China Central Television (CCTV) recently sent more shockwaves through China’s pharmaceutical market when it reported that the Ministry of Public Security has opened an investigation into Glaxo Simth Kline Investment Co. Ltd (GSK), one of the biggest British multinational pharmaceutical companies operating in China. This announcement came among reports that local GSK officials had engaged in widespread bribery on the mainland.
As pharmaceutical consular told China’s Financial Times, “Since the new minister of Ministry of Health took office, the prices of medicine have been re-audited. We had predicted this moment would come, but this action comes earlier and more broadly” than expected. Another observer similarly worries that foreign companies’ “gold rush” into China’s pharmaceutical market has come to the end.
Over the last decade, China’s gray and infant pharmaceutical sector has swallowed many foreign companies, such as Eli Lilly and Pfizer, whose Chinese subsidiary was similarly accused by U.S. authorities of making bribe payments to Chinese officials. According to China’s National Development and Reform Commission, 60 pharmaceutical companies are currently under investigation, including Astellas (Japan), Merck (US), and three other foreign companies.
Whatever the merits of the GSK case, one fact cannot be ignored—– in China’s complicated commercial environment, factors like a dissatisfied ex-worker, local competitor’s manipulation, political infighting, or a local government’s health care reform could all cause a company to face legal troubles.
A recent survey showed that more than 80 percent of China’s internet users believe that commercial bribery is pushing up the cost of medicine. However, for China’s most challenging field— health care— ending bribery does not go far enough.
In fact, the biggest reasons bribery is so prevalent in China’s health care system are embedded in the system itself. Before China’s reform and opening up 35 years ago, most hospitals relied entirely on government funding. However, as Beijing reformed its capital markets, more and more hospitals were required to find new sources of funding.
Medicine has become a lucrative source of income for many hospitals in China.
According to current regulations, hospitals are permitted to turn a 15 percent profit on selling medicines to patients, which leads doctors to sell more and expensive medicines to patients. This is at the heart of the crisis in China’s pharmaceutical sector. It is also one of the reasons that pharmaceutical companies need to bribe hospitals and doctors.
Another reason bribery is so prevalent in China’s pharmaceutical sector is because doctors and nurses are so poorly paid. In China, without income from bribery, the average doctor or nurse makes about 3,000 RMB a month. Yet, China has a huge patient population— for instance, Beijing Chao-Yang Hospital’s receives 11,000 patients every single day— which requires health care professionals to work long hours.
A related and serious crisis in China’s health care sector is the lack of trust between doctors and patients. For doctors, this lack of trust has resulted in their profession being held in gradually lower public regard. From the patients’ perspective, however, doctors’ drive to increase their income is threatening the care they receive, which is often excessive and unnecessarily expensive.
Last year, China began experimenting with some reforms to deal with these and other problems in the country’s health care system. For example, in Beijing, the hospitals that were included in the experiment were prohibited from turning a 15 percent profit on medicine, and instead had to sell them at the price they paid.
In turn, the participating hospitals had two ways to recoup the profits they lost from medicine sales. First, a number of services fees were instituted such as ones for people undergoing surgery or in need of nursery care. Secondly, the government began offering higher subsidies to some of the hospitals experimenting with the reforms.
For example, the President of Beijing’s Chao-Yang Hospital, Chen Yong, said on the Chinese TV program, Yang Lan One On One, that his hospital has benefited from the city government increasing its subsidy by 15 percent. Additionally, more of these subsidies could be distributed to doctors and nurses for the first time.
Like in many parts of the world, health care in China is facing a myriad of challenges, which are partly made worse by the fact that China has the world’s largest population. As such, these reforms should be seen as the early part of a larger odyssey.
Colleen Wong is a reporter for China Power.