Medical malpractice – curing chronic sleaze in China's healthcare system

Doctors take kickbacks for prescriptions, but corruption takes many forms. The root causes run deep.

Photo by Kuang Da

Photo by Kuang Da

By HUANG Hua, TANG Zhuoya


FAN Jianghe has been a pharmaceutical representative for eight years. His job, officially, is to sell cardiovascular drugs and cancer treatments to doctors. But his relationships with practitioners extend well beyond anything that can be considered professional. He visits them during the day or night, and "talks with them" to "know them better". 

“We pay attention to our clients’ needs in every regard and make them happy,” Fan said. As for why should a pharmaceutical representative make doctors happy, Fan replied with silence.

Bribery and outright extortion

Recently, he was told to keep his head down. An anti-corruption campaign is sweeping through the medical profession, and heads are rolling all around. His boss doesn’t want to be the next target.

Since the beginning of the year, 155 hospital bosses have been charged with lining their pockets in various ways, twice as many as the whole of last year. In July, the Central Commission for Discipline Inspection (CCDI), China’s anti-corruption agency, decided to publicize, investigate and eliminate corruption in every corner of the pharmaceutical sector, but the campaign has been running in the background for months already.

Fan likes to claim that what he does is perfectly legal. He does admit, however, that many of his peers are involved in bribery and outright extortion, the norm in his industry.

People are already tired of stories of doctors taking kickbacks in exchange for prescribing a particular drug. It's nothing new. But what Big Pharma wants, Big Pharma tends to get. If suborning doctors is the sales strategy – and it is - there are plenty of ways to do it. And not all of them are as obvious as random red envelopes popping up in unexpected places.

Just another legitimate operating expense

The number one choice is to sponsor lectures and conferences. These events were not conceived as professional development, nor to help save lives. From the outset, everyone involved is well aware of why they are there – to pay and receive fees, entertainment expenses, flights and hotel rooms.

Simply by showing up to an event in his or her own hospital, a doctor is paid upwards of 500 yuan, often very much more. If the doctor stays long enough to speak at the event, the hourly rate starts at 1,200 yuan to lecture on more or less anything vaguely connected to the matter in hand. Specialists charge upwards of 3,000 yuan.

For the sponsor of the event, these payments are just another legitimate operating expense in accounting terms.

“If an auditor asks, it’s nice to have a photo or some other form of evidence. But in actuality, it doesn’t even matter whether the conference took place,” said a person familiar with the practice.

Three is a crowd

Pharmaceutical representatives often attend one another’s events to make them look legitimate. When we think of lecture, we perhaps visualize a hall, packed with busy professionals, snatching time out from their punishing schedules to better themselves in ways that benefit current and future patients.

In fact, three attendees around a table in a coffee shop can constitute a lecture. Five is considered more than enough to be convincing. For larger – more distant - conferences, it's not just medical professionals any more. It's administrators, HR staff, and sometimes families and friends.

“Doctors know what these events are about. They don’t care who is in the audience,” Fan said.

Investigators looked into the 150 million yuan spent by Sanofi, a French multinational pharmaceutical and healthcare company, on “conference sponsorship,” millions were found to have been spent on nonexistent events.

In May, Big Pharma's academic events came under the CCDI microscope, and many conferences scheduled for the summer have been canceled or postponed. Hospitals in Guangdong, Guangxi and Zhejiang have banned doctors from giving lectures or attending. Any fees received since 2018 must be returned.

Open to negotiation

In China, most prescriptions are picked up at hospital pharmacies. For a drug to be made available there, both the department head and the pharmacy manager must give their approval.

“The department head usually asks for a million yuan. Then he sends a buying order to the pharmacy. Another 200,000 to 500,000 is needed there,” says a doctor at a 3AAA hospital, the highest grade in the system.

The doctor also says that many pharmacies claim to be independent, but are connected, if not controlled, by large hospitals.

