Unshaven and dressed in a blue and grey striped T-shirt, Liang Hong looked nondescript on screen. But his words, broadcast on Chinese television last July, were explosive. He told two policemen how, as a vice-president of GlaxoSmithKline, he had channelled concealed payments via a local travel agency.
On the same day, Gao Feng, a leading fraud investigator, held a highly unusual briefing for foreign journalists at which he likened the British-based pharmaceutical company to the “big boss” in a “criminal partnership”, paying up to Rmb3bn ($500m) to officials and doctors. He claimed it used 700 travel agencies, some in turn offering money and “sex bribery” to GSK executives to win their favour.
This week Sir Andrew Witty, GSK’s chief executive, unveiled worldwide measures aimed at removing incentives to sales staff that encouraged excessive marketing, strengthening transparency and cutting funding to doctors. The moves follow both the China scandal and a record $3bn fine from US regulators last year.
While the changes build on reforms Sir Andrew launched in the US to tackle the legacy of his predecessors, the revelations in China were personally embarrassing for him. Most had happened since he took over GSK in 2008, winning the job partly on the basis of his knowledge of Asia acquired during a senior posting in Singapore.
Since the accusations, which depressed GSK’s sales in China by 61 per cent and spread concern to its multinational rivals, Sir Andrew has scrambled to find a resolution. He stepped up his efforts this month with a first visit to the country since the scandal, accompanying David Cameron, the British prime minister, on a delegation but spending much of his time in meetings of his own.
Ethical concerns Industry practices under scrutiny
The case has sparked broader concerns about the difficulties of operating in emerging markets and about the pharmaceutical industry’s ethical practices. It raises narrower ones about GSK’s own conduct and the responsibility of senior management.
In so far as Chinese investigators are probing for the facts – rather than responding to broader political or cost-cutting pressures, as some observers suggest – they need to determine how far the company was complicit, suffered from poor compliance or was a victim of sophisticated undetectable fraud.
While the GSK probe is yet to lead to charges or convictions, it has echoed broader concerns about drug company practices around the world. Only last month, Johnson & Johnson agreed a $2.2bn fine in the US after officials targeted practices including incentives paid to pharmacies to boost prescriptions, fees to sympathetic doctors to give favourable talks on its drugs, and kits of medicines mixed with lollipops to encourage use by children.
In the US alone, in the past three years cumulative fines from government prosecutions exceeded $13bn. Elsewhere, from Western Europe to Central Asia and Latin America, local regulators have been stepping up scrutiny of similar practices, mirrored by probes from the US and the UK.
In China, the authorities have detained four of GSK’s top Chinese executives and, according to local media, questioned another 40 inside and outside the company. Its British finance chief in Shanghai was banned from leaving the country, while Mark Reilly, who ran the national operation and left shortly before the accusations, has since returned and remains under similar restrictions.
Sir Andrew has described the alleged corruption as “shameful”, launched internal inquiries, and despatched senior officials to Shanghai, including a replacement for Mr Reilly.
The ripples have spread more widely. Whistleblower allegations against several other foreign drug companies, including Sanofi, Novartis, Eli Lilly, and Bayer, were reported by the Chinese media after the GSK investigation. Industry insiders say local drug companies have also been investigated, and staff detained, though no charges have been announced publicly.
Homegrown corruption: Local company ‘commissions’
Yet the steady stream of allegations in the Chinese press has ceased in recent months, and the crisis atmosphere seems to have calmed. Bruno Gensburger, head of the pharmaceutical working group at the EU Chamber of Commerce in China, says things are “going back to normal”.
“My feeling is that it had a big psychological impact?.?.?.?and after the GSK case many companies reinforced their compliance regulations, but we already had tight compliance regulations so I don’t really know what more we could do,” he says.
That might appear a defensive industry posture. But across the healthcare spectrum, from doctors to hospital officials to sales representatives for rival local companies, there is agreement that foreign pharmaceutical groups are not the main culprits of corruption in the Chinese healthcare industry.
Local companies are far more profligate with so-called “commissions” to doctors because they are not subject to the kind of scrutiny that foreign companies face under global anti-bribery laws.
A medical student in a leading Shanghai hospital says: “The supervising doctor in my department sees as many as 80 patients in a morning, and prescribes as much as Rmb100,000 worth of drugs. She definitely takes commissions from drug companies, but that only affects what she prescribes when there are two similar drugs.”
