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GSK Bribery Scandal and Chinese Medical System Reform

Q1. GlaxoSmithKline is the latest pharmaceutical company being accused of winning business illegally in China. Why do so many multinational pharmaceutical companies act illegally to win more business in China?


A1. Recent years, the medicine sales increased slowly in western countries but increased sharply in China. Worldwide multinational pharmaceutical companies expect to earn profits from Chinese market. According to the prediction made by McKinsey Company, the Amount of expense of the Chinese health could reach 1000 billion USD up to the year of 2020. Induced by this attractive amount of money, lots of multinational pharmaceutical companies came to China to open their Development Centers and built a giant sales group which made up of 25,000 people. The market competition is severe, and due to the deficiency of Chinese market regulation and supervision, the medical industry becomes the rich ground for growing of the illegal performances.

Q2. Just a year ago, GSK pleaded guilty to misdemeanor charges in the United States and paid a $3 billion fine. How do people in America view this punishment? To what degree has the punishment affected the medical industry in the United States?


A2. The Vice Minister of the Ministry of Justice (James Cole) said that the fine amount is the hugest one that has never happened before, and it is an express and tough warning to all companies which dare to break laws and regulations.

Q3. An anti-corruption storm has been sweeping across China since the new leadership taking office. In the past few months, China has targeted foreign firms on multiple fronts, including over alleged price-fixing, quality controls and consumer rights. Does that show Chinese officials’ all dimensional policy to fight against corruption?


A3. It does. Since November of 2012, Chairman Xi Jinping pledged to fight against corruption. Meanwhile, in order to enlarge the extent of medical insurance, Chinese government works hard to decrease the price of medicines. Besides, the bribery mainly exists in the medical system. It just clashes the Chinese officials’ policies.

Q4. GSK scandal has being a waking up call for Chinese pharmaceutical industry. How to make foreign companies doing business in China keep to the exact letter of law? Should stricter laws be introduced to toughen fight on medical corruption?


A4. Actually, China has issued lots of laws and regulations to regulate foreign companies’ performances during their daily business operation, and China also grants more policy preferences to foreign companies compared with those to local companies. I think the some of the preferences could be diminished if foreign company violates Chinese law. To take down corruption, it is useful to reform the current medical system and introduce stricter laws.

Q5. Chinese regulators often work to keep costs low through the implementation of price ceilings. However, it seems not work as well as predicted. How to strengthen regulation of the pharmaceutical industry to make patients affordable to medicines and treatments?


A5. The medicine price is composed of not only costs of the medicine itself, but also the expenses spent during supervision for accessing the market. When there is a bribery case, the price also includes the “black money” spent to hospital, doctors and governmental officials. Thus, the medicine marketing price is always several times than its true value. To prevent from bribery and decrease the marketing price, it is better to introduce detailed laws and regulations to regulate the process for medicine to access into Chinese market according to the current situation.

Q6. IMS Health, which tracks pharmaceutical industry trends, expect China to overtake Japan as the world’s second biggest drugs market behind the United States by 2016. On the flip side, a lack of visibility for drug approval procedures, medical bribery, a lack of effective governmental supervision and poor corporate support for drug research are all adverse factors in the industry. How should the government build a more fair and transparent industry order?


A6. For a long period, the Chinese system takes medicine approval as the most important issue but ignores the importance of supervision of the process of accessing and circulating of medicines. It leaves large room for illegal actions such as bribery. For example, in order to let a kind of medicine into Chinese market, one should have “connections” with different governmental organs which has the approval right. Such connections might not be in legal way. We should weight supervision more important.

Q7. Increasing the revenue of hospital by excessive sales of drugs is accused of the root of illegal commercial competition in medical industry. How to change the situation?


A7. Before the Chinese Economic Reform, most of hospital relied on the funds provided by the government. However, along with the Reform, many hospitals have been asked to find their own source of funds to uphold their livings. Therefore, the sales of medicines and medical equipments have become the most important revenue of Chinese hospitals. It caused so many illegal competitions among pharmaceutical companies within medical industry. To change this situation, the most important thing is to solve the problem of the revenue of hospitals. If hospitals and doctors are satisfied with their earnings, they would have no excuses or necessary to take bribery. Besides, it is also important to reform and regulate the market, and reform the medicine access process so that the pharmaceutical companies have no way to bribe others for competition.

