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Humongous Pharma Corruption: China Ups The Ante…and India?

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In the ‘pharma bribery’ related scandal in China, many postulated that the Chinese Government has cracked down selectively on Multinational Corporations (MNCs) to extend unfair business advantages for its local players.

Media reports of September 2013 indicate that in all probability the intent of the Chinese Government is not to spare homegrown corruption in this area. The country appears to be taking tough measures against both global and local perpetrators of such criminal acts, which have spread their vicious tentacles deep into the booming Chinese pharmaceutical industry.

The report names the following domestic companies:

  • Sino Biopharmaceutical Ltd has set up a team to investigate allegations broadcast on the state television that its majority-owned subsidiary had paid for illegal overseas trips for doctors to Thailand and Taiwan.
  • Privately held Gan & Lee Pharmaceuticals investigating allegations of spending around US$ 130.75 million to bribe doctors to promote their pharmaceutical products over five years.

More MNCs under investigation:

At the same time, international media are reporting names of more and more big global pharma players allegedly involved in this humongous scam, as follows:

  • In July 2013, the British drug maker GlaxoSmithKline (GSK) was allegedly involved in around US$ 490 million deceptive travel and meeting expenses as well as trade in sexual favors. Chinese authorities detained four senior executives of GSK in China to further investigate into this matter.
  • In the same month Chinese police reportedly visited the Shanghai office of another British pharmaceutical major AstraZeneca for investigation related to this scam.
  • In August 2013, Sanofi of France reportedly said that it would cooperate with a review of its business in China after a whistle-blower’s allegations that the company paid about US$ 276,000 in bribes to 503 doctors in the country.
  • Again in August 2013, a former employee of the Swiss pharmaceutical major Novartis has reportedly claimed that her manager urged her to offer ‘kickback’ to doctors to increase use of the cancer drug Sandostatin LAR. She had about US$ 105,000 budget for payments to doctors who prescribed at least 5 doses, aiming for 50 doses in all. She filed the compensation claim of US $817,000 after resigning from the company.
  • In the same month, another whistleblower has reportedly made bribery allegations involving Eli Lilly of the United States and US$ 4.9 million in purported kickbacks to Chinese doctors.
  • In September 2013, media reports indicated that the Chinese authorities are investigating the German pharma major – Bayer over a “potential case of unfair competition”.
  • Another very recent report of September 17, 2013 states, Alcon Eye Care division of Novartis is investigating allegation of fabricated clinical trials to bribe doctors. The report says Alcon outsourced the trials to a third-party research company, which in turn compensated doctors with “research payments”. It is claimed by the whistleblower that Alcon used funds earmarked for “patient experience surveys” on lens implants to bribe doctors at more than 200 hospitals. One doctor received about US$ 7,300, for studying 150 patients. Alcon allegedly spent more than US$ 230,000, on such studies last year.

This list of pharmaceutical companies involved in alleged serious malpractices to boost their sales and profits in China is probably not exhaustive.

However, only time will unravel whether this juggernaut of scams will keep moving unabated despite all high voltage actions, bulldozing patients’ interest.

Crack down on food companies too:

Crack down of the Chinese Government on alleged malpractices has reportedly extended to milk products’ companies too.

Again in August 2013, Mead Johnson Nutrition and Danone were among six dairy companies ordered to pay a combined 669 million Yuan by the Chinese Government for price fixing of their products.

Global industry lobby has a different view point:

In an interview with the BBC, an expert from APCO Worldwide, considered as the giant of the lobbying industry said:

“China’s behavior was very worrisome for foreign companies. They don’t know what’s hitting them right now. The government is resorting to its traditional “toolbox” of coercive methods, including shaming and ordering people to confess that they’ve done wrong so that your penalties can be minimized. They’re just treating foreign companies the way they’ve treated their own for many years, and this is the way the Party does things.”

He continued, “What may be going on is they’re telling foreign companies and they’re telling private companies here: Behave yourself; remember we’re the Party, we’re in charge.”

This is seemingly an interesting way of pooh-poohing serious allegations of bribery and other malpractices by the pharmaceutical companies in China without even waiting for the results of the pending enquiry.

However, such comments coming from an industry lobbying organization or any Public Relations (PR) Agency is not uncommon. That’s their business.

Possible reasons for crack down:

Experts opine that China has a high drug price problem. This is vindicated by the fact that while most developed nations of the world spend not more than 10-12 percent of their healthcare budget on medicines, in China it exceeds 40 percent. This huge disparity is believed to have prompted Beijing’s crackdown on the industry, especially the MNCs that dominate the Chinese pharmaceutical industry with newer drugs. The powerful National Development and Reform Commission (NDRC) of China has already said that it is examining pricing by 60 local and international pharmaceutical companies.

Some other reports point out, low basic salary of the doctors at the 13,500 public hospitals in China, who are the key purchasers of drugs, is the root cause of corruption in the Chinese healthcare industry.

