Outline

 The current state of – International comparison The Industry Analysis  Hospital Industry in Taiwan of The Hospital and  Home Industry in Taiwan Nursing Home in Taiwan

Taiwan Institute of Economic Research April 2011

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International Comparison (1) International Comparison (2)

 Taiwan is a growing open economy. While its GDP level might appeared modest compared to the The Taiwanese in a Nutshell developed world, it is on The Taiwanese Economy in a Nutshell  Taiwan, the latest par with some of the advanced economy to wealthiest when measured have adopted a publicly by Purchasing Power funded program, Parity (PPP). developed its healthcare  According to the IMF system using the most estimate, Taiwan’s per current experiences from capita level in PPP terms, countries around the world. would make it among the  Like Japan, Taiwan wealthiest in the world. healthcare system is social  The same calculation insurance. Total health would put Taiwan’s GDP expenditure accounts for per capita, in PPP terms, 6.9% of Taiwan’s GDP, higher than that of Japan 59% of which is funded by and the UK. Taiwan GDP growth rate (%) the government. 15 10 5 Note: Data were calculated by the International Monetary Fund. 0 Figures were published in October 2010. ( ) is the ranking. Note : ( ) means data collection for the year. -5 na: not applicable.

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Resource: OECD Health Data 2010, WHO, DOH. 3 4 International Comparison (3) Taiwan Long-term Projections for Elderly Population  Taiwan is an aging society. It is not only facing a fast aging population, but also a dwindling fertility and Taiwan’s Demographic Shift  Taiwan total health The Taiwanese Health Care in a Nutshell birth rate. expenditure per capita is  According to the official projection, US$1,126, which is one in ten people is 65 and above US$2,186 in terms of PPP. as of 2010, which makes Taiwan an  Taiwan has 1.64 and 4.46 aged society and consumes and nurses per approximately one third of health 1,000 population care resources in Taiwan. respectively, less than  By 2025, or in 15 years time, many of the developed Taiwan will be a “super aged world. The physicians and society”*. nurses have a heavy work  The speed of the demographic shift loading in Taiwan. has presented a new set of  Taiwan, however, has 6.8 problems facing the Government in beds per 1,000 population, Taiwan. more than many of the The proportion of the population aged 65 and over (%) developed world except Japan.

Note: ( ) means data collection for the year. Resource: CEPD Resource: OECD Health Data 2010, WHO, DOH. *Note: According to UN definition, any society whose proportion of the population aged 65 and over is greater than 7%, 14%, or 20% is called “ageing society”, “aged society”, and “super aged society,” respectively.

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Overview of Healthcare in Taiwan

 The number of medical care institution has been on the increase. For the 10 years since year 2000, the number of medical care institutions has increased by Number of Medical Care Institutions in Taiwan 12.29%.  While the total number has been No. of Medical No. of No. of on the increase, the number of Public Private No. of Care Clinic Bed per Bed per Hospital Hospital Total Bed per hospitals, both private and public Institution 10,000 Hospital has been on the decline. 10,000 The Hospital Industry  Consolidation was the main 2000 18,082 96 573 17,413 126,476 13.25 57 171 reason behind the decreasing 2001 18,265 94 543 17,628 127,676 13.63 57 180 numbers. It is important to note 2002 18,228 93 517 17,618 133,398 13.99 59 196 in Taiwan that whilst the absolute number of 2003 18,777 93 501 18,183 136,331 14.32 60 205 hospitals has been on the decrease, the number of beds and 2004 19,240 90 500 18,650 143,343 14.69 63 216 medical professionals have been 2005 19,433 80 476 18,877 146,382 14.96 64 233 on the increase. 2006 19,682 80 467 19,135 148,962 15.24 65 240  From 2000 to 2007, private 2007 19,900 80 450 19,370 150,628 15.60 66 249 hospital has higher compound annual growth rate (CAGR) of 2008 20,174 80 435 19,659 152,901 16.10 66 258 number of beds than public 2009 20,306 80 434 19,792 156,740 16.37 68 262 hospital (2.3% vs. 1.6%, data not shown). Source: DOH

