Systemic flaws within China’s health care system

August 7, 2013 by Steve Downie

The pharmaceutical industry in China is currently facing intense scrutiny at home and abroad, following the arrest of expatriate executives working for GlaxoSmithKline’s Chinese operation. Senior executives of the British pharmaceutical company are accused of distributing illegal bribes amounting to Rmb 3bn ($489m) to doctors and officials.

Some analysts have seen the naming and shaming of GSK as just another part of the new administration’s “anti-corruption” crackdown. In fact, the GSK case is a symptom of systemic flaws within the Chinese health care system, and this crackdown serves only to divert attention from the root causes of corruption.

To understand why Chinese doctors take bribes, you just need to look at their paycheques. Compared internationally, Chinese hospital doctors’ pay is painfully low, at just 1.2 times the average Chinese wage. Newly-qualified doctors in Liaoning province earn just a few hundred dollars a month.

Meanwhile, government hospitals receive only 10% of their funding from government subsidies, with the rest made up by selling high volumes of treatments, drugs and tests to patients. As a result, hospital managers encourage doctors to prescribe expensive drugs through sales targets, and award bonuses to doctors who generate more revenue for the hospital.

Yiyao yangyi” or “feeding doctors through sale of medicines,” has been the status quo for decades, and in that time doctors have been forced to weigh patients’ medical needs against financial imperatives. In one study published in 2011, researchers hired actors to go to hospital and pretend that they were suffering from illnesses which did not require treatment with antibiotics. Sixty-two percent were prescribed antibiotics anyway; 39% still had antibiotics foisted on them even after they told the doctor that they knew the drugs would have no effect.

The GSK case shows that medicine sales are not the only hand that “feeds” Chinese doctors. Chronically underpaid, and officially encouraged to supplement their income through ethically dubious practices, why shouldn’t Chinese doctors accept kickbacks from pharmaceutical companies?

Writing anonymously, an industry expert with experience working in China describes a deeply cynical relationship between pharmaceutical companies and doctors. He explains that in other countries sales reps encourage doctors to prescribe their drugs with invitations to company-funded conferences or by handing out branded stationery, whereas “in China, the situation is refreshingly straightforward – doctors demand money”.

But to focus on the bogeymen of the corrupt doctor and the unscrupulous sales rep is to ignore the system that has created them – and will continue to create them if left unchanged. As Dr. Karen Eggleston of Stanford University puts it, “Disparaging physicians’ lack of professionalism is shifting the blame from those who created the distorted system of incentives to those who are its victims.”

For the moment, it is the doctors and the pharmaceutical companies who are in the firing line. In July, 1,088 doctors and 133 hospital administrators were arrested in Fujian province. A six-month investigation produced evidence that they had taken kickbacks and bribes amounting to Rmb 20.5m ($334,000). But this comes to a mean illegitimate income of just Rmb 16,789 ($2,738) per person.

These are not professional criminals.

The bribes they take function as a subsidy from pharmaceutical companies and patients to doctors and serve to make up for the shortfall in funding. Without this shadow funding, hospitals would close and the numbers of doctors available to treat patients would plummet. In short, China’s health care system has a drug problem. The central government has known this for some time, and has been introducing reforms. Reversing a legacy of underfunding is not easy, but after 15 years of reforms the CCP can point to several impressive achievements. In 1999, only 7% of the rural population had health insurance and urban residents were only covered if they worked for a state-owned enterprise. By 2011, 95% of all Chinese citizens were enrolled on a state-subsidised insurance scheme, reaching the World Health Organisation’s benchmark for “universal coverage”.

For an insurance contribution of just Rmb 20 per person per year, people living in rural areas now have access to local clinics and are able to receive essential drugs without fear of financial ruin.

But to understand why the GSK and Zhangzhou cases have hit a nerve, look beyond the headline achievements and put yourself in the position of an ill person in a Chinese city. As is the case in many Asian countries, most patients prefer to refer themselves to hospital specialists without visiting a general practitioner first. In the absence of demand, primary care has withered away.

Unfortunately, most state-subsidised insurance schemes cover primary care, not hospital care. As a result, funding for hospitals has barely increased, but demand remains the same: 91% of all doctors now work in these underfunded, oversubscribed urban hospitals. So while the government can proudly report to the WHO that 95% of its citizens are protected under state-subsidised insurance schemes, not much has changed for many city-dwellers. When you get sick, you go to hospital. And in hospital money talks.

Analysts have suggested that GSK’s mauling at the hands of investigators was intended to send a message to the domestic pharmaceutical industry that it needs to clean up its act. The arrests in Zhangzhou have probably also served to frighten doctors and hospital managers in other provinces. Whatever the political motive behind this latest round of public floggings, it isn’t going to fix the underlying problem. Dr. Eggleston argues that the Chinese government should focus instead on substantial reforms, finding a way to raise doctors’ salaries and getting rid of the system of perverse incentives that has historically worked against patients. The roots of inequity in the Chinese health care system run deep, and until they are dealt with, “anti-corruption crackdowns” of the kind we saw in July will amount to little more than pruning.

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