In a hospital on the outskirts of Beijing, the hallway outside the main nurses’ station was unusually empty yesterday. “We usually have four or five representatives from the pharmaceutical companies who hang around here, but today they’re all gone,” said one mid-level hospital executive. “They wait out there and try to invite doctors for meals and massages.”
These sales representatives, all of whom work for Chinese pharmaceutical companies, are just the most obvious manifestation of an endemic culture of bribery and kickbacks that pervades China’s health sector, according to doctors, investors and senior medical officials.
A widening Chinese investigation into bribery and corruption in the pharmaceutical industry has so far led to the detention of more than a dozen employees of GlaxoSmithKline in China, and is expected to affect other companies as well. Sir Andrew Witty, GSK chief executive, has warned investors of the potential impact of the investigation, which is focusing on deals totalling Rmb3bn ($488m). So far, no Chinese companies have been named in the industry-wide investigation, although the practice of bribing doctors, hospital administrators and health officials is rampant.
“All foreign and domestic pharmaceuticals operating in China are equally corrupt,” said one senior health official in Beijing, who asked not to be named. “There are many methods used to pay bribes but the majority of the money goes to the government to convince them to approve new drugs. Hospitals and doctors end up with a relatively small share of corruption proceeds.”
In 2007 the former director of China’s State Food and Drug Administration, Zheng Xiaoyu, was executed by lethal injection for taking bribes and dereliction of duty. Zheng was found guilty of approving unsafe medicines after taking about Rmb6.5m in bribes from pharmaceutical companies, resulting in some patient deaths.
During his eight years as head of the State FDA, Zheng ordered the approval of more than 150,000 medicines, an annual average of well over 100 times the number of medicines the US FDA usually approves.
In an interview with state television last week, Liang Hong, a GSK China vice-president who has been detained by police, said he mainly bribed officials through travel agents, who provided him cash and then charged the company for travel or meetings.
An executive from one of the travel agencies used by GSK said in the same interview that the amounts of cash could be as large as Rmb500,000.
The 2012 annual reports of half a dozen listed Chinese pharmaceutical companies reveal the companies paid out enormous sums in “sales expenses”, including travel costs and fees for sales meetings, marketing “business development” and “other expenses”.
The largest expenses were travel costs or meeting fees and in every case the expenses of the companies’ sales team were several times the net profits?each?company earned last year.
In the case of Guizhou Yibai Pharmaceutical, the company earned a net profit last year of Rmb333.3m while its sales expenses came to a total of Rmb1.25bn, including meetings expenses of more than Rmb295m and wages of just Rmb88m.
The largest expense for the company’s sales team of 2,318 people was Rmb404m spent on travel, for an average of more than Rmb174,000 per sales representative for the year. That is roughly what it would cost every single sales representative to fly 10 times a month between Beijing and Guiyang, where the company is based.
An executive at Guizhou Yibai said the travel costs were normal and included accommodation and food expenses. He also said the company had never paid any bribes through travel agencies.
Where corruption has afflicted the industry, it can cut both ways, according to the senior health executive in Beijing. “We’re talking corruption on top of corruption because pharmaceutical company representatives will give a Rmb5,000 bribe to a doctor or hospital but tell their company they gave a Rmb10,000 bribe and then keep the difference,” this executive said.
Other common methods used by sales reps to bribe officials, senior doctors or hospital administrators include opening bank accounts or charge accounts at luxury goods stores and handing the debit card or VIP card directly to the recipient.
Shaun Rein, a Shanghai-based consultant and author of “The End of Cheap China”, said he does not work at all in the healthcare sector because it is “too dirty”. “This is a systemic problem and foreign pharmaceutical companies are in a conundrum,” he said. “If they want to grow in China they have to give bribes. It’s not a choice because officials in health ministry, hospital administrators and doctors demand it.”
Mr Rein once considered investing in a Chinese hospital specialising in heart disease, but endemic corruption convinced him that the risks were too high. He said doctors at the hospital earned official salaries of less than $1,000 a month, but with kickbacks they pulled in $300,000 a year.
“The government has been trying to crack down on this practice for more than a decade,” Mr Rein said. “But nothing seems to change.”
One investor, who asked not to be named, added: “Whenever you touch a Chinese hospital there are underpaid doctors and companies that are willing to stuff the [sales] channel by paying backhanders.” His company decided not to take a small stake in a regional drug distributor?after realising that the business model “was clearly based on paying backhanders?in?the?range?of 15-20 per cent”.
中国对医药行业的贿赂腐败发起了日益深入的调查，迄今已拘留了葛兰素史克(GlaxoSmithKline)中国公司的数十名员工，预计还会波及其他药企。GSK首席执行官安德鲁?威蒂爵士(Sir Andrew Witty)警告投资者警惕调查的潜在冲击。这次针对葛兰素史克的调查重点是总额高达30亿元人民币（合4.88亿美元）的交易。目前为止，这场席卷整个行业的调查尚未提及任何中国企业，不过在中国，贿赂医生、医院管理人员以及卫生官员的行为十分猖獗。
以贵州益佰制药(Guizhou Yibai Pharmaceutical)为例，去年该公司的净利润是3.333亿元人民币，但销售开支总计达12.5亿元人民币，其中会议费用逾2.95亿元人民币，而工资支出仅为8800万元人民币。
一位常驻上海的顾问、《廉价中国的终结》(The End of Cheap China)一书作者雷小山(Shaun Rein)表示，他绝不在医疗行业工作，因为这个行业“太肮脏了”。他指出：“这是一个系统性问题，外国药企进退两难。如果它们想要在中国发展，就必须行贿。这不是一个选择性问题，因为卫生部官员、医院管理人员以及医生都会索贿。”