwan has the world’s highest rate of patients with end-stage renal disease requiring dialysis, and that in 46% of the cases the condition is a result of diabetes. NTU’s Tung estimates that two million people in Taiwan are diabetic. 

Lee stresses that affordable care does not necessarily equal quality care, particularly for long-term illnesses like diabetes that are linked to regular management of the patient’s lifestyle. He says that Taiwanese average nearly 15 clinic or hospital visits per year, but notes that these tend to be very short – each for just around five to ten minutes – before the patient is typically provided with a prescription for medication.

But treatment of prevalent chronic illnesses is known to be more effective when it includes both hospital care and the availability of case managers to helping monitor health management at home. Lee notes that a pilot diabetes control program offering this sort of treatment was initiated nationwide but it was voluntary and only a small proportion of diabetic patients enrolled. He urges the National Health Insurance system to place more emphasis on incentivizing high-quality outcomes. 

“We want to control the growth rate of our finances, but at the same time we sacrifice quality of care,” says Lee, who was trained at the Johns Hopkins University Bloomberg School of Public Health. “7% to 9% of our GDP should be put toward healthcare.” 

Huang’s Koo Foundation Sun Yat-sen Cancer Center has resolutely opposed fee-for-service treatments for some kinds of cancers. The center is famed for initiating a pilot pay-for-performance breast cancer care treatment that is covered by the NHIA. This program reimburses health providers through defined, periodic, per-patient payments (known as “capitated payments”) at various stages of treatment and awards bonus payments based on year-end survival rates. The multidisciplinary teams involved treat patients in a humanistic way, and the program boasts five-year invasive cancer survival rates of 72% against Taiwan’s average of 52%.

Huang, who received medical training at the University of Pennsylvania and is highly esteemed both in Taiwan and the U.S., notes that aside from the coronavirus, most infectious diseases have been wiped out in the industrialized world. 

“Medicine has changed from trying to handle acute infections to more chronic diseases that we create ourselves,” Huang says. Diabetes and hypertension often relate to lifestyles, he says, such as over-eating and a lack of exercise, and smoking is a major cause of lung cancer. 

Huang says he is asking the government to consider adopting “value-based purchasing” or VBP, a form of payment that holds healthcare providers accountable for both the cost and the quality of care they provide. Under this arrangement, the government would make bundled payments to health providers for cycles of treatments, with the amount of payment dependent on the quality of outcome. These kinds of treatments need to be multidisciplinary, and doctors would examine all factors contributing to the chronic illness, both medical and lifestyle-related. 

Meanwhile, Taiwan’s hospitals are still fighting against NHIA’s proposed implementation of another payment system known as Diagnosis-related Groups. With DRG, hospitals are reimbursed with a set fee for a given course of treatment, regardless of how long the patient is hospitalized.

The DRG method originated in the U.S. and was first introduced to Taiwan in 2010. The initial plan was to phase it in completely within four years, but implementation was stalled due to hospitals’ strong opposition. Currently only a small fraction of hospital procedures is handled under DRG.

“The hospitals feel their hands are tied,” Rachel Lu says of the broader question of hospital finances. “They need flexibility and autonomy to run the hospital,” since an expenditure cap has already been placed on them in the form of the global budget.