Corruption in the health sector can mean the difference between life and death. Poor people are worst affected. Medical staff can charge unofficial fees to attend to patients. They may demand bribes for medication which should be free. Or they may let patients who bribe them queue-jump. Corruption also costs lives when fake or adulterated medications are sold to health services.
Without proper checks from regulators, public health funds can easily disappear. World Bank surveys show that in some countries, up to 80 per cent of non-salary health funds never reach local facilities. Ministers and hospital administrators can siphon millions of dollars from health budgets. Or they can accept bribes. This distorts policy and denies people hospitals, medicines and qualified staff. Stolen funds also hamper efforts to beat major health challenges, such as malaria and HIV/AIDS.
It’s not only developing countries which suffer. Wealthy countries lose millions of dollars each year to insurance fraud and corruption. The solution?
China is expected to become the world’s second-largest pharmaceutical market by 2016, with total sales reaching $165 billion, according to IMS Health, a research firm.
Pharmaceutical expenditure accounts for up to 50% of total health spending in some developing countries. The high market value of products means they are a magnet for theft, corruption and unethical practices. Transparency International estimates that in some countries up to two thirds of all hospital medicines are “lost” through corruption and fraud.
The impact of corruption on the pharmaceutical sector is three-fold:
Health impact — waste of public resources reduces government capacity to provide access to good-quality essential medicines, while at the same time the risk of unsafe medical products on the market increases due to bribery of officials and/or to counterfeiting;to national health budgets;
Economic impact — corrupt pharmaceutical practices are extremely detrimental to national health budgets;
Government image and trust impact — inefficiency and lack of transparency reduce the credibility of public institutions and erode public/donor confidence in governments.
Corruption within the public sector also undermines donor efforts. For example, the Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM) has so far approved proposals totalling nearly US$ 19.5 billion and the Bill & Melinda Gates Foundation has awarded grants totalling more than US$ 13 billion under its global health programme. Successful implementation of such funds will depend on good governance at national level.
THE Chinese media frequently portray doctors not as life-saving heroes but as profit-seeking villains. Popular anger against medical staff sometimes spills over. One gruesome period in October last year saw at least six violent attacks by disgruntled patients on medical workers, including one that led to the death of a doctor. In 2012 there had been 11 such attacks and 7 deaths.
One of the main reasons for such hostility is the high price of medicines and the corruption that contributes to it. Visitors to Chinese hospitals are often greeted with a sign that reads “no pharmaceutical representatives allowed”, a ban that has existed for more than a decade. Yet a recent spate of scandals involving public hospitals suggests that few heed the prohibition.
The soaring spending on drugs has been fuelled by an ageing population, the expanded coverage of public health insurance and the increasing demands of a wealthier society. But it is also the result of a system that inflates the cost of medicine. Even the cheapest generic drugs sold in Chinese hospitals are much more expensive than their international benchmark.
Public hospitals in China are not so public in their funding: government subsidies only made up 9% of their revenues in 2011. By contrast, the sale of medicines accounts for 40%. Doctors are underpaid, so much of their income depends on how many drugs they prescribe. Hospitals are allowed to charge a 15% markup on the drugs they sell, so the more expensive the better. Consequently, China’s spending on medicines is 40% of total health expenditure, far higher than the average for OECD countries, of 16%. With few other sources of income, hospitals have to maximise their profits from drugs in order to subsidise medical services, says Zhu Hengpeng of the Chinese Academy of Social Sciences. So the high price of drugs is “institutionally justifiable”.
The government has taken a series of measures to attack this problem, including price cuts on a wide range of medicines, but doctors were quick to adopt countermeasures, such as switching to more expensive alternatives or prescribing more unnecessary drugs. According to the health ministry, the average Chinese person consumes ten times more antibiotics than the average American.
The government wants to keep mark-ups under control, says Mr Zhu, but “you can’t expect the horse to run if you don’t let it feed”. As a result, the regulations have exacerbated the problems of corruption, he argues: “since you don’t let me take kickbacks openly, I’ll do it under the table.”
