In a swipe against hospital administrators, Taiwan’s Bureau of National Health Insurance will slash reimbursement rates for hospitals starting in September, bureau officials said yesterday. The bureau expects to save $182.8 million a year by reducing prices paid to hospitals and clinics on 5,700 insured items, The Taipei Times reports.

The price reduction comes in the wake of an ultimatum the bureau issued to hospitals and clinics warning them to come clean on how much they really pay for drugs or risk prosecution. The results show that, on average, hospitals and clinics have been underreporting the discounts they have received from drugmakers by 39 percent, the bureau said.

Although medical care providers are permitted by law to pocket the difference between national health insurance payouts for drugs and the best price they can get from drugmakers, many hospitals and clinics have been colluding with drugmakers to conceal how much of a discount they are getting, BNHI auditors said.

Working in tandem with the Tainan District Prosecutors’ Office, the BNHI told medical care providers in December to honestly declare what they pay for their drugs - taking into account all forms of incentives from drugmakers, including free samples, gifts and trips.

The BNHI and district prosecutors’ offices nationwide will be vigilant against further attempts to pad pharmaceutical prices, says bureau Deputy Director of Pharmaceutical Affairs Huang Chao-ming, adding that there will be no more leniency for repeat offenders.

“If we find any instance of collusion, both the pharmaceutical company and the hospital will be punished,” he said. “Those who are responsible could be charged with fraud and falsifying documents, while pharmaceutical companies could find their products removed from the registry of approved drugs if there are viable alternatives.”

The new prices were calculated in accordance with a formula the BNHI and the pharmaceutical industry had previously agreed upon, Huang said. Although the difference between the price hospitals actually pay for drugs and the amount the health insurance system pays has been dubbed the “drug pricing black hole,” the price gap does serve a legitimate need, Huang says. “If there is no drug pricing differential, then there will be no incentive for hospitals to seek lower prices.”

The International Research-based Pharmaceutical Manufacturers’ Association (IRPMA) expressed grave concern about the BNHI’s decision, saying it would have a significant impact on drug firms. In a statement issued yesterday, the association accused the BNHI of driving away international drug firms as it heavily subsidizes local companies manufacturing generic drugs in a bid to limit costs.