Healthcare Financing

As a core component of the government’s healthcare reform, China has launched a universal health insurance system to finance essential healthcare services for all through four major medical insurance schemes. These include Urban Employee Basic Medical Insurance (UEBMI), Urban Resident Basic Medical Insurance (URBMI), the New Cooperative Medical Scheme (NCMS), and commercial medical insurance programs (see Chapter 11). The UEBMI is a mandatory insurance scheme for a wide range of employees in urban areas. It was implemented nationwide in 1998 to replace the former Government Insurance Scheme (GIS) and Labor Insurance Scheme (LIS) developed in the 1950s. UEBMI schemes are managed locally and organized with social pooling and medical savings accounts (MSA). Funding for UEBMI comes from premium contributions by employers and employees (6–8 percent and 2 percent of the beneficiary’s base salary, respectively). Rendered medical services, if covered, may be reimbursed through the personal MSA or a social risk pooling account, depending on the nature of services and policy settings.¹ The personal MSA is made up of the individual’s premium plus 30 percent of the employer’s contribution; the social risk pooling account is funded by the remaining 70 percent of the employers’ contributions.

The UEBMI currently covers over 280 million of the urban employed population. In terms of its balance sheet, UEBMI has accumulated a fund surplus that outweighs its expenses at the national level and exceeds international reserve levels. The recurrent surplus indicates that the risk pooling capacity is large enough to support an increase in benefit payments without undermining the scheme’s sustainability. The accumulated reserves have challenged the government to better manage program funds while reducing people’s high out-of-pocket payment for medical expenses. The Ministry of Human Resources and Social Security (MoHRSS) is expected to reduce the UEBMI surplus by either raising benefit payment rates or expanding the drugs on the program formulary.

The NCMS was re-established in 2003 for the rural population. NCMS policy specifications include (1) a government major premium contribution coupled with individual minor contribution; (2) insurance coverage mainly for inpatient care; (3) voluntary enrollment on a family basis, stressing freedom of choice, openness, and transparency; and (4) risk pooling and insurance administration at the county level under the direction of the local bureau of health. NCMS inpatient coverage includes varied deductibles and caps, depending on area-specific policy settings. Some area-specific NCMS policies cover outpatient services, with a family medical savings account set up to pay for common diseases and minor illnesses. Some pilot schemes also cover an annual physical examination and a fixed level of assistance for labor and delivery.

NCMS has grown very rapidly following the government’s five-year reform initiative to increase investment in building infrastructure and train rural health professionals. By 2014, the NCMS had enrolled over 800 million rural beneficiaries, or 99 percent of the rural population; a government premium contribution of 320 RMB coupled with a 60 RMB contribution by individuals has financed the scheme.

NCMS has made significant progress in providing benefits to the rural population. National statistics show an increase between 2003 and 2005 of 15.9 percent in total health costs and 45.3 percent in insurance expenses per rural enrollee, respectively. This suggests that an increasing share of the cost burden is being borne by the insurance program.

The most recent public program, the Urban Resident Basic Medical Insurance (URBMI), started in 2007. Similar to NCMS, URBMI policy settings include a government contribution of RMB 320 premium per enrollee, voluntary participation, and insurance coverage primarily for inpatient care relatively lower level of reimbursement compared to the UEBMI. URBMI has been well received by the targeted urban population, with over 315 million urban residents enrolled by 2014. Based on an evaluation study, the poor and those with previous use of inpatient services are more likely to enroll in URBMI.² These two disadvantaged groups have gained more relative to others in terms of access to care and a reduction of their financial burden. The disadvantaged groups also tend to be more satisfied with URBMI policies. URBMI’s experience yields two strong policy implications. First, the State Council is committed to increasing public financing for population health, primarily by allocating public funds through social insurance as a major part of the state health reform. Second, taken together, the three public programs serve as milestone steps toward universal health coverage for all Chinese.

In addition to the three public insurance programs, some private health insurance (PHI) plans cover approximately 6 percent of urban dwellers and 8 percent of the individuals living in rural areas. The revenue of the PHI market in China reached about 30 billion RMB in 2006, an amount dwarfed by the UEBMI’s annual revenues of 180 billion RMB. Although relatively small, the PHI market has gained a foothold and could expand rapidly with the increase in disposable income, urbanization, and demand for quality service – provided appropriate supportive policies are in place. With PHI as a strong supplement to UEBMI, the financial burden on government would be reduced, thereby freeing up public funds to be used in rural areas or for those with lower incomes. Despite growth, PHI still has a very low penetration rate and only accounts for 2 percent of total health expenditure compared to 20 percent globally. The future development and dynamics of a voluntary health insurance market in China will depend on the future shape of the public system. From a societal perspective, PHI can mobilize additional resources within a financially constrained healthcare system.