In July local authorities in the city of Zhangzhou in Fujian province recovered over 20m yuan ($3.3m) that more than 1,000 medical professionals had taken in bribes from pharmaceutical representatives. Drug firms have a strong incentive to get their products into the hands of doctors at hospitals, where 80% of China’s drugs are sold, and as a consequence many have stretched the definition of marketing and distribution. Chen Wenling, an economist in the research office of the State Council, China’s cabinet, estimates that kickbacks usually account for more than 20% of the final retail price of a drug sold.
Some distributors issue or buy inflated invoices to extract large sums of cash, creating slush funds to bribe officials and doctors. In August Chinese authorities found two pharmaceutical distributors in Hebei province had issued fake invoices worth 776m yuan ($127m).
The government announced a graft investigation in July into the Chinese operations of GlaxoSmithKline (GSK), a British conglomerate, in what appears to be part of a broader effort to crack down on bribery in health care. Four senior executives of the company have been detained over allegations of funnelling up to three billion yuan ($490m) to travel agencies to fund bribes to doctors and government officials. In an interview with state media, Liang Hong, a detained GSK executive, estimated that without this sort of spending their prices could be reduced by 20-30%. GSK has reiterated its opposition to the alleged misconduct and suggested it will lower its prices in China.
The introduction of generic brands has driven down drug costs elsewhere in the world, but promoting their use is difficult in China. The incentive system works against the use of cheap drugs. Scandals involving unsafe local food and drugs add another obstacle: many doctors and patients favour foreign brand-name drugs, even if they are more expensive.
Since 2009, in an effort to reduce the cost of medicines, authorities have required hospitals to buy them through bidding managed by health officials in each province. But the tenders do not always require brands to compete against generic drugs, so there is little pressure on prices. Where competition does develop between generic brands, the profit margins of drug companies are squeezed as they strive to offer bigger kickbacks to hospitals. When that happens, Chinese patients still do not benefit from cheaper prices.
Lancet Global Health, a British journal, published a study in October showing that in 2012 the lowest-priced generic drugs were significantly harder to find in Shaanxi province than they had been two years earlier. It attributes the decrease in availability to the provincial bidding system, which squeezed the margins of some drug companies so much that they would rather not make or supply the drugs. According to state-owned media, that has created a shortage of some life-saving drugs across the country.
Pharma is in the middle of a strategic crisis, if a report published at the start of 2013 by Roland Berger Strategy Consultants is to be believed. The study, ‘Pharma’s fight for profitability’, claims that increasing pressures on both costs and prices, allied to patent expiry and regulatory changes, are shrinking profit margins in the pharmaceutical sector.
Nearly 80% of participants in the study believe pharma companies will have to adapt their business models to the changing marketplace. ‘Even though global sales have risen in recent years, profit margins have dropped considerably,’ said Michael Dohrman, a partner at Roland Berger. For example, high-growth emerging markets such as China will comprise nearly 40% of the global market by 2016, and companies will have to increase focus on these areas if they are to thrive.
The purpose of the World Medical Association is to serve humanity by endeavoring to achieve the highest international standards in Medical Education, Medical Science, Medical Art and Medical Ethics, and Health Care for all people in the world.” High standards, exceedingly high. Unfortunately the president-elect of the WMA, Dr Ketan Desai, has just been arrested and charged with accepting a bribe to accredit a medical college in the Punjab.
According to Indian newspapers, Dr Desai, a urologist, was a consummate political operator who had amassed a fortune through corrupt practices. It was through him that private medical colleges were accredited, the number of seats could be increased and annual inspections were held.
This is not even the first time that the resourceful Dr Desai has been charged with corruption. Back in 2001, he was removed from his position as the president of the Medical Council of India. However, he clawed his way back and was once again elected as president of the MCI in 2009. It is not for nothing that his personal website describes him as “"an apostle of genuine imagination, innovation and creativity which has resulted in his enviable ascending to key positions in the world of medicine.”
