October 1, 2023


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China Vows Sweeping Anti-Graft Campaign in Health Care Crackdown

(Bloomberg) — China’s top health regulator said an anti-corruption campaign targeting the sector will weed out wrongdoing in everything from drug companies and manufacturing to hospitals and the state medical insurance fund, underscoring the sweeping nature of the crackdown already dubbed the toughest ever. 

An interview published by the official Xinhua News Agency on Tuesday with an unidentified official from the National Health Commission provided more clarity about the scope of the wide-ranging graft-busting effort launched in late July. 

In addition to punishing officials for abuse of power and corruption, the campaign takes aim at illegal sales activities by drug and medical device makers, doctors taking bribes and misuse of the state medical insurance fund that covers over 95% of Chinese, the NHC official was quoted as saying. Such actions hinder health-care reform and curb development, hurting the public interest, the unnamed official said.

Since news broke in late July that China’s Central Commission for Discipline Inspection was working with the NHC, Ministry of Public Securities and other agencies, headlines have been filled with reports about hospital chiefs being taken away and bribes to doctors and health-care workers from drug and medical device companies. Rumors of raids and executives whisked away from Chinese and foreign pharmaceutical firms also swirled online. 

Looming Questions

Still, there have been scant details about the investigations and how punishments in other parts of the sprawling health-care sector will play out. The uncertainty is particularly acute among drug and device makers – foreign and domestic – that compete fiercely to get their products sold through hospitals in the world’s second largest market, where pharmaceuticals alone generate $166 billion in annual sales.

Health-care related stocks recovered on Wednesday from a Tuesday rout. The CSI health-care subgauge rose as much as 1.1% in early trading, bucking broader declines in the market, with gains led by Walvax Biotechnology Co., China’s leading vaccine company, and drugmaker Jiangsu Hengrui Pharmaceuticals Co.

Nearly 30 hospital chiefs, party secretaries and health officials have been swept up by the anti-graft campaign in the three weeks since it launched. The number of health-care professionals and officials ensnared in a broader CCDI investigation rose to more than 170 since the beginning of this year, data compiled by Beijing-based health-care consultancy and media Saibailan shows. 

Most are from hospitals and government agencies in lower-tier cities across China, indicating the crackdown is far from complete. 

China’s health-care sector is the latest to draw Beijing’s ire, following heavy-handed regulatory and corruption crackdowns that swept through other areas including the tech industry, education, financial services and the country’s military.

Poor Pay

For decades, meager pay at public hospitals prompted doctors to accept kickbacks from drug and medical device makers who sought to boost sales by increasing prescription rates.

Over the years, the quid pro quo measures have taken on more covert forms, most commonly through remuneration to doctors for speaking at conferences and workshops. While medical meetings are a standard way for doctors to keep up-to-date on the latest treatments, local media have charged that some have become mere fronts for bribery.

Such corruption has been blamed for keeping drug costs high. In recent years, Beijing launched frequent bidding exercises that pit drugmakers against each other to get the lowest prices on commonly used drugs for public hospitals. It also conducts annual price negotiations to get companies to slash cost for their newest therapies, in a bid to cut out middle men, end kickbacks and drive down medical costs. 

Policy risk has always been a crucial part of health-care investing, said Lin Cun, a fund manager at Shenzhen Senrui Investment Co. 

“With China’s aging population, the health care burden on the national health insurance fund grows heavier by the year, and policymakers have the need to get rid of the excess costs,” Lin said. 

Western drugmakers have also fallen afoul of Chinese regulators in the past. In 2014, GSK Plc was fined nearly $500 million and a suspended prison sentence was imposed on its foreign executive in China for bribing doctors. 

The intensifying corruption campaign has spooked organizers of academic conferences in the pharmaceutical sector, with a slew of meetings being suspended or postponed in recent weeks, Xinhua reported. In response to a Xinhua question, the NHC official said normal medical conferences are encouraged, but crackdowns will come for those that disguise illegal activities. 

–With assistance from Li Liu and April Ma.

(Updated throughout)

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