“A patient is sent to one such pharmacy for a 5,000-yuan prescription because it’s supposedly cheaper and faster. Of the 5,000, at least 2,000 goes directly back to the hospital,” he said.

For consumables – devices and drugs used on a regular basis, such as syringes, swabs, and painkillers – payment depends on usage. The proceeds are then distributed among doctors, usually according to rank. The head anesthesiologist at Zhejiang Lishui Hospital recently got seven years in prison for having received 3.3 million yuan in kickbacks. He had overcharged by as much as 25 percent for consumables and even asked doctors to use more anesthesia than needed to boost usage.

When a competing brand reaches out, hospitals go back to current suppliers and ask for better deals, better for themselves, not for the patients or the hospital.

“The hospital can end up buying from more than one supplier. But how much of each one’s product is used or prescribed is open to negotiation,” the doctor said. “Representatives from different companies can get into a bidding war. Hospital staff love it.”

Hey, big spender!

The method of payment stimulates the creativity of the reps. Equipment makers “donate” expensive apparatus. Cash bribes are dressed up as “expenses.” Representatives from Tonghua Yusheng, a company based in Beijing, were found to have spent 1.7 million yuan on lunches. All of them love to eat at the same food court.

Sales and marketing, rather than R&D, make up the biggest cost for many pharmaceutical companies. Of the 488 listed in Shanghai, at least sixty reported sales and marketing expenses of more than one billion yuan in 2022. Twenty-nine companies spent over 50 percent of their total revenue trying to push their drugs.

Among the biggest spenders, Buchang, Baiyunshan, and CR Sanjiu reported 7.4 billion, 5.8 billion, and 5 billion yuan of sales and marketing. Their R&D costs were 280 million yuan (3 percent of sales and marketing), 800 million yuan (14 percent), and 600 million yuan (12 percent).

It’s not uncommon either for drug makers with less than 100 million yuan of R&D investment to pour over a billion into marketing.

Most of these companies make money from generic drugs, flooding the market with largely similar options. Take the example of Metformin, a common diabetic drug, there are 123 approved generic brands (over 200 including slow-release formulations). Counting other diabetic treatments, doctors literally have hundreds of drugs to choose from.

This doesn’t stop new players from coming in. A year before Merck’s Januvia is set to expire, 36 applications have already been to make the generic version.

Industry insiders say the situation is the same for other common conditions, such as simple viruses and hypertension.

A few legitimate events

The government wants to weed out sham acts and encourage innovative drugs, but generics still make up 95 percent of the market. Many so-called innovative drugs are simply different formulations of existing patented drugs.

The CCDI has published many case studies since July, making it clear that regulators are more than knowledgeable of all the current forms of bribery and are determined to root them out. Local governments are investigating and banning whenever they can. Pharmaceutical companies have promised to try harder to be honest, moral and upright.

One obstacle to the campaign is that not all sales and marketing activities are bribery, and that a few conferences are actually legitimate events, with clear medical purposes. The problem is rooted in the way hospitals, and even the healthcare system, operate.

Public hospitals are not supposed to make a profit, and in many provinces, their affiliated pharmacies have recently been banned from making profits from selling drugs.

Someone has to pay

While the conferences are sometimes scams, the doctors are genuinely overworked and underpaid. Hospitals and health authorities are delighted if doctors find ways to supplement their incomes. The leadership is all too happy to turn a blind eye to dubious activities, because if they don't, doctors are going to demand a lot more money for doing their legitimate work.

Pharmaceutical companies bribe hospitals not only to choose their drugs, but to actually pay for them. Public hospitals are often the biggest, best, and sometimes the only healthcare facility in a city or region. Suppliers have hardly any recourse if payments are slow. In such cases, who gets paid first is simply a matter of who sends the nicest gifts to the CFO.

The anti-corruption campaign is working in tandem with ongoing healthcare reform, which is hard, and takes time, but must be done. Proposed solutions are largely in the vein of weakening the monopolies of big hospitals and strengthening oversight. But there is no quick fix.