8 Structure of National Health Expenditure National (NHI)

 Mandatory enrollment since 1995  The National Health Insurance system is compulsory for all citizens from birth. It is built on the concept of mutual assistance and depends on the insured paying their National Health Expenditure in Taiwan premiums according to National Health Insurance Act. (全民健康保險法)  Taiwan national health expenditure has been  Cover more than 23 million people (99% of population) in 2009! steadily on the increase with  Single-payer insurance system: Government-run insurer annual growth rate of 3~5%,  Taiwan's NHI system is a social insurance program administered by the which is NT$859 billion in government, Bureau of National Health Insurance (BNHI). 2009.  Universal health care for an entire population is financed from a pool to which  Healthcare consumes a many parties--employees, employers, the government--have contributed. lion’s share (87%) of national  BNHI collects all medical fees, contracts for healthcare services from medical health expenditure, which is organizations, and then pays for all services. NT$744 billion in 2009.  Under healthcare sector,  Public Contract Model: Comprehensive benefits coverage hospital accounts for  The three main components of the NHI system are the insured, the contracted approximately half of healthcare providers and the BNHI. healthcare expenditure ,  The BNHI collects premiums from the insured and issues them the insurance which is NT$363 billion in cards. When the insured use the medical services, they do not need to pay the 2009 up from NT$313 billion medical expenses, but a copayment as user fees to shape their behavior. in 2005 with an annual  The medical providers make claims to BNHI for reimbursement of the services they growth rate 3.8%. provide. Source: DOH, BNHI, DGBAS.  Financial responsibility shared by the insured and providers.  Global Budget Payment System (總額預算支付制度)

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Global Budget Payment System (1) Global Budget Payment System (2)  When the NHI system was being designed, the global budget payment system was the centerpiece of  Article 48 of the National Health Insurance Act provides: “For the sake of negotiating and a plan to contain rapid growth in costs under the fee-for-service (FFS) payment mode and establish a allocating medical benefit payment, a medical expenditure negotiation committee shall be system of financial accountability. It was also legally mandated in the NHI Act. established.” Hence Taiwan government, the Department of Health (DOH), set up the Medical  To enhance financial responsibility of the providers and payers by decentralization of power and Expenditure Negotiation Committee, which, together with the Bureau of National Health responsibility through negotiation and co-management Insurance (BNHI), NHI Supervisory Committee, and NHI Dispute Mediation Committee serve as  Set expenditure cap respectively (fixed budget floating conversion factor) through negotiation agencies for dealing with national health insurance related affairs under DOH.  Allocate sector budget for different providers (全民健康保險監理委員會)  Set regional budget (dependent on patient population) (全民健康保險醫療費用協定委員會；費協會)  To shape providers’ cost-effective behaviors by providing financial incentives

(衛生署) (中央健康保險局；健保局)

(全民健康保險爭議審議委員會) 11 12 Growth Rate of Global Budget (1) Growth Rate of Global Budget (2)

The global budget payment system has been successful in containing the annual growth in the health insurance system's expenditures with spending growth leveling out at below 5%. The negotiated growth rates for each medical sector's total expenditures between 2006 and 2010 are seen as below, which are Structure Analysis of Global Budget 2009 always positive even in turbulent financial times. Units: Billion RVU. Annual budget for medical expenditure under NHI: Based on the scope approved by the Executive  The Dental Care accounts Yuan, the Committee has been negotiating since 2001 the global medical expenditure budget (grand for 11% of the negotiated total) and budget allocation for each fiscal year. Following negotiation, the 2011 global budget grows by global budget in 2009. 2.69% on a year-on-year basis.  The Chinese Care accounts for 6% of the Annual Growth Rates of Global Budgets by Sector Unit：% negotiated global budget in 2009. 2006 2007 2008 2009 2010  The Western Medicine 1.17- 2.32- 2.30- 3.363- 1.822- Primary Care accounts for 5.00 5.10 5.00 5.1 3.5 26% of the negotiated global budget in 2009. Medical Expenditure 4.536 4.501 4.471 3.455 2.796  The Hospital Care accounts Negotiation Committee for the biggest proportion, 47%, of the negotiated Dental care 2.93 2.610 2.650 2.571 1.941 global budget in 2009. Chinese medicine 2.78 2.478 2.506 2.486 1.490 Western medicine primary 4.684 4.181 4.129 3.346 2.236 care Hospital care 4.90 4.914 4.900 4.461 2.734 Source: BNHI 13 14

