China Sets Anti-Bribery Tone With Drug Clean-Up
China has embarked on a recent campaign to clean up its drug sector of aggressive selling tactics that often include bribing doctors and hospital officials to boost sales. The choice of the drug firms looks smart, as it takes aim at a rapidly transforming Chinese medical sector where many business practices are still in their formative stages. More broadly speaking, this kind of campaign also sends a strong signal that Beijing won’t tolerate the kind of bribery and other aggressive and often unethical business practices that have become far too common in many Chinese industries.
The ongoing drug sector crackdown dates back to early last month, when the powerful National Development and Reform Commission (NDRC) began probing some 30 drug companies for price fixing, including global giants like Merck (NYSE: MRK), GlaxoSmithKline (GSK) (London: GSK) and Novartis (Switzerland: NOVN). Another probe later focused on GSK, which came under investigation for allegedly using up to 3 billion yuan ($480 million) to bribe doctors and hospital officials to buy its drugs.
The GSK probe alleged the company used travel agencies and other third parties to funnel the money to doctors and other medical professionals, treating them to lavish vacations and giving gifts to encourage them to buy GSK drugs. In some cases, medical professionals were also allegedly given money outright, according to media reports.
After the GSK probe was disclosed, an anonymous internal whistleblower made similar allegations about French drug maker Sanofi, saying the company paid out 1.7 million yuan as “research grants” to 500 doctors at hospitals in Beijing, Shanghai, Hangzhou and Guangzhou in 2007. That was followed by allegations by an anonymous former Novartis employee of similar practices at the Swiss drug maker.
Following all those disclosures, the official Xinhua news agency reported late last week that China’s State Administration for Industry and Commerce (SAIC) has launched a new probe into the rampant bribery and other aggressive sales practices that have become endemic in the country’s pharmaceuticals industry. (English article) While individual allegations still need to be verified, what’s clear is that China’s drug sector is in grave danger of being overrun by bribery and other disruptive business practices that could create chaos in the market and ultimately end up hurting consumers.
The good news is that China’s health care system is in the midst of a radical transformation, as Beijing rolls out a new national network of government-supported hospitals and clinics to replace the old socialist-era system where people received care through their state-owned work units. The fact that the new system is still taking shape means much of this rampant bribery is still a relatively new phenomenon, and that strong action by Beijing could stamp out the problem before it becomes routine business practice.
This kind of clean-up would not only improve business practices in the health care sector, but would also send a strong message that such behavior also won’t be tolerated in other industries. That broader elimination of bribery and other unethical behavior will ultimately improve China’s business climate for everyone by creating a level playing field where everyone can compete based on open, transparent practices.
Bottom line: China’s clean-up of the drug industry could be part of a broader crackdown on the bribery problem in many of its business sectors.
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