In his second term as president of the MCI, Dr Desai was a crusader for medical ethics and banned Indian doctors from accepting gifts from pharmaceutical companies.
Without proper checks from regulators, public health funds can easily disappear. World Bank surveys show that in some countries, up to 80 per cent of non-salary health funds never reach local facilities. Ministers and hospital administrators can siphon millions of dollars from health budgets. Or they can accept bribes. This distorts policy and denies people hospitals, medicines and qualified staff. Stolen funds also hamper efforts to beat major health challenges, such as malaria and HIV/AIDS.
It’s not only developing countries which suffer. Wealthy countries lose millions of dollars each year to insurance fraud and corruption. The solution?
China is expected to become the world’s second-largest pharmaceutical market by 2016, with total sales reaching $165 billion, according to IMS Health, a research firm.
Pharmaceutical expenditure accounts for up to 50% of total health spending in some developing countries. The high market value of products means they are a magnet for theft, corruption and unethical practices. Transparency International estimates that in some countries up to two thirds of all hospital medicines are “lost” through corruption and fraud.
The impact of corruption on the pharmaceutical sector is three-fold:
Health impact — waste of public resources reduces government capacity to provide access to good-quality essential medicines, while at the same time the risk of unsafe medical products on the market increases due to bribery of officials and/or to counterfeiting;to national health budgets;
Economic impact — corrupt pharmaceutical practices are extremely detrimental to national health budgets;
Government image and trust impact — inefficiency and lack of transparency reduce the credibility of public institutions and erode public/donor confidence in governments.
Corruption within the public sector also undermines donor efforts. For example, the Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM) has so far approved proposals totalling nearly US$ 19.5 billion and the Bill & Melinda Gates Foundation has awarded grants totalling more than US$ 13 billion under its global health programme. Successful implementation of such funds will depend on good governance at national level.
THE Chinese media frequently portray doctors not as life-saving heroes but as profit-seeking villains. Popular anger against medical staff sometimes spills over. One gruesome period in October last year saw at least six violent attacks by disgruntled patients on medical workers, including one that led to the death of a doctor. In 2012 there had been 11 such attacks and 7 deaths.
One of the main reasons for such hostility is the high price of medicines and the corruption that contributes to it. Visitors to Chinese hospitals are often greeted with a sign that reads “no pharmaceutical representatives allowed”, a ban that has existed for more than a decade. Yet a recent spate of scandals involving public hospitals suggests that few heed the prohibition.
The soaring spending on drugs has been fuelled by an ageing population, the expanded coverage of public health insurance and the increasing demands of a wealthier society. But it is also the result of a system that inflates the cost of medicine. Even the cheapest generic drugs sold in Chinese hospitals are much more expensive than their international benchmark.
Public hospitals in China are not so public in their funding: government subsidies only made up 9% of their revenues in 2011. By contrast, the sale of medicines accounts for 40%. Doctors are underpaid, so much of their income depends on how many drugs they prescribe. Hospitals are allowed to charge a 15% markup on the drugs they sell, so the more expensive the better. Consequently, China’s spending on medicines is 40% of total health expenditure, far higher than the average for OECD countries, of 16%. With few other sources of income, hospitals have to maximise their profits from drugs in order to subsidise medical services, says Zhu Hengpeng of the Chinese Academy of Social Sciences. So the high price of drugs is “institutionally justifiable”.
The government has taken a series of measures to attack this problem, including price cuts on a wide range of medicines, but doctors were quick to adopt countermeasures, such as switching to more expensive alternatives or prescribing more unnecessary drugs. According to the health ministry, the average Chinese person consumes ten times more antibiotics than the average American.
The government wants to keep mark-ups under control, says Mr Zhu, but “you can’t expect the horse to run if you don’t let it feed”. As a result, the regulations have exacerbated the problems of corruption, he argues: “since you don’t let me take kickbacks openly, I’ll do it under the table.”