Distribution of BNHI-contracted Hospitals BNHI Resource Allocation by Region  BNHI has established six regional divisions across Taiwan that directly deal with local insurance applications, premium collection, claims auditing and reimbursement, and management of contracted medical care institutions. Units: Billion NTD Northern Region • Population: 3,455,925 Region • No. of Medical Centre: 1 • Population: 7,426,943 • No. of Regional Hospital: 12 • No. of Medical Centre: 8 • No. of District Hospital: 52 • No. of Regional Hospital: 19 • Others: 1 • No. of District Hospital: 84 Central Region • Population: 4,475,323 Eastern Region • No. of Medical Centre: 4 • Population: 573,200 • No. of Regional Hospital: 16 • No. of Medical Centre: 1 • No. of District Hospital: 83 • No. of Regional Hospital: 3 • Others: 6 • No. of District Hospital: 12 • Others: 1

Southern Region • Population: 3,418,862 • No. of Medical Centre: 3 Kaoping Region • No. of Regional Hospital: 16 • Population: 3,747,796 • No. of District Hospital: 46 • No. of Medical Centre: 3 • Others: 2 • No. of Regional Hospital: 14 Source: BNHI • No. of District Hospital: 100 • Others: 1 15 Source: BNHI 16 BNHI-contracted Institutions (1) BNHI-contracted Institutions (2)

 The BNHI contracts with qualified healthcare institutions to provide medical services to the insured and reimburses them according to a fee schedule. The healthcare institutions the BNHI  Among NHI-contracted Institutions, Regional Hospital’s revenues from outpatient visits have contracts include hospitals, clinics, pharmacies, and others. been steadily on the increase with annual growth rate 9.5% since 2006, which account for 22%  As of August 2009, 18,936 hospitals and health care providers, or 92.47% of all health care of total costs claimed for outpatient visits, say 69,662 million RVU in 2010. facilities in the country, were contracted by the NHI system.  Consolidation Contracted Outpatient & Inpatient Contracted Outpatient Medical was the main Medical Care Institutions Care Institutions Costs Claimed for Outpatient Visits by BNHI-contracted Medical Care Institution Western reason behind General Hospitals Chinese Medicine Medicine the number Medical Centre Regional Hospital District Hospital Clinic Medical Regional District Obstetrics & Hospital Gynecology Clinics Hospitals Clinics change. It is Centre Hospital Hospital s important to note Clinics Cases Amounts Cases Amounts Cases Amounts Cases Amounts 1995 13 48 568 669 52 6,912 102 1,620 that whilst the (1,000) (Million RVU) (1,000) (Million RVU) (1,000) (Million RVU) (1,000) (Million RVU) 1996 13 52 544 652 52 7,442 88 1,727 number of BNHI- 1997 14 56 534 622 52 7,714 82 1,818 contracted 1998 17 61 496 568 48 7,914 69 1,878 2006 29,221 55,796 31,958 48,443 33,478 38,158 235,386 120,669 hospitals has 1999 18 63 503 557 44 7,710 66 2,006 been on the 2000 22 71 484 554 40 7,647 52 2,100 2007 30,542 59,289 35,117 53,999 32,791 37,446 239,150 123,916 decrease, their 2001 23 74 468 546 37 7,673 44 2,225 2008 30,950 63,416 38,460 60,990 31,198 36,228 240,409 129,096 size has been on 2002 23 80 450 545 18 7,841 37 2,355 2003 23 80 437 545 17 7,999 35 2,422 the increase 2009 31,992 66,827 41,477 65,703 31,751 37,555 251,330 136,120 steadily. 2004 24 80 427 473 13 8,307 33 2,523 2005 21 73* 417 459 14 8,519 24 2,572 2010 33,012 69,800 43,401 69,662 31,257 37,781 253,612 137,838 2006 24 70 414 459 9 8,684 23 2,700 2007 23 72 397 455 11 8,837 22 2,772 CAGR 3.1% 5.8% 8.0% 9.5% -1.7% -0.2% 1.9% 3.4% 2008 23 77 383 440 9 8,978 21 2,867 Source: BNHI (%) 2009 23 78 385 435 7 9,104 17 2,940 CAGR: Compound Annual Growth Rate *Note: The 6 regional hospitals, 1 district hospital, 1 specialist hospital and 1 non-accredited hospital 17 18 were consolidated into a single regional hospital name Taipei City Hospital in 2005. Source: BNHI

