Information andInformation andHealth Care Policy:Health Care Policy:A Case of TaiwanA Case of Taiwan

By

Yuntsai Chu

Don-yun Chen

2009

PresentersPresenters

• Yuntsai Chou Yuntsai Chou (周韻采 ), PhD in Public Policy, George Mason University, USA– Public Policy Analysis, Telecommunic

ation Policy, Health Policy, Institutional Economics

• Don-yun ChenDon-yun Chen (陳敦源 ), PhD in Political Science, University of Rochester, USA– Bureaucratic Politics, Democratic Go

vernance, E-governance, Health Policy, Rational Choice Theory

PrefacePreface

• All the limitations on moral hazard and adverse selection are weaker in health insurance. It is harder to identify individuals risks, and still harder to attribute them to behavioral choices. There is no market value for the human body and no possibility of abandoning one that is worn out and acquiring a new one. The lack of natural limit on costs… distinguishes health from other insurable risks.

- World Bank, 1993

1. 1. Transparency International (TI)Transparency International (TI)

• Sources of Corruption– Political Corruption– Public Contracting– Construction and Infrastructures– Education Sector– Health Sector (2006”Corruption and Health”):

The Problem of Asymmetric information and Regulatory Control

• Health Care Fraud• Informal Payments• Procurement and Distribution of Medicines• Physicians and Industry

2. Government Interventions in Health2. Government Interventions in Health

Market Failures1st Order Govt.

Intervention2nd Order Govt.

Intervention

1

Failure to treat induces negative externalities to public health (Poverty Alleviation)

Legislation of compulsory social insurance. The NHI is characterized by:

(1) Financed by government, employers, and insured.

(2) Implemented by a single insurer controlled by government.

(1) Policies to enhance access to the care.

(2) Policies to contain costs; Moral hazard (Co-payment, Fee schedules, global budgets and resource rationing).

(3) “The road to rationing is paved with good intentions.”

2Insurance market selection bias (Adverse selection)

3Asymmetric and Imperfect Information between and within patients & providers; post- experience goods

(1) Occupational licensure.

(2) Regulations on Medical and pharmaceutical industries.

(1)Controlling agency costs by designing adequate incentive system to acquire voluntary compliance (with the Help of the NHI)

(2) Publish Medical Quality Information

3. Basic Information for NHI in Taiwan

• Origin: The NIH Law passed in 1994, Launched in 1995

• Coverage: 99% of Taiwanese Population

• Finance: Government, Employers and Insured. (1/3 for each) Yearly spending around 400 Billion NTD (2005), 12 billion USD.

• Governing Structure: Single Insurer - Bureau of National Health Insurance

• Reform Efforts: Raising premium is politically infeasible. Other administrative efforts are tried. For example, global budget is adopted in 2001.

4. The Case of Taiwan’s National Health Insurance (NHI)

Legislative Yuan First Second Third Forth Fifth Sixth

Year1989-1991

1992-1994

1995-1998

1999-2001

2002-2004

2005-2007

ENP 1.6 2.1 2.5 2.4 3.5 3.6

NHIEvents

PoliticalEvents

NHI ActPassed

Global Budget

First Party Turn-over

First Presidential

Election

NHI Launched

2G-NHI Planning Begun

Source: The Website of the DOH, http://www.doh.gov.tw/statistic/

Figure One: The NHI Financial Crisis, 1995-2005

25,146

34,826

12,6748,939

14,504

-26,025

-7,401

-1,4621,629 100

30,826

3,4694,798

3,8533,302

2,6513,518

3,889

1,153

-4,056

28,670

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Year

$ (

Mil

lio

n N

ew T

aiw

an

Do

lla

rs)

CashReserveFund

CashBasedSurplus

Reforming the Pharmaceutical PReforming the Pharmaceutical Procurement Mechanism in Taiwarocurement Mechanism in Taiwan: An Appraisal of the Experiencn: An Appraisal of the Experienc

e in Taipei City Hospitale in Taipei City Hospital

Table One: The NHI Total and the Pharmaceutical Spending, 1998-2004

($, in Billion of New Taiwan Dollars)

1998 1999 2000 2001 2002 2003 2004

(A) NHITotal

291 317 326 342 371 384 438

Increase%

11.40% 8.80% 2.90% 4.80% 8.50% 3.30% 14.10%

(B) Drug Spending

72 80 83 85 91 95 109

Increase%

12.90% 11.30% 3.10% 2.20% 6.90% 4.30% 15.70%

(B)/(A) 24.80% 25.40% 25.40% 24.80% 24.40% 24.60% 24.90%

Source: The DOH, http://www.doh.gov.tw/statistic/

Figure Three: Annual Pharmaceutical Purchases in TaiwanUnit: 100 Million NTD

clincics (200)

private hospitals(480)

United Hospital (25)

other public hospitals(295)

