All Zhangzhou hospitals caught in corruption net

The city of Zhangzhou, Fujian Province has been hit by a corruption scandal involving all of the town's 73 hospitals, exposing again the festering problem of hospitals and their ties to drug companies.

The disciplinary inspection authority in Zhangzhou confirmed to the Global Times that it has been investigating the case for months, and that it currently involves more than 1,000 medical care personnel, 20.49 million yuan ($3.3 million), and 57 arrested pharmaceutical representatives. The investigation is still underway.

The case revealed hospitals over-charging patients after receiving bribes to push certain drugs, with patients paying an average of five times the production cost of the medicine.

Under the current system, public health authorities and the National Development and Reform Commission (NDRC) first put a cap on medicine purchase prices according to the costs claimed by the producers. Provincial medical agencies then make an open tender and set purchase categories within the price limit. The producers then bid at the city level, followed with hospital purchases when they can add 15 percent to the price, and prescriptions by doctors.

"Pharmaceutical representatives have a 'public relations budget' at each level to ensure their products can win the bids and doctors will prescribe their medicine. Their income depends on the sales and the money could be used for anything from direct bribes to holding receptions, which are all included in the final price," a doctor surnamed Qiu with a large public hospital in Beijing, told the Global Times.

Although it is rare that the whole industry in a city is involved in the scandal, the problem is nationwide, said Li Ling, a professor with Peking University specializing in health care reform, in an interview with China Central Television.

"The reason is that hospitals now depend on prescribing medicines to gain revenue and doctors, most of whom are underpaid, need these 'rebates' to increase their income. The connection has to be broken," said Li.

The problem has also influenced the practice of multinational pharmaceutical companies seeking market share in China.

British drug maker GlaxoSmithKline was caught in a bribery scandal recently. Belgian pharmaceutical giant UCB has also been investigated by Chinese authorities, according to Reuters.

The NDRC issued a circular on July 2 to investigate the production cost of 60 domestic and foreign pharmaceutical companies. Observers say these measures indicate the authorities' intention to tackle the problem, starting from scrutinizing the real costs to squeeze the grey margin.

However, simply taking away the hospitals' rights to hike medicine prices without a new incentive mechanism is not enough as hospitals would lose revenue, but other parts in the medicine chain that cause the overly high price remain the same, said Liao Xinbo, deputy director of the Department of Health of Guangdong Province.