BNHI-contracted Institutions (3) NHI Revenue

 Among NHI-contracted Institutions, Regional Hospital’s revenues from inpatient care have been  NHI Act stipulates that premium steadily on the increase with annual growth rate 6% since 2006, which account for 39% of total rates must be reviewed and re- NHI Revenue-Premium Receivable by Source costs claimed for inpatient care, say 63,930 million RVU in 2010. calculated every two years to ensure the system's financial sustainability. The NHI premium rate* was 4.25% Costs Claimed for Inpatient Care by BNHI-contracted Medical Care Institution from the time the system was launched until Sep 2002, when it was adjusted to 4.55%. The Medical Centre Regional Hospital District Hospital Clinic premium rate* was then adjusted to Amounts Amounts Amounts Amounts 5.17% in April 2010. Cases Days Cases Days Cases Days Cases Days (Million (Million (Million (Million (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000)  In 2009, the NHI system totaled RVU) RVU) RVU) RVU) revenues of NT$407 billion, with 2006 950 8,364 63,101 1,120 10,578 50,615 774 9,730 30,538 70 229 2,005 approximately 90% coming from premiums and government 2007 960 8,501 64,330 1,201 11,360 54,718 744 9,668 29,972 65 221 1,870 subsidies. The remaining 10% came 2008 989 8,655 67,227 1,300 12,492 59,456 699 9,856 28,465 61 210 1,760 from the health surcharge on cigarettes, contributions from public 2009 1,014 8,763 69,017 1,357 12,827 61,462 715 10,238 29,440 60 210 1,722 welfare lotteries, and investment 2010 1,034 8,975 69,810 1,426 13,315 63,930 694 10,365 29,130 51 182 1,464 income. Of the premiums, 39% were paid by the insured, 35% by CAGR 2.1% 1.8% 2.6% 6.2% 5.9% 6.0% -2.7% 1.6% -1.2% -7.5% -5.6% -7.6% (%) insurance registration organizations (employers), and 26% by government agencies. CAGR: Compound Annual Growth Rate *Note: Premiums are calculated as a percentage of an individual's payroll. Source: BNHI 19 Source: BNHI 20 Financial Status of NHI Second Generation of NHI  Expanding the Funding Base：Flexible Financial Management  A number of factors have propelled the rapid growth of medical expenditures in recent years. These factors include the aging of Taiwan's society, the inclusion of new drugs and new technologies among  Taiwan will put into force “2nd Generation of NHI”, a revised NHI Act, in which, the premium based items covered under the system, the strengthening of catastrophic illness care and the general push for will be expanded from individual’s payroll to total income (including investment gains and non- improved health care quality. In contrast, revenue growth has remained relatively flat. Premium revenues salary income) next year, thereby helping to expand the funding base for the NHI system. have not kept pace with growth in real income. As a result of these diverging trends, expenditures have  Improving Payment Efficiency：Global Payment System in Tune with Health Care System begun outstripping revenues as they did in the early part of the decade. Development  At present, payments to health care providers are made on a fee-for-service basis within a global budget assigned to specific medical sectors, but a "pay-for-performance" system has been introduced gradually to improve health care quality. To preserve the effectiveness of the global budget payment program, the BNHI and health care providers have initiated a quality assurance program to monitor medical institutions that use global budgeting and to provide health care services at a higher quality level. The goal is to ensure that people's health care needs are met under the global budget payment scheme by improving care while keeping cost growth under control in Taiwan. NHI Public Satisfaction Ratings

Source: BNHI

Source: BNHI 21 22

Number of Establishments Typical of similar industries in the service sector, the highly desirable institutions are over subscribed with waiting lists. The more popular, in terms of location and service quality, often carries a waiting list as long as two years. Nursing homes that are ranked lower in the rating or with inferior quality often struggle to improve their occupancy rate. Indeed, this also explains declines in the number of registered nursing Organisations despite increase in demands. Available Beds Registered Nursing Organisation

