Pharmaceuticals

Wed, 07/28/2010 - 18:39

In this week's guest column, Bai Jianfeng, a senior reporter at People's Daily and executive member of the China Hospital Association, looks at how the culture of kickbacks in the pharmaceutical industry inflates drug prices.

Bai Jianfeng, senior reporter with People's Daily

Translated from the original Chinese by Maisie Shen

Shanghai. July 28. INTERFAX-CHINA - A document published on an Internet forum in May revealed that some doctors at Ningbo First Hospital were receiving kickbacks to prescribe an antibacterial drug equal to almost 20 percent of the retail price. This followed another scandal earlier in the month involving a hospital in Hunan Province which was found to be selling asparagus tablets at 13 times the ex-factory price. The two incidents have propelled drug pricing regulations into the public eye.

It is natural to ask who is profiting from such an arrangement. As an example, the asparagus tablet, an adjuvant cancer drug, was sold at an ex-factory price of RMB 15.5 ($2.28) to first-tier distributors, who in turn sold it at RMB 30 to 40 ($4.43 to $5.90) to second-tier distributors. They then sold the drug to the hospital at a price of RMB 185.22 ($27.32). The hospital charged a retail price of RMB 213 ($31.42), making a markup of 15 percent. The numerous stages in the distribution process seem to result in a huge markup on the final price.

However, according to industry insiders, the lion's share of the profits didn't go to the distributors, but to the doctors, who received an average kickback of RMB 80 ($11.8) each time they prescribed the drug. Drug distributors spent a great deal of money to establish connections with hospitals and provide kickbacks, reducing their share of the profit. It is this underlying arrangement that has created unreasonably high drug prices.

Most of China's drug manufacturers produce generic drugs, and for many of these there are alternatives on the market with similar therapeutic effects. As the overwhelming majority of prescription drugs in China are sold to hospitals, there is cut-throat competition for hospital supply contracts. According to the rules of the market, increased competition among suppliers usually lowers the price of a commodity. However, doctors heavily influence sales of prescription drugs, making them a special commodity to which this rule does not apply. Drug makers therefore resort to giving kickbacks to boost sales.

Generally speaking, the higher the price of a drug, the larger the kickback and the better the sales. The government has launched more than 20 campaigns in recent years which have failed to significantly reduce drug prices. Indeed, some manufacturers are simply unwilling to produce drugs which are subject to government price controls because it is so difficult to profit from them.

The problem of kickbacks is not limited to China's pharmaceutical industry alone: the United States recently passed the Sunshine Act, which requires doctors to disclose payments and gifts from companies. However, China continues to lack such legislation. It has long been an open secret in China that doctors receive kickbacks for prescriptions, but doctors are rarely convicted for accepting bribes. The introduction of proper laws is essential to root out these ingrained unethical practices.

The authorities must ensure that doctors receive a reasonable income and that the law holds them accountable for malpractice. Only through such actions can the problem of kickbacks solved.

The above is a personal opinion piece by the author. Its publication in no way implies that Interfax shares the views expressed in the article.