Pricing and Reimbursement

In China, there are four government ministries involved in drug approval, pricing, and reimbursement policy decisions. Similar to other countries, the first step begins with the regulatory approval process overseen by the China State Food and Drug Administration (CFDA). Following regulatory approval, every product must file price documentation with the National Development and Reform Commission (NDRC). The NDRC does not regulate the initial price set by the manufacturer of a new drug, provided it is not included in the national drug listing for public insurance coverage. This situation may last for years until the manufacturer seeks possible inclusion of its drug on the list. Once the MoHRSS included a new drug in the reimbursement list, the NDRC followed up with a price ceiling that typically involved a substantial discount off the manufacturer’s set price. In 2015, however, the government ended the NDRC’s direct price control and moved toward greater market pricing and competition, public bidding for procurement, and efforts to pay for outcomes.

Under the supervision of the MoHRSS, the Department of Medical Insurance coordinates and administers China’s National Reimbursement Drug List (NRDL). Over time, the Department of Medical Insurance has assembled a full set of expert panels with thousands of members covering different therapeutic areas. Panel experts are randomly selected to minimize possible human bias or corruption in reviewing and updating the NRDL. The review panels also have many layers with some gatekeeper roles restricting each other. This is designed to assure a fair and efficient selection process as well as obtain fair outcomes. In recent years, the review panels and processes have become more transparent. Two NRDLs are developed from the review process: List A and List B. In principle, List A is for drugs characterized by clinical necessity, widespread use, usefulness, and price advantage in the same category. List B drugs have better clinical efficacy and safety profiles, but usually are relatively more expensive, branded products. Although coverage depth is gradually increasing, many patented or innovative drugs are still not found on the two NRDLs.

Lists A and B are subject to different policy controls. In terms of payment policy, all List A drugs are fully reimbursed by the public insurance schemes without patient co-payment. Furthermore, the content of List A drugs and their reimbursement rates are uniform across China. By contrast, List B allows variations among provincial governments in the drugs listed. Specifically, the central government leaves 15 percent room for local governments to determine what other drugs are included and their own patient co-payment rates. These products require patients to pay a certain portion (around 20 percent) of the drug’s cost out of pocket. According to the 2009 NRDL Edition, there are a total of 2,151 drugs, including 503 List A drugs and 1,724 List B drugs (with the remaining 24 drugs a residual third category).

In the past, when a new product was listed and covered in the NRDL, two primary layers of government intervened. The first was the NDRC and its establishment of price ceilings for all drugs and devices that would be reimbursed by any publicly funded insurance programs; manufacturers could set prices for products not covered in public insurance programs. Second, subject to the NDRC ceiling, local governments would follow with a public bidding process, usually conducted at the provincial level.

When determining prices, NDRC usually would take into account drug production cost, efficacy, and (recently) economic value. Pricing for generic and patented brand products followed two differential approaches: (a) uniform pricing ceilings applicable to generic drugs that meet good manufacturing practice (GMP) standards; and (b) an “independent pricing policy” for most patented products, off-patent originator drugs, domestic primary generic drugs, and generics of obviously superior quality. In 2001, NDRC issued regulations allowing manufacturers to apply for independent pricing under a special pricing system for products of better efficacy at lower cost compared to generics or similar drugs. This system allowed higher prices for drugs that demonstrated greater safety, efficacy, and quality benefits compared to similar drugs. The “independent pricing policy” has played a positive role in motivating manufacturers to improve drug quality and undertake incremental innovation. More recently, the government issued several policy directives calling for economic evaluation to play a greater role in setting drug prices. Representatives from both industry and academia responded quite positively by increasing efforts and resources to promote the development of health economic assessment and outcomes research.

Under the most recent government policy initiated in 2015, NDRC will no longer exercise direct price control. This will leave greater room for local public bidding and insurance payment reforms (e.g., capitation, pay for outcomes by disease) to increase pressures for cost containment at provincial or regional levels.

Public Bidding in Drug Purchasing

Public bidding for drug purchasing and procurement is required and conducted primarily by provincial governments. In most provinces, the public bidding is organized through the provincial department of health, a local agency of the former national Ministry of Health. Drug manufacturers must submit a comprehensive dossier (including the price for each drug to be sold in that province) to bid for pricing and procurement.

