Taiwan’s healthcare financing to pose risks for drugmakers

Increased healthcare spending will impact Taiwan’s pharma industry

Reimbursement prices tend to be lower due to the government’s single-payer status.

Despite the wide recognition that Taiwan’s healthcare system receives with its innovations, novel pharmaceutical products are expected to see constraints to their growth prospects in the near future. This has been mainly due to the country’s singlepayer healthcare financing system with the National Health Insurance (NHI).

Taiwan has an exceptional health insurance scheme, with NHI being deemed a high performing healthcare system by regional standards. Enrolment in the NHI system is compulsory for all local citizens and the program offers a comprehensive set of services, including outpatient visits, hospitalisation, Western and Chinese medication, and dental treatment.

TThe main reason behind NHI’s high performance is the ability of the government to set and regulate fees and to impose a global budget system that caps total NHI expenditure. At the same time, NHI’s IT-driven administrative system provides high administrative efficiency at a low cost, becoming another important factor in the financing system’s performance.

The latest data from Fitch Solutions show that the healthcare financing system will be the main driver of the country’s healthcare expenditures in the next decade. That said, Taiwan also aims to rein in healthcare costs.

“Whilst the total insurance premium rate is already a low 4.69% of the insured’s wages, it is shared between the employee, employer, and government. Low-income households are exempted from paying premiums, and also receive healthcare for free,” Fitch Solutions stated.

However, the report also pointed out that there are pitfalls with the country’s healthcare system, despite being largely affordable. Taiwan has only 2.3 physicians per 1,000 population and only 7.1 nurses and midwives per 1,000 population, which places it as having one of the lowest healthcare workers in the developed countries, alongside other Asian countries such as Singapore and South Korea.

Meanwhile, the increasing health insurance premiums has also become a hot topic in the country. The Fitch Solutions report stated that as of the start of 2021, the government raised premiums from 4.69% to 5.17% and supplemental premiums from 1.91% to 2.11%.

“Even with the increase, the NHI administration projects the reserve fund will be exhausted by 2023,” the agency forecasts.

With these projections, financial difficulties brought by the increased healthcare spending will impact pharma manufacturers and the country’s spending.

The impact on drug prices, especially for new and innovative medicines, are another aspect of the NHI financing system that needs to be looked into.

Novel pharmaceuticals in Taiwan to see constraints to their growth due to NHI

According to Fitch Solutions, reimbursement prices tend to be much lower in Taiwan than in OECD countries because of the government’s single-payer status, and the hospitals typically negotiate with the pharmaceutical companies for discounts. Th is discourages new products in the country.

At the same time, new drugs tend to be launched in Taiwan much later than certain other markets due to the impact of low reimbursements.

Th reats to NHI fi nancing system

Th e threats expected to be brought to pharmaceutical manufacturers by the fi nancing system are compounded by another problem.

Whilst the NHI fi nancing system of Taiwan remains signifi cantly better than other countries, it is not without risks and sustainability issues. Currently, the country is undergoing a demographic shift with residents living longer and having fewer children.

According to the report from Fitch Solutions, the anticipated rise in the dependency ratio from 35% in 2015 to 54% by 2030 will result in a signifi cant alteration of the scheme’s budget position.

“Government funding, while substantial, will remain contingent on the country’s economic performance. Th rough to 2024, we expect public health expenditure to grow at a CAGR of 5.1% in local currency terms and 5.6% in US dollar terms, compared to 4.6% and 5.1% expected for private spending respectively.”

Th e research agency also noted that the life expectancy in Taiwan continues to rise aft er reaching a high of 80.9 years in 2019.

At the same time, the National Development Council (NDC) reported that fertility rates declined from 2.7 births per woman in 1977 to 1.1 births in 2017. Between 2000 and February 2021, the percentage of the population over 65 nearly doubled from just under 9% to 16% whilst the proportion of 0-14 year olds nearly halved from 21% to 12.5%.

Th is will result in an ageing yet shrinking population that will pose signifi cant fi nancial challenges to the NHI in the near future, as premium contributions are the primary source of funding for the NHI.

“Firstly, the number of working age people who can pay NHI premiums will decrease. Secondly, an ageing population typically leads to higher costs of care and an increase in healthcare utilisation. In 2015, medical expenses for those over 65 were already three times more than the national average due to chronic diseases and treatments for cancer,” according to Fitch Solutions.

Th ey also noted that a mandate to keep government debt at 40% of GDP further constrains the ability of the government to substantially increase allocations to the NHI Administration in the long term.

“Consequently, public health expenditure is not expected to signifi cantly increase its share of total spending on health over the forecasted period. To address the demand for novel treatments whilst balancing costs, we believe Taiwan will shift part of the fi nancing burden onto patients,” it said.

Increased reliance to digital health

With such issues looming, the rising practice of digital

The ageing yet shrinking population of Taiwan poses fi nancial challenges to the NHI

health may strengthen healthcare operations in Taiwan.

In December 2020, President Tsai Ing-wen pledged to push ahead with the transformation of Taiwan’s healthcare sector as the country strives to sharpen its competitive edge internationally, during a speech at the opening ceremony of the Healthcare+ Expo Taiwan 2020 in Taipei.

In the speech, Tsai set forth two objectives, of which one is the digital transformation of Taiwan’s healthcare industry, made ever more pressing by the coronavirus pandemic.

“Incorporating the artifi cial internet of things, 5G, cloud computing, and other key technologies are pivotal in making Taiwan a hub for digital health,” she said.

Th e other objective is to better control healthcarerelated materials, with the country working to guarantee a suffi cient supply of testing technology, medical equipment, active pharmaceutical ingredients and vaccines – through the strategic deployment of available resources and policy incentives – to prepare for health crises to come.

With President Tsai’s announcement, as well as the current state of Taiwan’s healthcare system, it is to be expected that digital health partnerships will increase in frequency in the future. Fitch Solutions also mentioned that digital health will also transform healthcare in Taiwan by delivering a better patient experience whilst lowering costs.

“Th is trend is attracting the growing attention of fi rms operating at the intersection of technology and medical science. Taiwan will utilise its competitive advantages in information technology and medicine to deliver better care and enhance the health of the overall population,” it said.

Th ey also emphasised that data is becoming increasingly important in the treatment paradigm, especially in the pharmaceutical side.

“Text mining and big data analytics play a fundamental role in processing data at an aggregate level to understand patterns of usage to make medicines more eff ective and as such, we believe that pharmaceutical companies will progressively invest in internet and mobile-based technologies in Taiwan,” the report stated.

Taiwan Healthcare Spending Projections, 2018-2029

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