Taiwan: Exploring the Healthcare Opportunity in this Singular “Hybrid” Market
How large is the opportunity for pharma and healthcare companies in Taiwan?
The auto-complete options that pop up during Google searches offer revealing insights into a topic, in particular highlighting any areas of concern or uncertainty. . If you type “is Taiwan…” into Google, the top two auto-complete results that appear relate to the country’s ambiguous autonomous status:
- Is Taiwan a country?
- Is Taiwan part of China?
The third question is one which our Emerging Markets team regularly gets asked and forms the focus of this month’s article:
- Is Taiwan a developed country?
I will be exploring this question, specifically in relation to Taiwan’s healthcare system, and looking at the broader economic and demographic factors which need to be addressed when considering the opportunity for pharma and healthcare companies in Taiwan.
Firstly, let’s see if we can attempt to answer the top two questions offered up by Google and establish whether Taiwan is indeed a country in its own right or a part of China.
Politically, this is a contentious question and the answer depends on who you ask. Essentially it comes down to what we mean by “China”. Mainland China, the People’s Republic of China (PRC), is ruled by the Chinese Communist Party. Confusingly, Taiwan is known as the Republic of China and, until last month, was ruled by the Chinese Nationalist Party. Having ruled China in the early 20th century, the Chinese Nationalist Party fled to Taiwan in 1949 after being overthrown by Mao’s communist party. Taiwan continues to be officially recognized as part of China by both governments but the government in Beijing does not recognize the government in Taipei or accept that it has a President. The UN mirrors this position.
The status quo is an indefinite stalemate, neither moving closer together nor splitting apart. Although officially there is an ongoing civil war, shots are no longer being fired and diplomatic discussions are ongoing (albeit very slow moving). A movement urging Taiwan to declare independence bubbles under the surface. Significantly, the January 2016 election of Tsai Ing-wen, Taiwan’s first female president, from the independence-seeking Demographic Progressive Party looks set to put increased strain on cross-strait relations with Beijing.
While the question of Taiwan’s sovereignty has no straightforward or immediate resolution, in reality, Taiwan and the PRC are now poles apart in many aspects of life. Their trajectories diverged rapidly in the years since 1949. While China remained communist, Taiwan became a democracy and embraced the free market. One of the four “Asian tiger” economies (along with Hong Kong, Singapore and South Korea), Taiwan underwent rapid industrialization between the 1960s and 1990s while China’s rapid economic growth phase didn’t get properly underway until the late 1990s. Linguistically, PRC adopted Simplified Chinese Characters while Taiwan retained traditional characters, meaning the countries no longer have a common written script (although they can generally both be mutually read and understood), and spoken accents have become more distinct.
Therefore, it is understandable that despite centuries of shared cultural history, today the relationship between Taiwanese and mainland Chinese is weak. Perhaps one of the greatest differences is between the healthcare systems – and healthcare outcomes – of the two countries. While China’s healthcare reforms are ongoing, government coverage is basic. The healthcare system is highly inefficient and out-of-pocket spend is high. Taiwan, on the other hand, has a well-established single payer, universal health insurance program, known as National Health Insurance (NHI) and administered by the Bureau of National Health Insurance (BNHI). Implemented in 1995, the NHI provides a uniform package of comprehensive health insurance to Taiwan’s 23.4 million citizens and foreign residents. This health insurance covers a range of services including outpatient visits, inpatient care, dental care, traditional Chinese medicine and prescription drugs. It is funded by taxes and salary contributions and healthcare providers (a mix of private and public) are reimbursed by fee for service, with reimbursed treatments restricted to a national formulary drawn up by the BNHI. A variable co-payment charge was introduced in 2005 in an attempt to control costs and deter rising demand.
The Taiwanese healthcare system has been widely praised, and it appears to have succeeded across a number of parameters. The government’s implementation of cost controls and regulation of fees have enabled it to provide acceptable quality of service at a relatively low cost, with a healthcare spend of 6.6% of GDP. Patients’ overall level of satisfaction with the system is high, due in large part to short waiting times and free choice of healthcare providers. The system and its infrastructure is also highly technologically advanced, with every citizen in Taiwan having a personal smart card, called the integrated service card. This acts as a link between patient and provider as it contains an electronic copy of the patient’s medical records which can be quickly and securely scanned by HCPs during check-ups.
Ultimately, Taiwan’s healthcare outcomes are favourable. Its citizens have a life expectancy of almost 80 years, while in China this is closer to 75. Infant mortality is approximately 4.4 per 1,000 in Taiwan compared to 12.4: 1,000 in China.
There are of course still challenges, in particular, the demands of an aging population. Having experienced a dramatic decline in fertility rates over the decades of industrialization, Taiwan has seen an unusually rapid demographic transition. The proportion of population aged 65 and over is set to increase from about 13% today to almost 25% by 2030. Given that the demands placed upon the healthcare system are greatest among this age group and that there is an associated reduction in the proportion of working population through which to fund the NHI, the healthcare system is becoming increasingly strained. This strain, and the resulting need for cost containment, is similar to what we have been seeing in Japan in recent years.
Clear room for improvement has also been identified in terms of the quality of healthcare relative to OECD countries. Patient satisfaction with length of consultation and level of communication with a doctor is considerably lower than the OECD average. Per capita the number of HCPs is lower, which is a particular challenge given the high utilization of healthcare. Despite the introduction of a co-pay charge, the average number of visits to doctors per person per year was 11.05-12.07 in 2014 – while lower than its neighbouring Japan (13.0) and South Korea (14.3), this was about twice that of the OECD median (6.6). The government is understandably trying to reduce this number to further improve cost efficiency and is experimenting with new payment methods in an attempt to reduce overutilization and waste.
Regardless of how we might classify it, the fact is that Taiwan’s universal, largely reimbursed healthcare system, combined with its aging population with increasing healthcare needs make it an important market for pharma – set to be worth over US$8 billion by 2020.
So back to the original question – is Taiwan a developed country? Together with South Korea, it is often placed in a kind of middle ground. It can be considered alongside Japan and developed markets globally, with which its healthcare system has more in common. Alternatively, it can be grouped with the rest of Asia given its geopolitical situation. However neither truly fits. Categorizing the world’s markets into “emerging” or “developed” is undoubtedly a crude and over-simplistic framework, and perhaps especially so in Taiwan, given its unique political situation and rapid economic development. It is clearly a particularly challenging case to classify in any sense – for want of a better classification, we consider it a “hybrid” market; a singular blend of developed and emerging qualities. In the case of healthcare, while it may have one of the most technologically developed electronic medical record systems in the world, it would seem the patient-physician dialogue has much more in common with its emerging market neighbors.
Regardless of how we might classify it, the fact is that Taiwan’s universal, largely reimbursed healthcare system, combined with its aging population with increasing healthcare needs make it an important market for pharma – set to be worth over US$8 billion by 2020. Inclusion on the BHNI reimbursement list is a particular priority given the uniformity of access via the single payer system, although it will be important to keep track of potential reforms to the payment structure that may impact this. The possibility of reunification with China, which has long worried some investors, looks even less likely in view of January’s election result, although it remains to be seen how this lean towards independence will impact the island’s economic development and future healthcare opportunity.
Since you're here...
... and value our content, you should sign-up to our newsletter. Sign up here