Role of Health Technology Assessment

Under current policy, several products are usually selected for the bidding process for each chemical name product included in the NRDL. Most of the products selected include both an original product and two or three generics. Considering the assumed higher quality of originator products, the bidding competition often takes place among the generics, giving the originators the privilege to negotiate directly with the bidding expert panel for both inclusion and higher pricing. At this point, health technology assessment (HTA) data play little role in the local bidding for drug purchasing. In the near future, HTA studies are expected and encouraged to compare originator drugs with the leading generics. The bidding policies can then be more effectively and equally applied to both the originators and generics in the same therapeutic area and thereby improve health outcomes and drug pricing in China.

Two important developments have occurred to HTA. First, in the 2009 healthcare reform, the government’s official policy documentation called for the use of pharmacoeconomics (PE) in pricing and reimbursement. Second, the National Health and Family Planning Commission (formerly the Ministry of Health) issued the State Essential Drug Policy, also calling for a better use of health economic evaluations, whenever possible, in selecting the essential drug package. Academic communities responded by drafting China’s PE guidelines. A multidisciplinary effort led by Peking University China Center for Health Economic Research (CCHER) released the first edition of China PE guidelines in April 2011, followed by a revised edition accompanied with manuals published in 2015.³ Given these developments, HTA studies in general and PE data in particular are expected to play increasing roles in both pricing and reimbursement policies in China.

Healthcare Financing

Japan’s universal health insurance system consists of a number of insurance programs designed for different subgroups of its population. By and large, all the insurance programs can be divided into two categories: employee health insurance (covering 60 percent of the population) and national health insurance (covering the remaining 40 percent of the population).⁴ All residents in Japan are required to join one of the two types of insurance programs. In 2012, Japan spent about 10.3 percent of the nation’s GDP or $3,649 per capita on health; 87 percent of the total health expenditure was borne by the government.⁵

In Japan, company workers and their families are required to join the employee’s health insurance program. The premium for such a program – roughly 9 percent of an employee’s monthly salary – is shared equally by employees and employers. Such insurance covers 70 percent of the medical costs of the insured, with the remainder paid by the patients. However, there is a cap on patient out-of-pocket payment. Employee health insurance programs are either managed by private insurers or the central government. The government-managed insurance is partly financed through public tax revenues.⁶

The national health insurance programs cover those who are not eligible for the employee health insurance, such as farmers and the self-employed. Those programs are financed through a mix of government subsidies, premiums paid by insured households, and co-payments made by service users. The insurance premium is based on household income and size. It can be discounted up to 60 percent for low-income households. Public health insurance pays 70 percent of medical and drug costs, while patients pay the remainder; patient payments are capped.

Healthcare Delivery

In Japan, health services are predominantly provided by private hospitals or clinics owned by physicians. Large hospitals are usually run by the government or nonprofit organizations. For all health institutions in Japan, profit-making is prohibited. In 2012, the number of hospital beds per 1,000 population was 13.3; the number of physicians per 1,000 population was 2.3.⁷

Most health institutions provide health services to policyholders in both the employee health insurance and the national health insurance programs. Fees for all services and products that can be reimbursed by insurance are identical for all providers. The fee rates are set by a government committee and reviewed every two years through negotiations between the government and service providers. Outpatient care is reimbursed on a fee-for-service basis, while inpatient care is reimbursed based on diagnosis-related groups (DRGs). Patients have free access to all healthcare facilities, including tertiary hospitals. Such unrestricted access has induced excessive use of health services. In 2012, the number of outpatient visits per capita in Japan was 12.9, one of the highest in the world.⁸

Pricing and Reimbursement

Japan’s Ministry of Health, Labor, and Welfare (MHLW) determines pricing for drugs and medical devices, based on recommendations by the Central Social Insurance Medical Council (Chuikyo). The council consists of seven representatives from healthcare providers, seven from healthcare insurers, and six representing the public’s perspective. After being priced, the product is automatically listed on the National Formulary for reimbursement at a uniform rate of 70 percent by the public insurance programs. Re-pricing is conducted regularly every two years to lower prices based on actual wholesale levels. In general, the price of each drug is set at the mean wholesale price plus a reasonable margin for medical providers to cover the prescription transaction cost. It is currently determined as 2 percent of the previous price.