Q8. GSK collaborated with travel agencies to funnel bribes to doctors and officials by creating fake “conference services” as expenditure for GSK to misappropriate funds, some of which would be spent on bribes. It is difficult to differentiate medical training sponsorship and treating activities involving bribery. Is it a new challenge to the medical anti-corruption work in not only China but also the whole world?


A8.  No matter which country you are staying in, bribery is always being provided as illegal. In 2004, GSK was found taking bribery to Italian doctors and other professionals. In 2006 and 2007, GSK was found falsely advertising their products under unfair competition. Without mentioning other pharmaceutical companies, we could easily tell from GSK that bribery is taking not only in China but worldwide covering the shelf of “conference services”. It is a new challenge to the medical anti-corruption work in the whole world.

Q9. Many doctors in China believe their incomes fail to reflect how hard their work and their true worth. And it is believed that the government doesn’t pay the hospitals enough to cover the cost of diagnosis and treatment of patients. Are doctors in China worth higher salaries? Is this one of the reasons for the doctors to taking bribery?


A9. It is one of the reasons. One analyses shows that the income of foreign doctors is 40 times more than that of Chinese doctors. Whether the income of Chinese doctors is in accordance with their competence is in controversy. Some of doctors are forced to take bribery due to the low level living standard.

Q10. According to Reuters, a Britain-based analyst who covers GSK and who declined to be named said that Chinese authorities are likely to take a hard line with foreign firms. Should differences in the treatment in China accorded to local and foreign firms account for multinational pharmaceutical companies’ illegal actions?


A10. There are indeed many preferences for foreign companies, but it should not be the excuse for multinational pharmaceutical companies to take illegal actions. The purpose of the preference is to promote business and create a comparatively fair market environment. The liability of utilizing advantages by minor foreign companies should not be borne by all the foreigners.

Q11. The pharmaceutical industry is also a place where the interests of the government clash with private enterprise. The state finances medical care for many people, making the government one of the drug companies’ biggest customers. How to balance the interests of both the government as well as private enterprises?


A11. For the interest of the common people, China, India, Brazil and other developing countries are trying hard to decrease the medicine price. However, the pharmaceutical companies are trying hard to let their products into Chinese market in order to make profits. The prices of their medicines have been increased during the access approval process due to bribery. Thus, take down bribery in the course of approval could benefit both Chinese government and private enterprises.

Q12. In China, international brands often have a valuable edge over local competitors in terms of public trust, especially in the medical field. Could this case shift the public opinion towards international brands?


A12. The consumers may be more careful while buying products from international branded companies. The quality and safety of medicine is as important as the quality and safety of food. Goodwill is very important to an enterprise no matter it is local or multinational.

Q13. Four years ago, China launched its massive health care reform plan in a bid to provide basic health care to all citizens by 2020. How is that program going on? Will GSK scandal affect the health care reform in China?


A13. The health care reform in China is still in process. Some criticized that Chinese reformed medical system is similar as the one in USA, but it does not fit for Chinese current situation thus caused a lot of problems. The GSK scandal will stimulate the process of reform, since it just points out the existing problems.

Q14. What differences of medical industry between the United States and China? Is the US also suffering a lot from medical bribery? How does the government act towards medical bribery?


A14. In the America, the private medical services covers 85% people, only minor people lean on the governmental medical services. Most of the medical insurance is commercial. The medical system in the USA is controlled automatically by market. However, in China, most of the insurance is provided by government, and the medical system is still regulated by government. Although American medical services have many advantages compared with Chinese ones, it still has lots of problems. In order to gain more profits, private doctors always make false diagnosis report and persuade the patient to choose costly treatments and operations. Since there are lots of private hospitals and doctors in the USA, they may not abide by the same professional rules or moral disciplines. Government should take medical bribery seriously and reform the current medical system to make the process of the sales of medicine clear.

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