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  • Aug 21, 2014
  • Updated: 5:48am
Monitor
PUBLISHED : Thursday, 01 August, 2013, 12:00am
UPDATED : Thursday, 01 August, 2013, 6:01am

Nothing uniquely Chinese about Glaxo bribery case

The pharmaceutical industry routinely bribes doctors in the West to get its drugs prescribed, although the practice is given a thin façade

The media have been in a frenzy for the last few weeks over the detention of four GlaxoSmithKline employees in China.

Allegedly the four had channelled billions of yuan through a travel agency in order to bribe doctors to prescribe the British pharmaceutical company's drugs.

Reports have variously described the case as an attack on foreign companies by protectionist local authorities, a politically driven plot to marginalise the princeling children of late Communist Party general secretary Hu Yaobang, or a populist move by China's new leadership to bring down drug prices.

It may well be all three. China's leaders have always been adept at killing multiple birds with a single stone.

But one thing the Glaxo case is certainly not, despite what the reports make out, is uniquely Chinese.

When Glaxo chief executive Andrew Witty insisted last week he knew nothing about any bribe-paying by the company's staff in China, telling London's The Daily Telegraph "this looks like a number of individuals that have worked outside our systems", he was being disingenuous.

Sure, no doubt Witty was unaware of the details. But allegations that his employees were paying bribes to secure sales certainly came as no surprise. In the drug industry, it's almost standard practice.

Over the last 15 years or so, big pharmaceutical companies have switched from a model based on developing new drugs to one based on the aggressive marketing of existing products.

Marc-André Gagnon, a professor of public policy at Carleton University in Ottawa, likens the way the business works to three customers at a restaurant table. The first orders lunch. The second eats it. And the third pays the bill.

At this restaurant, however, the waiter is paid on commission. Not surprisingly, he presses the first customer to order the most expensive dishes on the menu. He may even promise him a couple of martinis on the house if he orders an especially lavish meal, whether or not it suits the second customer's digestion, or the third's pocket.

The first customer here is the doctor, responsible for prescribing drugs. The second is the patient. And footing the bill, the third is either the patient's insurance company or the state health-care system, depending on the country.

In reality, drug companies splash out on a lot more than martinis. The stories of 3 billion yuan (HK$3.78 billion) passed to a travel agent suggests Glaxo's staff were funding expensive jaunts to reward doctors for prescribing their drugs.

This is a time-honoured tactic in the West. Ostensibly, the doctor is attending a medical conference, which just happens to be in an exotic location. In reality he is enjoying a free holiday in a luxury beach resort.

Drug companies also pay doctors handsomely for consultancy services, writing papers, and participating in clinical trials. All are bribes for prescribing, or rather over-prescribing, drugs.

In China, where medical salaries can be just a few hundred yuan a month, doctors rely heavily on this extra income.

But the practice is just as common in other markets. According to Gagnon, in the US, the pharmaceutical industry spends some US$40 billion a year on promoting drugs to doctors. That's US$61,000 for each physician.

And drug companies often overstep the mark into illegality. Since 1991, they have paid US$29 billion in fines in the US alone.

By far the biggest offender is Glaxo. Just last year it paid US$3 billion to settle a US federal suit for paying bribes and unlawfully promoting three drugs. Overall, since 1991, Glaxo has paid a stunning US$7.6 billion in US penalties (see charts).

So, no, there is nothing especially Chinese in the latest drug-industry corruption case, except perhaps for the amount of media attention it is getting.

tom.holland@scmp.com

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This article is now closed to comments

Giwaffe
Yes, exactly. The pharmaceutical industry operates on a quid pro quo basis and this is really nothing unusual. Under the current framework, aggressive marketing is really the most attractive way to do business.
SpeakFreely
In China most of the biz are involved in corruption to certain extend. Most MNC are using subcontractors to avoid being involved in corruption. But their subcontractors, local firms, always sell using bribe as a tool. Nothing new and not likely to change. But it does hurt the industry as corruption cost 10 to 30% of the overall cost and cut into the profit margin. That's why in China u almost never see an IT company making profit or normally very low net margin. It hurt the industry as companies lost that margin to reinvest to improve productivity. That's why IT companies in China is still lacking behind.
John Adams
Yes, and excellent article !
It's just surprising that it takes something like the GSK case in China and a diligent financial reporter to dig out this kind of nasty stuff and and bring it to the public's attention.
An equally diligent SCMP general reporter could well do to email Mr Holland's article to the head of GSK in UK and ask for his personal comments
I hope that some senior people at GSK in both China and UK do some serious time in jail over this.
dunndavid
Excellent article. What those charts show me is not that GSK is the most unethical, it's that all of the drug companies play the game. Comparing the amount of marketing expense one company to the next or the fines they incur could be related to the markets they are most active, their mix of products and many other factors, not just the drug company's "aggressiveness." For instance if a certain drug company had a mix of new products that profited from aggressive marketing, than that company's marketing and fines would both be high. If you are a company that produced more commodity-like or mature products, marketing costs and fines might both be low. The real culprit here is not the drug companies but separating costs from the party that actually pays. The solution probably would be health insurance attached to the individual, high deductable level and free-market health care with perhaps a government program for truly catastrophic expense.
dunndavid
Excellent article. What those charts show me is not that GSK is the most unethical, it's that all of the drug companies play the game. Comparing the amount of marketing expense one company to the next or the fines they incur could be related to the markets they are most active, their mix of products and many other factors, not just the drug company's "aggressiveness." For instance if a certain drug company had a mix of new products that profited from aggressive marketing, than that company's marketing and fines would both be high. If you are a company that produced more commodity-like or mature products, marketing costs and fines might both be low. The real culprit here is not the drug companies but separating costs from the party that actually pays. The solution probably would be health insurance attached to the individual, high deductable level and free-market health care with perhaps a government program for truly catastrophic expense.

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