There are two pricing methods for new drugs. One is the similar efficacy comparison method (SECM) for new drugs that have existing comparators in the same therapeutic category with the same indication, pharmacological action, chemical structure, dosing form, and formulary category. For similar products, the base price of the new drug is set to allow its daily expenditure to equal the daily expenditure of the similar drug. For a new drug that is more effective than the comparators, the price can be higher depending on the incremental additions to usefulness or innovativeness (efficacy or safety). A cost calculation method (CCM) is employed for new drugs that lack comparisons with pharmacologically similar drugs. This method places little emphasis on the value of health outcomes. Following the CCM, the base price is derived from the sum of manufacturing cost, administration cost, operating profit, distribution cost, and consumption tax charges.

Price premiums for new drugs fall into three categories: innovation, usefulness I, and usefulness II. The premium for innovation can range from 70 percent to 120 percent of the base price, if a new drug meets the following conditions: (a) it has a clinically useful new mechanism of action; (b) it has an efficacy and/or safety profile that is superior to existing drugs; and (c) it has been shown to improve the therapeutic method for treating the target disease. The premium for usefulness I ranges from 35 percent to 60 percent if a new drug meets two of the three conditions; the premium for usefulness II ranges from 5 percent to 30 percent if a new drug meets one of the three conditions. From 1997 to 2008, a total of 404 new drugs obtained premiums through these two pricing methods: 322 drugs listed were based on SECM and 72 were based on CCM.

Role of Health Technology Assessment

Regarding the role of HTA in pricing and reimbursement, there is no formal requirement for companies to conduct and submit relevant studies as the fourth hurdle for market access. However, as early as the 1990s, the Japanese MHLW recommended that pharmacoeconomic studies consider both the clinical benefit and cost outcomes of a new drug when compared to an existing product. This has contributed to the further inclusion of value-based considerations in pricing new drugs. A new drug with identified clinical advantages, based on clinical experience and expert opinions, would be given a price premium over the price of the existing products. For example, in April 2012, among 15,447 products under price revisions, 624 newly created drugs were given price premiums for promotion. It should be noted, however, that the price premium for more effective drugs in Japan is still determined largely via subjective and political considerations rather than scientific evidence. There is thus considerable room for HTA to further develop and play a greater role.

Some recent observations suggest progress is being made. In April 2011, the new chair of the central committee of Chuikyo indicated his support for the cost-effectiveness approach. In June 2011, the Prime Minister’s Advisory Board endorsed the use of the HTA approach to assess innovation of new drugs for pricing. The role of HTA in drug price determination is anticipated to increase in coming years, although the formal HTA process mechanism is still under development.

Healthcare Financing

In 1989, South Korea established a universal healthcare system which was subsequently reorganized as a single-payer national health insurance program. The government-managed National Health Insurance (NHI) program and the Medical Aid Program (MAP) collectively cover the entire Korean population.⁹ The country’s healthcare system is financed by both public and private funds. Public funds are used to subsidize the NHI program and finance the MAP; private funds include contributions from employers and employees, along with out-of-pocket payments by patients. South Korea’s total healthcare expenditures have steadily increased over the past 20 years. In 2013, South Korea spent 7.2 percent of its gross domestic product (GDP) on health; 53.4 percent of total health expenditures were financed by public tax revenues.¹⁰

The NHI program is compulsory for all employed residents and covers 96.3 percent of the Korean population. The NHI premium is set at a fixed proportion of the employee’s monthly salary and is equally shared by the insured and the employer.¹¹ Co-payments are required whenever the insured or their dependents use medical services. Co-payment rates vary from 20 percent of total treatment costs for inpatient care to 60 percent of medical costs for specialists’ consultations. Caps are set for out-of-pocket payments to alleviate the financial burden of patients undergoing high-cost therapies. Out-of-pocket payments reached 38.7 percent of the total healthcare cost in the NHI program in 2006.¹² Currently, public funds account for 20 percent of the total contribution income of the NHI program.¹³

The Medical Aid Program covers all Koreans who cannot afford the NHI program. The MAP is financed through tax revenues from central and local governments. Beneficiary coverage of the MAP is the same as that provided by the NHI program. However, under the MAP, patients who lose the ability to work are exempt from making co-payments.

In 2008, the Korean government introduced the Long-term Care Insurance (LCI) program to care for older citizens.¹⁴ The LCI program covers institutional care and home care needed by older persons with moderate-to-severe disabilities. Those eligible to apply for LCI include individuals aged 65+ years and those younger than 65 years who cannot care for themselves due to chronic diseases. The LCI program is financed by premium contributions, beneficiary co-payments, and government subsidies.