In July local authorities in the city of Zhangzhou in Fujian province recovered over 20m yuan ($3.3m) that more than 1,000 medical professionals had taken in bribes from pharmaceutical representatives. Drug firms have a strong incentive to get their products into the hands of doctors at hospitals, where 80% of China’s drugs are sold, and as a consequence many have stretched the definition of marketing and distribution. Chen Wenling, an economist in the research office of the State Council, China’s cabinet, estimates that kickbacks usually account for more than 20% of the final retail price of a drug sold.
Some distributors issue or buy inflated invoices to extract large sums of cash, creating slush funds to bribe officials and doctors. In August Chinese authorities found two pharmaceutical distributors in Hebei province had issued fake invoices worth 776m yuan ($127m).
The government announced a graft investigation in July into the Chinese operations of GlaxoSmithKline (GSK), a British conglomerate, in what appears to be part of a broader effort to crack down on bribery in health care. Four senior executives of the company have been detained over allegations of funnelling up to three billion yuan ($490m) to travel agencies to fund bribes to doctors and government officials. In an interview with state media, Liang Hong, a detained GSK executive, estimated that without this sort of spending their prices could be reduced by 20-30%. GSK has reiterated its opposition to the alleged misconduct and suggested it will lower its prices in China.
The introduction of generic brands has driven down drug costs elsewhere in the world, but promoting their use is difficult in China. The incentive system works against the use of cheap drugs. Scandals involving unsafe local food and drugs add another obstacle: many doctors and patients favour foreign brand-name drugs, even if they are more expensive.
Since 2009, in an effort to reduce the cost of medicines, authorities have required hospitals to buy them through bidding managed by health officials in each province. But the tenders do not always require brands to compete against generic drugs, so there is little pressure on prices. Where competition does develop between generic brands, the profit margins of drug companies are squeezed as they strive to offer bigger kickbacks to hospitals. When that happens, Chinese patients still do not benefit from cheaper prices.
Lancet Global Health, a British journal, published a study in October showing that in 2012 the lowest-priced generic drugs were significantly harder to find in Shaanxi province than they had been two years earlier. It attributes the decrease in availability to the provincial bidding system, which squeezed the margins of some drug companies so much that they would rather not make or supply the drugs. According to state-owned media, that has created a shortage of some life-saving drugs across the country.
Pharma is in the middle of a strategic crisis, if a report published at the start of 2013 by Roland Berger Strategy Consultants is to be believed. The study, ‘Pharma’s fight for profitability’, claims that increasing pressures on both costs and prices, allied to patent expiry and regulatory changes, are shrinking profit margins in the pharmaceutical sector.
Nearly 80% of participants in the study believe pharma companies will have to adapt their business models to the changing marketplace. ‘Even though global sales have risen in recent years, profit margins have dropped considerably,’ said Michael Dohrman, a partner at Roland Berger. For example, high-growth emerging markets such as China will comprise nearly 40% of the global market by 2016, and companies will have to increase focus on these areas if they are to thrive.
The purpose of the World Medical Association is to serve humanity by endeavoring to achieve the highest international standards in Medical Education, Medical Science, Medical Art and Medical Ethics, and Health Care for all people in the world.” High standards, exceedingly high. Unfortunately the president-elect of the WMA, Dr Ketan Desai, has just been arrested and charged with accepting a bribe to accredit a medical college in the Punjab.
According to Indian newspapers, Dr Desai, a urologist, was a consummate political operator who had amassed a fortune through corrupt practices. It was through him that private medical colleges were accredited, the number of seats could be increased and annual inspections were held.
This is not even the first time that the resourceful Dr Desai has been charged with corruption. Back in 2001, he was removed from his position as the president of the Medical Council of India. However, he clawed his way back and was once again elected as president of the MCI in 2009. It is not for nothing that his personal website describes him as “"an apostle of genuine imagination, innovation and creativity which has resulted in his enviable ascending to key positions in the world of medicine.”
In his second term as president of the MCI, Dr Desai was a crusader for medical ethics and banned Indian doctors from accepting gifts from pharmaceutical companies.
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