That situation normally arises when both are local generic businesses, industry analysts say. “In China, foreign drug companies are the best boys, but the parents beat them first,” says one industry insider, echoing a sentiment heard frequently from Chinese doctors who say foreign drug companies pay for educational activities that no one else will pay for in China.
“Financial flows – both legal and illegal – tied to drug and device sales are funding perhaps 60-80 per cent of total hospital costs,” says George Baeder, an independent drug industry adviser. “Without this funding, the current system would collapse.”
Many drug analysts see kickbacks as structural, and therefore hard to eradicate: central and provincial Chinese governments cannot afford to pay doctors a living wage, and many patients cannot afford to pay the true cost of care. Up to now, Beijing has turned a blind eye as pharma companies find ways to subsidise doctor salaries and underwrite their medical education.
Because corruption is core to the system, it cannot be eradicated by government fiat – though industry analysts say that fining GSK and imprisoning some of its employees would send an important signal.
At a time when the new government of Xi Jinping has launched an anti-corruption campaign across Chinese society, some habits have already begun to change. One Chinese consultant says she is often invited by drug companies to give lectures in public hospitals.
“There used to be a group of people escorting me everywhere and taking me to big meals, but since the GSK thing happened foreign companies have cancelled their invitations and there are very few invitations from local companies either,” she says. “Now I fly on my own and only one person meets me at the airport”.
Price pressures Crackdown on costs will continue
Despite these changes, most foreign drug companies have experienced only a modest impact on sales. Chinese doctors say they often have little alternative to using foreign drugs, which command a significant price premium, despite being mostly off-patent medicines. Local companies make generic alternatives for many, but doctors and patients do not trust their quality.
Beijing is determined to bring down the cost of such medicines, with consolidation of drug distribution, new quality controls on domestic producers and a revamping of the hospital financing system. “This is just year five in the government’s 12-year healthcare reform plan” to bring quality affordable care to 1.3bn people by 2020, says Franck Le Deu, author of a recent McKinsey report on pharmaceuticals in China. “It’s early days yet.”
By 2020, the drug market in China could top $310bn in retail sales value, the McKinsey report says, making it the world’s largest market after the US. But up to now, it accounts for only 3.8 per cent of the global revenues of the top 10 foreign drug companies. Sales have been rising fast, but now they are coming under increasing price pressure, creating commercial uncertainties alongside the concerns sparked by the unresolved probe against GSK.
There is no shortage of rumours in China about what the outcome of the specific GSK probe might be. The company is widely expected to escape corporate charges, with its four senior Chinese executives likely to go to jail but no punishment for foreign executives. GSK could face financial penalties. Industry insiders caution that, given the opaque nature of China’s judicial system and the almost total silence of GSK on the issue, reading the tea leaves on the eventual outcome is more of an art than a science.
If the facts are as the Chinese authorities claim, investigators and investors alike must question whether the company’s systems were adequate or it turned a blind eye as sales rose.
Whatever the truth, it and other pharmaceuticals companies are bracing for price cuts ahead and the need to be ever more cautious on their practices in emerging markets as well as more industrialised ones.
Additional reporting by Yan Zhang
GSK首席执行官安伟杰爵士(Sir Andrew Witty)最近公布了该公司在全球范围内的改革措施，旨在废除一些鼓励过度营销的销售激励措施、增加透明度，并削减为医生提供的经费。在这些举措出台之前，GSK不仅在中国丑闻曝光，去年还被美国监管机构处以30亿美元的创纪录罚款。
尽管GSK案迄今还没有做出任何指控或定罪，但这起风波发生时，世界各地都在担忧医药公司开展业务的手段。就在上月，强生(Johnson & Johnson)在美国同意支付22亿美元罚款以了结如下指控：为药店提供激励，让它们多开强生的药，付费给医生让他们说强生药品的好话，以及将棒棒糖与药品打包在一起以鼓励儿童使用。
近几个月来，中国媒体不再集中火力抨击制药公司，危机氛围似乎有所缓和。中国欧盟商会(EU Chamber of Commerce in China)医药工作组负责人布鲁诺?根斯布格尔(Bruno Gensburger)表示，情况正在“恢复正常”。
北京方面决心压低此类药品的成本，整合药品分销渠道，对国内生产商出台新的质量控制措施，并改革医院融资体制。乐诚铎(Franck Le Deu)表示：“中国政府提出了为期十二年的医疗改革计划，即到2020年向全国13亿人提供民众负担得起的优质医疗服务，而现在才第5个年头。目前仍然是初期阶段。”乐诚铎是麦肯锡(McKinsey)最近发表的一份关于中国医药公司的报告的作者。