Healthcare Delivery

In South Korea, medical services are mainly provided by private healthcare institutions: approximately 90 percent of clinics and most secondary hospitals are private providers. By law, all healthcare institutions are NHI providers. In 2013, the number of physicians and hospital beds per 1,000 people were 2.17 and 10.96, respectively.¹⁵

Korean patients have free choice of clinic or hospital for needed medical services. For services and products covered by insurance, patients pay a certain proportion of the total costs; providers are reimbursed from the NHI on a fee-for-service basis and a DRG basis for certain hospital services. The choice of services included in the benefit package is determined by the Health Insurance Policy Deliberation Committee (HIPDC); the fees for those services are determined annually based on negotiation between the NHI and the providers.

In South Korea, physicians do not function as gatekeepers to secondary and tertiary care, and most private hospitals operate on a for-profit basis. As a result, over-utilization of outpatient care is a concern: in 2013, the country’s rate of consultations per capita was 14.6, one of the highest in the world.¹⁶

Pricing and Reimbursement

Compared to other OECD (Organisation for Economic Co-operation and Development) countries, Korea has historically devoted a high share of its total health expenditures to drugs. In 2013, for example, drug spending as a percentage of total health expenditures was 20.6 percent, compared to an average of 16.9 percent in OECD countries.¹⁷ In response, Korea has recently undertaken drastic reform of its drug policies. From 2004, there have been increasing calls to adopt “value” and volume-price agreements in pricing new drugs. Following the 2006 Drug Expenditure Rationalization Plan, the government made the first important policy change, shifting from the traditional “Negative Listing” based on relative pricing to “Positive Listing” for new drugs based on cost-effectiveness.

The current Positive Listing policy for new drugs, overseen by the Health Insurance Review Agency (HIRA) funded in 2000, entails several steps. The first step is to determine if a new drug has alternatives. For a new drug with alternatives, the second step is to assess its relative clinical benefit based on clinical evidence under the current guidelines. If the new drug proves to be superior, then incremental cost-effectiveness follows. Only when the new drug exhibits an incremental cost-effectiveness ratio (ICER) less than $20,000 does the HIRA decide to list the drug for reimbursement. However, if the new drug lacks superiority over the existing drugs, a cost minimization analysis is conducted using the weighted average price of the alternative products. HIRA will list it for reimbursement only if the new drug costs less than the weighted average price. An innovative drug without any comparators is considered as an essential drug and goes directly on the reimbursement list.

Following the HIRA’s initial decision to list the drug, the manufacturer and the government’s National Health Insurance Corporation (NHIC) enter a price negotiation. Through a volume-price agreement (VPA) policy intervention introduced in 2007, NHIC negotiates the price based on the expected sales of the new drug, its budget impact, and any substitution effect of generics for high-cost medicines. If actual sales exceed anticipated sales during a specified period, the drug’s price is reduced to an agreed-upon amount based on the VPA. VPA may be revised in subsequent years to accommodate greater than expected spending increases.

The seeming transparency of Korea’s drug pricing and reimbursement process is actually more complicated. HTA and/or economic evaluations are only some of the many factors considered in the positive listing of drugs. Other factors include therapeutic benefits, reimbursement status in other countries, necessity, and severity of disease conditions, and budget impact. Indeed, reimbursement decisions decreased while denial decisions increased following the mandatory requirement for submission of pharmacoeconomics (PE) data in 2007. Between 2007 and 2009, of the 209 drugs that applied for reimbursement, HIRA recommended 154 drugs (73 percent) for reimbursement; 126 drugs (60 percent) reached a pricing agreement with NHIC. Most of the drug denials reflected a lack of evidence or unacceptable cost-effectiveness values.

Role of Health Technology Assessment

As noted above, a formal HTA process has been in place since 2007 with PE submissions required for drug reimbursement. Going forward, drug manufacturers expect some refinement in PE submission guidelines. In terms of methodology, guidelines may strongly recommend that manufacturers conduct cost-utility analysis (CUA) when the use of quality-adjusted-life-years (QALY) is appropriate. Other forms of cost-effectiveness analysis (CEA) would be accepted only when QALY is neither important nor feasible due to disease conditions. When conducting CUA, generic utility is preferred to disease-specific utilities and should be based on the Korean population. Cost estimates should employ a social perspective, although estimating indirect or intangible costs is challenging. When relying on expert opinions for data estimation, studies must specify who is consulted and how and why they are chosen. Following the VPA approach, further use of risk-sharing schemes may be introduced into the negotiation process for new and expensive products such as oncology drugs. This may lead to some win–win outcomes for all parties including patients, manufacturers, and perhaps public payers.