32% 20%

48%48%

3%

5. Citizen Conference in 20055. Citizen Conference in 2005

• (Concerning the problem of raising premium) We have a consensus that the NHI should continue to exist but need drastic institutional reforms. Most of us say no to the option of raising premium because the institutional reforms should be done before premium raising. The most important spot for reform is between the Bureau of National Health Insurance (BNHI, the insurer) and the medical providers. More needed to be done to eliminate wastes… One of the participants said that the financial crisis is only symptom, the point to observe the symptom is not raising premium but to detect the causes of wastes and eliminate them…

6. The “Black Hole” of 6. The “Black Hole” of Pharmaceutical procurementPharmaceutical procurement

X Y Z

A B C DC*

Figure Two: The Pharmaceutical Cost and its Revenue

X: the cost of a single drug for the manufactureY: the net revenue for the manufacture (i.e., the reasonable plus the abnormal profits in imperfect competition)Z: the price difference between the listed price and final sale price of a single drug, that is, the net revenue for the health provides (hospital, clinics and physicians)X+Y+Z = the listed price of a single pharmaceutical approved by the BNHI, namely, the reimbursement value a hospital obtains from the BNHI by filing its purchase.

7. The Reason for the Original Design7. The Reason for the Original Design

• The goal of government regulators is to design and implement the pharmaceutical scheme:– To give enough Z for the conflict between the suppliers

and providers to negotiate a reasonable C. – To squeeze out the “rent” between C* and C as the D

can be lowered accordantly.– To maintain a reasonable profit (between B and C*) for

the suppliers to invest in researches.

• Possible Loopholes:– physicians or hospital administrator and drug

manufactures plot together to benefit…– Who is setting the D?

X Y Z

A B C DC*

8. Reform in Taipei City Hospital8. Reform in Taipei City Hospital

• Motivations:– (1) 2003 SARS event– (2) Budgetary crisis– (3) Market competition

• Legitimacy: City Council Passed “the Health Bureau Reorganization Act ” Three main goals:– (1) Merging Ten City Hospitals– (2) Integrating Health Information System (HIS)– (3) Reforming Procurement Procedures

• Pharmaceutical Tendering System Reform:– Before: Information Rents in the hand of physicians and Hospital

administrators– After: (i) Open tendering system, (ii) Item limited to 1200 (before

1800), (iii) selection principle: Brand (學名 ) -> generic (成份 )

9. The Outcome of The Reform (I)9. The Outcome of The Reform (I)Table Four: The Pharmaceutical Profits of the United Hospital

Unit: NT$ thousand

2005Jan.~Jul. 20

05Jan.~Jul. 20

04Jan.~Jul. 20

03

Total Income (A) 10,268,565 5,545,025 5,648,371 4,495,156

Pharmaceutical Income (B) 2,655,758 1,549,192 1,614,412 1,343,401

Pharmaceutical Expense (C) 2,205,758 1,338,414 1,434,869 1,303,196

PharmaceuticalRevenues (D) 450,000 210,779 179,543 40,205

PharmaceuticalProfitability (D/B) 16.94% 13.61% 11.12% 2.99%

C/A 21.48% 24.14% 25.40% 28.99%

Source: interim report by the United Hospital, 2005

10. The Outcome of the Reform (II)10. The Outcome of the Reform (II)Table Three:

The Pharmaceutical Procurement in the Taipei United Hospital

Items 2003-2004 2005-2006

Original/ patent 613 (46.7%) 588 (46.2%)

Generic/ off-patent(domestic suppliers)

699 (53.3%) 684 (53.8%)

total 1312 (100%) 1272 (100%)

Source: interim report by the Health Bureau (2005)

11. The Outcome of The Reform (III)11. The Outcome of The Reform (III)

• Councilwoman: … Some physicians in the city hospital call me to ask why they need to change drugs. They have to learn new drugs and prescriptions skills. The elderly patients in the city hospital also file complains to me that they might be confused and misuse of drugs…

• President: I am always wondering why city council pay so much attention on drugs? …

• Councilwoman: We are protecting the health of our fellows citizen in the city. Please do not try to avoid answering my questions. I think that you and Mayor Ma are terminating our city hospital.

• President: Since we launched the reform in the city hospitals, I face questions about pharmaceutical procurement from the city council almost everyday…

Conclusion• Does the reform work?

– Yes, the problem of “information rents” are resolved.– No, the interest groups strike back… the 2007-2008

tendering is still pending because of resistance from the manufactures…

• Transparent and “exampled” effect of local government innovative reform:– Positive: An Example for other public hospitals (central as

well as local)– Positive: The Pharmaceutical Benefit Scheme for NHI

(PBS) is setting the “D” from public hospital’s purchasing price.

– Negative: Charges of Inequality competition and information transparency from the oversea manufactures.

Further Questions

• Citizen Supports: Will citizen support the reform, as only local 0ff-patent drugs are purchased? Problem of Quality signal, professional domination, and “moral hazard” in the NHI. People’s choice.

• Managing Politics: Can the “rent-seeking” path of the representative democracy be controlled? Especially, the conflict and coordination between central and local government.

• Old Question: What is the “reasonable” profit for drug manufactures? Can we get it from reforming the tendering mechanism? This is where innovation come into the picture. Federalism is the lab for innovation.

Thanks for your AttentiThanks for your Attentionon

Questions are Questions are

WelcomedWelcomed