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When Healthcare Budget Cuts Are Not the Answer: Lessons from Taiwan

14 September 2012 Jing Zhang

While attending the ISPOR 5th Asia-Pacific Conference at the Taipei International Convention Center in early September, I was impressed by Taiwan's calm and tranquility. The people there are enjoying universal health insurance coverage, with a single payer ensuring low-cost but quality healthcare for all the citizens. Everyone seems to be happy: the healthcare consumers "can afford to be sick," while the pharmaceutical companies enjoy steady growth. Looking forward, I expect the healthcare market to keep growing, driven by the momentum unleashed by the universal coverage.

At the conference, I also joined heated discussions over the challenges faced by many Eurozone countries-quite a contrast to Taiwan. The Eurozone governments' austerity policy has led to budget cuts on public healthcare expenditure with adverse consequences.

Like Nobel Prize winner Professor Krugman, I question the wisdom of budget cutting at the height of recession-whether it was during the Asian financial crisis of the late 1990s or the global financial crisis of 2008-it delays economic recovery and hurts the healthcare market.

To be specific, on the demand side, the governments' cost-cutting policy has led to reduced healthcare expenditure and payments by the governments, while the private sector has not picked up the slack. Consumers burdened with higher co-payments have reduced medical treatment. As a result, the demand for drugs has fallen, thereby driving down pharmaceutical sales.

On the supply side, pharmaceutical companies-already facing post-patent-expiry price competition from generics and biosimilars-have responded to Governments'reduced reimbursement and drug prices with reduced investment or even withdrawals, thus reducing drug supplies.

The interweaving of demand and supply factors has led to a net reduction in prices, drug sales and patients' access to drugs. In the end, no one is happy: the pharmaceutical companies end up with reduced revenue, while the consumers end up with reduced access to drugs and healthcare. Against such a backdrop, I expect the Eurozone to have negative growth in health spend in 2012.

As I was about to leave the conference, someone asked me: "When will the Eurozone start to have strong growth in drug sales and health spend again?" My answer: "when the economy is fully recovered and that will be many years away."



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