Healthcare Financing

Singapore has a modified universal healthcare system financed by public funds and two schemes: (a) the Medisave, a compulsory medical savings scheme and (b) the MediShield, a health insurance scheme. The country’s total expenditure on health as a percentage of GDP has been around 4.5 percent, with the government financing 30–40 percent of the total. Per capita total expenditure on health was $3,578 in 2013.¹⁸

Launched in 1984, the Medisave is a savings scheme providing account holders and their families with funds for medical services. Medisave is mandatory for employed residents, who contribute up to 7–9 percent of their monthly salaries into a personal account. In 2010, more than 80 percent of inpatients in Singapore used Medisave funds to pay for their hospitalization bills.¹⁹

MediShield (MediShield Life replaced MediShield on November 1, 2015) is a government-managed national health insurance plan established in 1990. MediShield covers policyholders’ basic hospital care at the rates charged by public hospitals. Policyholders pay a deductible as well as a co-pay for each admission. The premium rates of MediShield vary greatly depending on policyholders’ age. Although MediShield is not compulsory, more than 92 percent of the resident population in Singapore was enrolled in 2011.²⁰ MediShield payouts may cover up to 80 percent of medical bills incurred in public hospitals.²¹

The Singapore government subsidizes the cost of basic medical services provided in public healthcare institutions. The subsidized rates to which patients are entitled depend on patients’ immigration status and household income. For citizens, the subsidy rates for basic hospital care range from 65 percent to 80 percent.²² The government runs an additional program, the Medifund, to help patients who cannot afford their medical bills even with subsidies. The fund is distributed on a case-by-case basis by application.

Healthcare Delivery

Private general practitioners deliver about 80 percent of outpatient care in Singapore. Outpatient clinics owned by public hospitals provide the remaining 20 percent of primary care services.²³ The public sector is the major provider of secondary and tertiary care. In 2014, hospital beds in public hospitals accounted for 77 percent of total bed capacity²⁴; approximately 80 percent of the beds in public hospitals are subsidized by the government. In 2013, the number of physicians per 1,000 population was 2.0;²⁵ in 2011, the number of hospital beds per 1,000 population in Singapore was 2.27.²⁶ The density of hospital beds has been decreasing since 2000 as bed capacity remained stable while the size of the population increased. The system rests on a fee-for-service model in which patients have free choice of private and public healthcare providers.

Pricing and Reimbursement

Singapore employs a free-market approach to pricing healthcare products. Following registration with the Health Sciences Authority, any drug or medical device can be marketed in the country. There are currently no regulations for controlling health technology pricing.

The Ministry of Health maintains a Standard Drug List (SDL) and subsidizes drugs on the SDL that are dispensed in public clinics and hospitals. The SDL includes drugs that are deemed as clinically essential and cost-effective for managing common diseases.²⁷ The SDL is further divided into SDL1 and SDL2 drugs, which public healthcare institutions are required to supply. Drugs on SDL1 are first-line products, usually generics that can be acquired at relatively low cost. Patients attending a public institution pay a standard fee of $1.4 per week for each drug on SDL1. More than 80 percent of SDL drugs were on SDL1.²⁸ Drugs on SDL2 are relatively more expensive and essential. The ministry allocates a budget each year to subsidize those drugs so that patients attending the public healthcare institutions pay only 50 percent of the total cost. As of November 2011, the SDL included 653 drugs.²⁹ In order to help needy patients pay for expensive non-standard drugs, the Ministry of Health set up a Medication Assistance Fund in 2010. In this manner, the government subsidizes 50 percent of the cost of expensive drugs for treating cancers and heart diseases for low-income patients.³⁰

The formulary decision-making process for the Standard Drug List is not transparent.³¹ Only sketchy information is publicly available on the administrative process. Currently, the SDL is reviewed every year by the Drug Advisory Committee, a panel of medical experts appointed by the Ministry of Health. The review is designed to ensure that the drugs listed are in line with current clinical practice. The committee reviews proposals from doctors working in the public healthcare institutions regarding the addition and removal of drugs. The main factors in SDL decision-making are whether the drug is clinically essential, effective, and cost-effective.³² However, there is little public information about how cost-effectiveness is defined or assessed by the committee, and currently no mechanism exists for manufacturers to submit proposals to the committee.

