In Taiwan, the term “pharmaceuticals” refers to both Western medicines and traditional Chinese herbal medicines. There are roughly 250 registered herbal medicine producers in Taiwan and 280 registered Western medicine manufacturers. Taiwan’s pharmaceutical industry grossed US$2.52 billion in sales in 2000, up 18% over 1999 figures.
Imports of pharmaceuticals account for about 70% of the Taiwanese market. The U.S. share accounts for roughly 25%. The Taiwanese government expects domestic sales of pharmaceuticals to reach US$3 billion by 2003. A number of factors are responsible for driving this expected growth, including: (1) Taiwan’s recent entry into the World Trade Organization (WTO), which should help lower already low import tariffs and encourage more overseas firms to set up offices in Taiwan; (2) over the past several years, the government has designated special economic areas with low land rental fees to attract investment in the local pharmaceutical industry; and (3) the Taiwanese government recently contributed US$174 million to a proposed pharmaceutical manufacturing site in order to attract U.S. pharmaceutical ventures.
Despite expected market growth, a number of structural problems remain in Taiwan’s pharmaceutical market. The average Taiwan citizen visits the doctors 12-15 times a year, receiving four to five different medications per visit. This abuse and misuse of the healthcare system is the result of (1) low co-payments for patients, which makes doctor’s visits very inexpensive, and (2) low doctor salaries, which encourages over-prescribing as a way to increase revenue (often doctor’s offices have related pharmacies). While contributing to the demand for pharmaceuticals, this cycle of inefficiency in Taiwanese healthcare is unsustainable.
U.S. observers are especially concerned with reference pricing and reimbursement issues. Generic drugs, including very low quality (not bioequivalent) products, are reimbursed at prices similar to (though slightly less than) the products of R&D firms. This stifles innovation and in some cases promotes the use of ineffective or less effective pharmaceutical products. With respect to reimbursement, Taiwan’s National Health Insurance law states requires reimbursement at actual transaction costs, but in practice enforcement is low. This allows generic pharmaceutical producers to offer drastic discounts to healthcare providers, providing them with an illegal profit incentive to choose generics over name brands.