I wouldn’t be exactly “leaking state secrets” by revealing that China’s hospitals expect bribes from pharma companies in order to stock and prescribe their drugs. The practice is so well embedded and accepted that it has its own name: “pharmaceuticals feed the hospitals”. And this month there is an excellent article from UK-based Chinese researcher Dr Yang Wei, from the University of Kent, which explains how the whole process works from pharma company via hospital pharmacy to the prescribing doctor. To explore the details, Dr Yang interviewed four doctors, five hospital managers and four pharmaceutical industry managers from Shanghai. Broadly speaking, the problem of overprescribing and corruption in prescribing arises because China’s hospitals get very little or no financial support from local government. They are essentially self supporting. Despite its increasing prosperity, China spends only a tiny proportion of its GDP on health (about 5%, less than Afghanistan) , and hospitals see very little of that money. As one manager told Yang:
“I think the biggest problem is that there is not enough money for healthcare sector. It is
also related to whether health care is a policy focus of the local government. I remember
that in the past the government would allocate certain percentages (of their budget) to
subsidise healthcare sector, but now it seems there is no such policy… At least in my
district, hospitals are almost financially independent.”
Hospitals face rising costs, rising demand for services and yet the fees they can charge for services are capped by order of the central government. This means many hospitals are in serious financial difficulty, running into debt and unable to pay their bills for supplies. The problem is especially bad for regional and rural hospitals faced with the double whammy of wealthier patients preferring to go to city hospitals, while the local government is starved of funds due to migration of the working population to the cities.
The hospitals must therefore obtain revenue from the sales of pharmaceuticals and medical services. To ensure they receive a fixed and predictable income, the senior managers set financial and servicing targets for each hospital department. These department managers in turn set targets for individual doctors.
As one hospital department manager said:
“We have targets for each quarter, and we have to fulfil it to generate enough profits. There are regular meetings in the hospital. We discuss which medical department is not doing well in terms of meeting targets. We, doctors, all want to generate profits, and the hospital wants to generate more profits as well.”
The financial revenue performance targets are thus written into the doctors’ contracts, with a financial bonus dependent on meeting those quotas. According to the doctors interviewed by Yang, a typical bonus for a junior doctor is around Y2500 quarter, for a doctor whose basic salary is 5000 a month.
However, the bonuses depend on the level of seniority and also on the speciality. Doctors working in surgery and orthopaedics can earn much higher bonuses because they see more patients and can offer more interventions and services, Yang notes. Conversely, doctors in specialities such as paediatrics have a lower income from bonuses as they tend to prescribe less.
Doctors see nothing wrong with earning bonuses for overprescribing or overservicing, because their basic salaries are so pitiful for their high workload and high level of expertise:
“(Being a doctor) is a job that requires years of training and deals with lots of risks. But
their salaries, compared with their foreign counterparts are quite low…People laughed at
them and said, ‘scalpels do not even value as much as a barber’s scissors’. Do you think
this is fair?”
As well as receiving their hospital bonus for prescribing, doctors also receive kickbacks from pharmaceutical companies, based on their level of prescribing. Drugs have high profits margins for pharma companies – and some of this is passed on to the prescribers.
“The profit for the pharmaceutical company is around 5-15% of the wholesale price, and 10-30% for the hospital.” – pharma industry manager.
This is where it gets interesting. According to Yang, the pharma companies have promotional budgets that they disburse to hospital in the form of bribes (incentive payments/commissions) to the doctors – but more importantly to the hospital pharmacy committee. This committee, which includes the director of the pharmacy department, the vice hospital president, directors from various medical departments, and some other specialists, decides which drugs are purchased and used by the hospital.
The committee members are targeted by pharma industry representatives, who develop personal relationships with them and offer bribes.
“The most important thing is to know who are the key persons in the Hospital
Pharmaceutical Committee …targeting the right persons is the key. The second step is to
persuade the persons to speak for you at the meeting. We offer money…It is possible that
the first time they will reject you… in the end, they will accept your money … Some
medicines need a lot of money to get listed in a hospital, especially for Chinese medicines.”
Once a hospital has agreed to stock the drug, the pharma company must then target individual doctors with offers of commissions to prescribe their particular drug. Doctors may be offered a commission of 15-20% of the drug price. This encourages doctors to prescribe the most expensive drugs and for long periods. Sometimes doctors are paid indirectly, with the drug company paying them ‘lecture fees’ or ‘travel fees’. ”
“Sometimes, a doctor does not need to give a lecture. We issue a receipt under a title of ‘fees or academic lectures’. We will transfer the money to the doctor as a way to pay for drug remunerations. This way, everything is legal.”
This was seen in the major crackdown on GlaxoSmithKline in Shanghai, which resulted in a hefty fine. But according to Yang, such payments have been standard practice for all drug companies.
” Drug remunerations are paid monthly based on how much the doctor prescribes. In Shanghai, a doctor work in outpatient clinics in a Class III hospital can earn up to 50,000RMB a month from pharmaceutical companies,” said one pharmaceutical representative.
As in other countries, pharmaceutical reps develop close and friendly relations with doctors in order for them to prescribe their drugs. They take the out for dinner and may also support them in informal ways such as by giving them lifts.
Because of the commissions, doctors are encouraged to look at the price of the drug first and foremost, rather than whether it is the most appropriate drug – or the best value for the patient. Doctors are also encouraged to prescribe worthless ‘tonics’, which have a generous markup and which they know they can offer to patients without fear of too many side effects:
“The most widely used medicine in my company is X. It could be used on a lot of diseases, for recovery. Drug remuneration is around 20% of the retail price…You may not need it, but anyway, it will not kill you (so doctors will prescribe it)…”
In the concluding remarks, Yang Wei notes that the Chinese government is now trying to move away from the commission system for drugs in hospitals. It has encouraged ‘zero markup’ policies for hospital pharmacies and has also introduced lowest price tenders to ensure that inexpensive drugs get first priority. However, Yang notes that faced with the need to generate revenue, hospitals simply sidestep these reforms by creative accounting and supply deals in collusion with the pharma companies. And when barred from generating income from drug sales, hospital simply switch to profiteering from other services such as medical devices such as cardiac stents (Y2000 each) – or offering unnecessary checkups and tests.
“If pharmaceutical revenues are cut down, then we have to increase other fees or increase the use of other services, such as the use of various diagnostic procedures. This is what is
happening now, and the healthcare costs will continue increase and remain high … In order to follow the policy and to keep the profit of the hospital, hospitals may promote use of high-tech diagnostic procedures, special wards and other methods to increase non-pharmaceutical expense…”
Yang concludes that the problem of overprescribing and/or overservicing will remain until the Chinese central government and the Ministry of Health solves the problem of adequate resourcing for hospitals. Local governments have no incentive to enforce curbs on their local hospital revenue – and the central government has little enforcement clout at the local government level.
Link to full article: Health Economics, Policy and Law