Role of Health Technology Assessment

The Pharmacoeconomics and Drug Utilization Unit (PEDU), formed in 2001 by the Ministry of Health, is responsible for reviewing drugs for inclusion in the Standard Drug List. Under the Health Sciences Authority, this unit assists the Drug Advisory Committee to assess the cost-effectiveness and budget impact of such drugs.³³ Another HTA division under the Ministry of Health is the HTA Branch, staffed by a team of specialists. The HTA Branch is responsible for developing and updating clinical practice guidelines. It also supports the ministry’s development of policies for introducing new health services and variations in subsidy and Medisave usage.³⁴ Usually an economic evaluation is conducted by the HTA Branch through collaboration with an academic institution. For example, cost-effectiveness analysis recently served as one input in a recent Ministry of Health policy allowing Medisave to pay for the pneumococcal vaccine.³⁵

There is a lack of transparency regarding how HTA is conducted by the PEDU or how such evidence is used in formulary decision making for SDL2 drugs. According to general principles enunciated by policy makers, cost-effectiveness may be considered in HTA decision making; however, the technical criteria or formulas are not public knowledge. For example, how cost-effective a drug should be for inclusion in the SDL2 and the recommended method of cost-effectiveness analysis are not known.

As a possible explanation, policy makers are likely concerned about the rapid expansion of the SDL, especially the more expensive SDL2 drugs. Cost containment has been an important goal in Singapore’s healthcare policy.³⁶ As a result, pharmaceutical companies are not actively conducting PE studies in Singapore. Pharmacoeconomic data are mainly used by large pharmaceutical companies to market their expensive products – for example, to support efforts to include their products in SDL2 or the formularies of public hospitals. For both types of listing, the pharmaceutical companies need to identify key opinion leaders in the clinician community who are willing to submit the application dossiers to the relevant committees. Since there are no guidelines for how to prepare cost-effectiveness evidence in Singapore, pharmaceutical companies usually follow the general recommendations for pharmacoeconomic studies used in the United Kingdom and Australia. How the Drug Advisory Committee for SDL2 listing and pharmacy and therapeutic (P&T) committee of hospitals use the pharmacoeconomic evidence is not known; they may or may not give feedback about the submitted pharmacoeconomic evidence. Generally, large pharmaceutical companies deploy only one specialist in their Singapore offices to handle health economics–related development.

In the foreseeable future, the application of HTA in healthcare decision making is likely to increase. Recent years have seen great improvement in the infrastructure of health services research in Singapore. The establishment of the first school of public health at the National University of Singapore represents a recent development. With more experts and analysts available, the ministry should be more confident in taking further steps to improve its HTA practices.

Healthcare Financing

Taiwan’s healthcare system is funded through a single-payer social insurance scheme, known as the National Health Insurance (NHI). NHI is a compulsory insurance plan providing all residents with equal access to essential health services. The NHI currently covers 99 percent of Taiwan’s population. In 2013, the country spent 6.6 percent of its GDP on health ($1,129 per capita).³⁷ Drug expenditures have typically accounted for roughly 25 percent of total healthcare spending.

Introduced in 1995, the NHI is administered by the Department of Health through the Bureau of the National Health Insurance (BNHI). The NHI is financed through a mix of out-of-pocket payments and insurance premiums. Responsibility for paying the premiums is shared by the insured, their employers, and central and local government. The premium rates are scaled to monthly salaries of the insured and currently stand at 5.17 percent. The proportions paid by the three parties vary from individual to individual depending on the profession and salary scale of the insured. In 2010, 95 percent of NHI revenue was from premiums contributed by the insured (38 percent), employers (36 percent), and government (26 percent). Co-payment by the insured is required to receive treatment or services. To encourage rational usage of health resources, the co-payment rates differ for different types of services and providers. Co-payments for all services in the benefit package are capped to reduce financial burden to patients.

Taiwan’s NHI offers a universal benefit package to the insured. Contracted healthcare providers render the services and are reimbursed by BNHI. Providers were initially reimbursed on a fee-for-service model that led to a rapid increase in medical costs. To contain these increasing expenditures, Taiwan introduced a global budgeting system in 1998 and a DRG payment system in 2010.

Healthcare Delivery

Medical care in Taiwan is primarily delivered by private providers. In 2010, nearly all of the country’s 508 hospitals and 20,183 clinics were in the private sector (84 percent and 98 percent, respectively).³⁸ Regardless of ownership, 92 percent of all health institutions were contracted by the BNHI to provide services. The number of hospital and clinic beds per 1,000 population was 6.82 in 2013;³⁹ the number of physicians per 1,000 population was 1.77.⁴⁰

NHI enrollees have free choice among contracted providers, with or without referrals. This freedom shortens patients’ waiting times to visit a doctor or undergo surgical procedures. Beneficiaries have taken good advantage of this access to care to frequently visit doctors. The number of consultations per capita in Taiwan was 12.3 in 2004, higher than most member countries of the Organisation for Economic Co-operation and Development.⁴¹

