Glaxo case shines light on China's medical bribery

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Associated Press

Posted on July 31, 2013 at 10:01 PM

Updated Thursday, Aug 1 at 2:34 AM

BEIJING (AP) — Huang Dongliang says his uncle was being ignored by his low-paid cancer specialist at a Chinese government hospital. So the family gave the doctor a "hongbao," the traditional red envelope used for gifts, with 3,000 yuan ($480).

"We could feel an obvious difference" after that, said Huang, who lives in the southeastern city of Quanzhou. "The doctor started to do more checkups, to give suggestions and advice and offered a detailed chemotherapy plan."

Such informal payments pervade China's dysfunctional health system. Low salaries and skimpy budgets drive doctors, nurses and administrators to make ends meet by accepting money from patients, drug suppliers and others. Accusations last month that GlaxoSmithKline employees bribed Chinese doctors to prescribe its drugs brought international attention to the flow of illicit money. But to China's public, the practice has long been common knowledge.

Many blame a system in which the country's hospitals nearly all are state-run but get too little money from Beijing. Most of China's 2.3 million doctors are hospital employees and are barred from adding to their income by taking on second jobs.

"Physicians are way underpaid and they need to find a way to survive," said Gordon Liu, a health care economist at Peking University's Guanghua School of Management.

The ruling Communist Party has promised higher health spending as part of efforts to spread more of China's prosperity to its poor majority. But with a population of 1.3 billion, the cost of a full-scale overhaul will be daunting for Beijing. The government faces other financial demands while economic growth is slowing.

Under the current system, the state-set price to see an oncologist or other specialist is as little as 8 yuan ($1.25) — less than the cost of a hamburger and too little to cover a hospital's expenses.

An experienced physician might earn 6,000 yuan ($980) a month. That top level is about average for an urban Chinese worker at a time when a 100-square-meter (1,000-square-foot) apartment in Beijing can cost more than 6 million yuan ($1 million).

To fill the gap, hospitals add surcharges to drug prices and assign employees sales quotas. Doctors and other employees accept money to move patients up waiting lists for surgery or to let them see the physician they prefer. Doctors, administrators and others take kickbacks from pharmaceutical companies to use more expensive drugs or use them more often. Bribes can also distort treatment by encouraging overuse of expensive drugs or procedures.

"There are many farmers and people without medical insurance, and it's they who suffer greatly," said Liu Junhai, head of the Commercial Law Research Institute of the ruling party's Renmin University.

Huang said that after his uncle was diagnosed with lung cancer last October, he went to the bigger nearby city of Xiamen, which had a reputation for "better medical ability and attitude."

"The doctor barely said anything useful after 12 or 13 days in the hospital," he said. "Then my cousin sent 3,000 yuan to get the doctor to pay more attention to my uncle."

Complaints about medical corruption have fueled public frustration at doctors, nurses and hospitals. Distraught families that pay extra are dismayed if a patient sickens or dies. That has erupted in a spate of stabbings and other violence against hospital employees.

Last year, 39 staff members of a hospital in the southern city of Gaozhou and five salespeople for drug companies were implicated in a kickback scheme that inflated medicine costs for patients, according to the newspaper Shanghai Evening Post.

The hospital director was fired and 382 employees returned 5.8 million yuan ($950,000) in improper payments, the report said.

"For the hospital's 35 drug suppliers, no matter which is selected, in order to give the hospital an incentive to sell more drugs, they will all find ways to make contact with doctors," the hospital director, Ye Guanrui, was quoted as saying. "In a hospital with 1,000 staff members, one-third will take kickbacks."

A half-dozen physicians and hospital employees approached by The Associated Press declined to talk about medical bribery, even on condition of anonymity, due to its sensitivity.

In the GlaxoSmithKline PLC case, police say employees of the British company paid doctors, hospital administrators and officials of the government and medical groups to encourage use of its medications.

Four employees have been detained. Police say they are suspected of laundering money through travel agencies to conceal the payments and evade Glaxo's internal anti-bribery controls.

Glaxo has tried to distance itself from the scandal, saying the employees acted without its knowledge and violated its policy.

Also last month, a rival drug manufacturer, AstraZeneca PLC, said police visited its office in what the company believed was an investigation of one of its sales representatives.

Last year, New York City-based Pfizer Inc. agreed to pay the U.S. government $60 million to settle charges its salespeople made improper payments to health care workers in China and other countries.

Estimates of how much outside money doctors and others receive range from 30 percent to up to 10 times their salaries, according to Peking University's Liu. He said he and colleagues have tried to gather data but hospital employees refuse to cooperate.

Despite the scrutiny directed at foreign drug suppliers, their Chinese rivals probably are more active at spreading around such payments, said Liu.

"In general, people would say domestic companies actually practice this informal payment approach almost as a common marketing strategy," he said. "For multinationals, this is not a common marketing tool."

The financial strain of health care on families is so great that it is distorting China's economy.

Until recently, few had health insurance and families saved a big share of their income to pay for medical emergencies. That left less for consumer spending, hampering the Communist Party's efforts to nurture self-sustaining economic growth based on domestic consumption instead of exports and investment.

The latest scandal could increase pressure on Chinese leaders to speed up promised health reforms.

The ruling party is promising more health care spending as part of an expansion of social welfare aimed at spreading China's new prosperity to its poor majority. The government says state-provided health insurance has been expanded to cover 95 percent of people in China, up from less than 50 percent in 2006.

Following the accusations against GlaxoSmithKline employees, the chairman of a government health panel acknowledged the link between low spending and graft.

Beijing has imposed price caps on several hundred drugs deemed essential. But that gave hospitals that add a surcharge to medicine prices an incentive to use more of them. The Cabinet's planning agency launched an investigation in July of production costs at 60 Chinese and foreign suppliers in a possible prelude to issuing new price standards.

The government has promised to ban surcharges by hospitals to reduce incentives to overuse drugs.

Beijing also has promised to pay doctors more, but Peking University's Liu said bringing them into line with comparable professions could require doubling or tripling salaries.

Instead, some reformers are urging Beijing to adopt a U.S.- or European-style system in which doctors can work second jobs and open private clinics.

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AP researchers Fu Ting in Shanghai and Zhao Liang contributed.

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