China to Crackdown on Illegal Medicine Sales

China announced a crackdown on illegal medicine sales on Wednesday and said it would pursue stricter regulations for the pharmaceuticals industry, according to Reuters:

The State Food and Drug Administration said the six-month campaign would also target illegal online drug sales and the sale of fake traditional Chinese medicine. It gave no details on possible changes to regulation.

“We must resolutely punish illegal acts, expose illegal enterprises, recall problematic products,” Wu Zhen, the agency’s deputy commissioner, said in a statement. [Source]

Officials did not explicitly mention British drug maker GlaxoSmithKline (GSK), which faces allegations of bribery, but a spokesperson said the regulator would not hesitate to punish any company found to have engaged in corrupt practices. Authorities said on Monday that they had detained four GSK executives in connection with the ongoing investigation into the company, and David Barboza of The New York Times reported on Wednesday that another GSK employee has been barred from leaving the country:

Steve Nechelput, the company’s vice president for finance in China, has not been detained or prevented from traveling or working in China, and there is no indication that he is the focus of the investigation. But a person involved in the case said he was being prevented from leaving the country and had sought the advice of British consular officials here. [Source]

One expert on healthcare in China told Bloomberg that the GSK case “just represents the tip of the iceberg,” and will be used to send a message to other pharmaceutical companies to clean up their practices in the country. The GSK investigation has “sent tremors through multinational pharmaceutical firms in China,” according to Reuters. Katie Thomas of The New York Times reports that political winds are shifting for foreign drug makers, which now employ more sales agents in China than the United States:

The rash of investigations is one measure of how critical the health care market has become to global companies — and to the Chinese government. The Chinese have made no secret of their goal of pushing the country’s domestic drug industry into more direct competition with the world’s top manufacturers.

As a result, global companies can expect more scrutiny, said Tarun Khanna, a professor at Harvard Business School who has studied foreign investment in China. “Practices that may have been O.K. some time back may be more scrutinized by foreigners now,” he said, especially as the government seeks to shift from an export-based economy to one that is also focused on selling to Chinese consumers. “They’re trying to get more balance back.” [Source]

China executed its chief drug regulator in 2007 for accepting bribes, but a member of China’s public security also told Bloomberg that corruption continues to keep drug prices at unusually high levels. For Quartz, Lily Kuo looks at why bribery is rampant in China’s healthcare system:

With the dismantling of agricultural collectives in the late 1970s, China’s formerly state-supported medical system lost its legs. Government funding was scaled back, and doctors and hospitals started deciding how much to charge for services and drugs, Yanzhong Huang, a senior fellow for global health at the Council on Foreign Relations, tells Quartz. “You could blame the entire system,” he said. “The introduction of the capitalist system while there was no rule of law…lack of funding, low government salaries—that all contributed.”

Now, it’s common for pharmaceutical firms to bribe doctors and hospitals to prescribe their medicine or buy their medical equipment. Doctors and nurses are still considered public servants and paid meager wages—as low as 800 renminbi in rural areas or 3,000 renminbi in larger cities ($130-$500) a month. As a result, they lean on bribes, sales at hospital pharmacies and operations for the bulk of their income. Last year, seven hospital staff in Shenzhen were jailed for accepting kickbacks. China’s former head of its food and drug agency was executed in 2007 for taking bribes.

The government can’t afford to raise salaries because it would be pressured to across all public sectors, Liao Ran, a program coordinator for East Asia at Transparency International, which tracks corruption, tells Quartz.

Patients also often have to pay “tips” to hospitals and doctors in order to be treated. When patients are seen, they end up paying for drugs and treatment they don’t need. “To increase profits, hospitals overtreat and overexamine,” Rao Keqin, party secretary of the Chinese Medical Association told the consultancy firm McKinsey, according to a report (pdf, p. 105) published in April. [Source]


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