GSK corruption claims trigger wider concerns

Industry insiders say bribery and kickbacks for prescribing medicine an 'open secret' in China

The investigation by Chinese police into the British pharmaceutical giant GlaxoSmithKline Plc (GSK) has triggered concerns over corruption in the pharmaceutical industry across the country.

On June 28, police in Changsha, Hunan province, said on the micro-blogging service Sina Weibo that they were investigating senior management at GSK China for suspected "economic crimes". Chinese media also reported that an unknown number of the company's employees in three cities, including Beijing, Shanghai and Changsha, had been detained. The employees include at least one foreign executive.

GSK China has confirmed that Chinese authorities had visited the company's offices in Beijing, Shanghai and Changsha.

"We can confirm we are aware of an ongoing investigation by Chinese government authorities," Fang Fang, a public relations spokeswoman from the corporate communications department at GSK China, told China Daily on Tuesday.

"At this stage it is still unclear what the precise nature of the investigation is. We will of course cooperate with the inquiry," she said.

Changsha police declined to release further information and didn't specify the exact nature of the allegations on its micro blog. The phrase "economic crimes" is frequently used by Chinese authorities to refer to corruption.

The investigation came soon after GSK announced its own investigation into alleged bribery of doctors in China last month, which was prompted by an anonymous internal whistle-blower.

GSK sales staff had allegedly been offering cash payments, lavish dinners and all-expenses-paid trips to doctors in China, hoping to boost their prescriptions of GSK-supplied drugs, according to The Wall Street Journal.

But the drugmaker later said it found no evidence of corruption or bribery in its business operation in China.

"Over the last four months we have used significant resources to thoroughly investigate each and every claim from this single, anonymous source and have found no evidence of corruption or bribery in our China business," the company said last month in a statement.

Also last month, GSK ran into problems with its research and development sector in China. The company fired its China head of R&D, Zang Jingwu, for misrepresenting data in a scientific paper in 2010 that was published in Nature Medicine.

At present, GSK operates a global integrated R&D center in Shanghai and six manufacturing sites in China with total investment exceeding $500 million, according to the company's website.

GSK's problem is the latest example of multinational pharmaceutical companies facing bribery and corruption accusations in China.

One of the most striking cases of corruption in the pharmaceutical industry was that of Zheng Xiaoyu, former director of China's State Food and Drug Administration (SFDA). He was executed in 2007 after being convicted of taking 6.49 million yuan ($1.06 million) in bribes in return for approving hundreds of medicines, some of which proved to be dangerous. At the time, 38 multinational pharmaceutical companies jointly declared their intention to resist commercial corruption and prohibit their staff from offering bribes to doctors.

However, industry insiders said on Tuesday the statement was poorly implemented and the bribing of doctors by pharmaceutical companies is still an "open secret" in China.

Unlike Chinese medicine producers that hand over cash as kickbacks, the large multinational pharmaceutical companies usually adopt a covert and indirect manner.

As such, these large overseas companies will invite influential medical workers to attend academic activities or sponsor a hospital department's learning sessions in return for their drugs being prescribed by the doctors, a source with a large US-based pharmaceutical company said on Tuesday.

"The overseas companies, restrained by the laws in China and their own country, dare not bribe medical workers in a flagrant way," he said.

"But bribing doctors is very common in China, no matter whether it is Western medicine or traditional Chinese medicine.

"For instance, in return for prescribing 2,000 to 3,000 yuan drugs for tumor treatments, a doctor can get a 200 to 300 yuan kickback, or 10 percent of the drug's value," he added.

A public hospital doctor said: "In many public hospitals, doctor's salaries are not high. Their salaries are usually supplemented by payments from patients and kickbacks from drug suppliers."

Liu Xianquan, dean of the Law School of East China University of Political Science and Law, said: "There is a big problem in the current system for equipment and medicine procurement. In hospitals, doctors often have an option to purchase different medical equipment or drugs for patients. Because of this, many salespeople boost the sales of their drugs by bribing the doctors." Liu added decisions on purchasing drugs should be handed over to a third-party.

In addition to heavily punishing anyone taking bribes, Liu also noted it is necessary to increase penalties against the briber.