Role of Health Technology Assessment

After receiving market approval by the Bureau of Pharmaceutical Affairs in the Department of Health, a new drug subsequently can apply for pricing and reimbursement by national health insurance through two primary agencies. The drug pricing and reimbursement application first begins with the Health Technology Assessment Division at the Center for Drug Evaluation (CDE), a private not-for-profit entity responsible for conducting and compiling an HTA evidence report. This report is based on both the drug manufacturer’s own dossier and globally searched health outcomes research. Upon completion, the HTA evidence report is then forwarded to the Drug Benefit Committee (DBC) of the BNHI for review and appraisal. The DBC makes recommendations on the listing, coverage, and pricing of the new drug which are submitted to the BNHI president for final decision. In general, the DBC makes three recommendations: (1) whether a new drug is listed or not, (2) any restrictions on coverage for indications, and (3) reimbursement price.⁴²

The drug manufacturer’s application dossier for pricing and reimbursement must include the following information:

• The basic biomedical and clinical information on the product;

• An appropriate comparator’s information on efficacy and pricing;

• Pricing information on both the product and the comparator in the ten reference countries (Australia, Belgium, Canada, France, Germany, Japan, Sweden, Switzerland, United States, and United Kingdom);

• Reimbursement information on the product;

• Domestic information on both clinical trials and PE studies if conducted in Taiwan;

• HTA information on the product from United Kingdom, Canada, and Australia;

• A literature review that assesses the economic benefit of the product;

• A budget impact analysis of the product.

When preparing the evidence report, the CDE HTA division gathers information from both the manufacturer’s dossier and an independent search of evidence from CADTH (Canada), NICE (United Kingdom), PBAC (Australia), SMC (Scotland), the Cochrane library, PubMed, and EMBASE.⁴³

When it comes to new drug pricing, the CDE HTA takes several factors into consideration. First, it considers the drug category: (a) break-through drugs, (b) me-too drugs, or (c) line-extension drugs. For a break-through drug, the price is usually set to the median of the ten reference prices. For a me-too drug, the price follows the similar reference product. For a line-extension product, it can be priced in several ways, including the minimum price of referenced products, or the method of international drug pricing ratio (BNHI price of reference product multiplied by the median price ratio of the product to the reference product). Second, to encourage local ethnic-specific clinical studies, a 10 percent price premium can be awarded to a new drug that conducted a clinical trial in Taiwan. For similar reasons, an additional 10 percent price markup can be granted to new drugs if a PE study is conducted in Taiwan. Nevertheless, the final price of both me-too and line-extension products must be capped at the median of the ten referenced prices.

In preparing the HTA evidence report for listing in drug formulary, the CDE also considers data on comparative effectiveness, budget impact, cost-effectiveness and cost-benefit analysis (CEA, CBA), and the drug’s ethical/legal/social impact. All the studies require a benchmark comparator which, in principle, should be the most popular and best alternative product otherwise available in the same therapeutic category. In selecting the right comparator product, first priority is given to head-to-head comparison studies, although indirect comparative studies can also be used. If a new drug clearly demonstrates superior efficacy relative to existing therapies, it will be included in the insurance drug formulary. If a new drug is equally effective compared to the existing drugs, it is also considered for inclusion, but its price must be more competitive. A budget impact analysis is also required for every new drug submission. This analysis must provide a three-to five-year estimate of the product-specific drug expenditures, all drug expenditures, and total healthcare spending if covered by the public insurance system. For a new drug to be listed, a three to five-year quantity-price agreement will be made based on the budget impact analysis. Subject to the agreement, the manufacturer may need to return some funds to BNHI or reduce price accordingly over time if the total drug expenditures significantly exceed the estimated amount.⁴⁴

In terms of the decision-making process, the CDE HTA division is given 42 days to prepare the HTA assessment report before submission to the Drug Benefit Committee (DBC) for review and recommendations. The DBC consists of 24 members, including 5 public officers and 19 healthcare professionals (physicians from different specialties, pharmacists, and economists). The DBC usually conducts a monthly group meeting to discuss the HTA evidence reports, with two primary reviewers selected from the 19 medical professional members to review each report. Within a two-week review period, the reviewers write a recommendation summary based on the full evidence report for the DBC group appraisal meeting for pricing and reimbursement decisions. Manufacturers may not have access to the assessment and review report until hearing the final decision; however, manufacturers can pursue an appeal process for failed cases in the first DBC meeting and make a re-submission to BNHI when new data become available.