The Nursing Home 1,000 45,000 40,000 900 Industry in Taiwan 35,000 800 30,000 25,000 700 20,000 600 15,000 10,000 500 5,000 400 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Dept. of Social Affairs, MOI and and City Government 24 Geographical Spread Growth Rate 10 Years Industry Growth (2000 ‐ 2009) Table 1, Demands for Care by Geographic Breakdown (As of end of Oct. 2010) 250%  In terms of the geographical 222.56% Available  For the 10 years period starting year 2000, Total Total 200.02% spread, there appears to be a Elderly Beds to Supply number of registered nursing organisations Population Demand for A vailable 200% good geographical coverage of Population Elderly Su rpl us Beds Beds has grown from 468 to 845. The pace of Population nursing organisations across all increase (in the number of registered 150% build-up areas in Taiwan. Tot al 23, 150,923 2,480,649 72,187 94,444 3.81% 22,257 nursing organisations) has been outstripped Taipei City 2,613,071 331,079 9,634 7,867 2.38% (1,767)  While there appears to be both the total capacity growth as well as 100% 80.56% excess capacity in the nursing Kaohs iung City 1,529,719 154,510 4,496 6,457 4.18% 1,961 real demand, which grew by 200% and Taipei County 3,893,740 320,121 9,316 13,155 4.11% 3,839 care industry, the number can Yilan Co u n t y 460,570 60,229 1,753 2,326 3.86% 573 223% respectively. 50% be deceiving. Taoyuan Co unty 2,001,537 164,378 4,783 7,174 4.36% 2,391  Typical of similar industries in County 512,353 57,249 1,666 1,784 3.12% 118  While the number of nursing institutions 0% the service sector, the highly 560,617 75,031 2,183 1,623 2.16% (5 6 0) may stabilise, total capacity offers in terms Registered Nursing Total Available Beds Beds Occupied County 1,564,994 140,210 4,080 3,940 2.81% (1 4 0) of the available beds is likely to increase Organisation desirable institutions are over 1,307,500 157,602 4,586 6,356 4.03% 1,770 further. This is often due to consolidation. subscribed with a very length Nantou Cou nty 526,911 71,209 2,072 2,452 3.44% 380 717,915 107,963 3,142 2,508 2.32% (6 3 4) waiting list. Nursing homes  The overall value care service industry is County 543,738 85,073 2,476 2,006 2.36% (4 7 0) lower in the ranking or with Co un t y 1,101,877 142,537 4,148 6,339 4.45% 2,191 expected to reach NT$ 221.5 billion with the inferior quality often struggle to Coun ty 1,243,273 129,741 3,775 5,921 4.56% 2,146 care equipment industry reaching NT$ 195 improve their occupancy rate. Pingtung Co unty 874,696 110,134 3,205 5,018 4.56% 1,813 billion and Health food industry NT$ 75  This explains declines in the Taitung Co u nt y 230,832 30,110 876 1,910 6.34% 1,034 339,092 42,396 1,234 2,168 5.11% 934 billion by the year 2015. number of registered nursing Penghu Co u nt y 96,711 14,025 408 220 1.57% (1 8 8)  The projected sharp increase for both care Organisations despite increase City 384,590 42,346 1,232 2,315 5.47% 1,083 in demands Hsinchu City 414,682 38,855 1,131 1,441 3.71% 310 service and care equipment industry Taichung City 1,081,487 88,885 2,587 5,413 6.09% 2,826  The available bed per elderly appears optimistic, but is in line with the Chiayi City 272,523 29,845 868 2,354 7.89% 1,486 shifting in demographic trend. The increase varies at around 3% to 4%, or Tainan Ci t y 771,942 74,557 2,170 3,537 4.74% 1,367 available bed to elderly County 96,622 11,623 338 120 1.03% (2 1 8) in both sector does not correspond directly population. Lienchiang Count 9,931 941 27 40 4.25% 13 to the increase in health food industry. Source: Dept. of Social Affairs, MOI and County and City Government 25 26 Source: Dept. of Social Affairs, MOI and County and City Government

Official Nursing Home Evaluation  DOH conducted the fist National Evaluation of Nursing Homes Project in 2009, according to Nurse Act (護理人員法).  The scope of evaluation include 5 categories which included Health Care, Human Resource Management, Administrative Management, Safety and Environment and Care of Life.  The purpose of National Evaluation of Nursing Homes Project: Taiwan Institute of Economic Research  Improve the safety, profession and quality of services in nursing home. Biotechnology Industry Study Centre  Act as a stimulus to nursing home to develop multiple characteristics. Intellectual Property Valuation Service Centre  Provide a reference for decision making by consumers. http://www.biotaiwan.org.tw  Encourage nursing home to improve their physical environment and implement quality control.  As a reference for DOH to make decisions on the grant or subsidiary. Address: 7F, 16-8, Te-hui St., Taipei, 104, Taiwan.  Of the total registered nursing homes, 370 were evaluated by the Department of Health in 2010. Only TEL: +886-2-25865000 ext.568 one of the nursing homes evaluated obtained distinction from the authority (Mackay Tamsui Branch FAX: +886-2-25979641 Hospital Nursing Home).  While most nursing homes fall under the ‘Grade A’ category, the market is not as fiercely contested as the data appears. This also has to do with the locality of the institution.  The DOH Evaluation takes place every 3 years, and the grading are valid for 3 years. Source: DOH 27