According to McKinsey with estimated healthcare spending of China nearly tripling to US$1 trillion by 2020 from $357 billion in 2011, the country is increasingly attracting pharma and medical equipment companies from all over the world in a very large number.

The fall out:

A recent media report indicates that Chines crackdown on the widespread pharma bribery scandal in the country is quite adversely affecting the sales of both global and local players, as many doctors in the Chinese hospitals are now refusing to see medical representatives for fear of being caught up in this large scam.

Drug expenditure is even more for healthcare in India:

Several studies indicate that Out Of Pocket Expenditure towards Healthcare in India is one of the highest in the world and ranges from 71 to 80%.

According to a 2012 study of IMS Consulting Group, drugs are the biggest expenditure in the total Out Of Pocket (OOP) spend on healthcare as follows:

Items Outpatient/ outside Hospital (%) Inpatient/ Hospitalization (%)
Medicines 63 43
Consultation/Surgery - 23
Diagnostics 17 16
Minor surgeries 01 -
Private Consultation 14 -
Room Charge - 14
Others 05 04

Despite these facts, India has remained virtually inactive in this critical area so far, unlike China, except some sporadic price control measures like, Drug Price Control Order (DPCO 2013) for essential drugs (NLEM 2011), which covers around 18% of the total pharmaceutical market in India.

Universal Healthcare (UHC): A possible answer?

Another interesting study titled, ‘The Cost of Universal Health Care in India: A Model Based Estimate’ concludes as follows:

The estimated cost of UHC delivery through the existing mix of public and private health institutions would be INR 1713 (USD 38) per person per annum in India. This cost would be 24% higher, if branded drugs are used. Extrapolation of these costs to entire country indicates that Indian government needs to spend 3.8% of the GDP for universalizing health care services, although in total (public+private) India spent around 4.2% of its GDP on healthcare (2010) at 11% CAGR from 2001 to 2010 period.

Moreover, important issues such as delivery strategy for ensuring quality, reducing inequities in access, and managing the growth of health care demand need be explored.

Thus, it appears, even UHC will be 24% more expensive after a public spend of staggering 3.8% of the GDP towards healthcare, if branded drugs are used, which attract huge avoidable marketing expenditures, as we have seen in the Chinese pharma industry scandal.

High marketing costs making drugs dearer?

A recent article, captioned “But Don’t Drug Companies Spend More on Marketing?” vindicates the point, though the drug companies spend substantial money on R&D, they spend even more on their marketing related activities, legally or otherwise.

Analyzing six global pharma and biotech majors, the author highlights that SG&A (Sales, General & Administrative) and R&D expenses vary quite a lot from company to company. However, in this particular analysis the range was as follows:

SG&A: 23% to 34%
R&D: 12.5% to 24%

SG&A expenses typically include advertising, promotion, marketing and executive salaries. The author says that most companies do not show the break up of the ‘S’ part separately.

In the pharmaceutical sector all over the world, the marketing practices have still remained a very contentious issue despite many attempts of self-regulation by the industry. Incessant media reports on alleged unethical business practices have not slowed down significantly, across the world, even after so many years of self-regulation. This is indeed a critical point to ponder.

Scope and relevance of ‘Corporate Ethical Business Conducts and Values’:

The scope of ‘ethical business conducts and value standards’ of a company should not just be limited to marketing. These should usually encompass the following areas, among many others:

  • The employees, suppliers, customers and other stakeholders
  • Caring for the society and environment
  • Fiduciary responsibilities
  • Business and marketing practices
  • R&D activities, including clinical trials
  • Corporate Governance
  • Corporate espionage

That said, codes of ethical conduct, corporate values and their compliance should not only get limited to the top management, but must get percolated downwards, looking beyond the legal and regulatory boundaries.

Statistics of compliance to codes of business ethics and corporate values are important to know, but perceptible qualitative changes in ethics and value standards of an organization should always be the most important goal to drive any business corporation and the pharmaceutical sector is no exception.

Foreign Corrupt Practices Act (FCPA): A deterrent?

To prevent bribery and corrupt practices, especially in a foreign land, in 1997, along with 33 other countries belonging to the ‘Organization for Economic Co-operation and Development (OECD)’, the United States Congress enacted a law against the bribery of foreign officials, which is known as ‘Foreign Corrupt Practices Act (FCPA)’.

This Act marked the early beginnings of ethical compliance program in the United States and disallows the US companies from paying, offering to pay or authorizing to pay money or anything of value either directly or through third parties or middlemen.

FCPA currently has some impact on the way American companies are required to run their business, especially in the foreign land.

However, looking at the ongoing Chinese story of pharma scams and many other reports of huge sums paid by the global pharmaceutical companies after being found guilty under such Acts in the Europe and USA, it appears, levy of mere fines is not good enough deterrent to stop such (mal)practices in today’s perspective.

China acts against pharma bribery, why not India? 

Like what happened in China, many reports, including from Parliamentary Standing Committee, on alleged pharma malpractices of very significant proportions, which in turn are making drugs dearer to patients, have been coming up in India regularly, since quite sometime.

Keeping these into consideration, abject inertia of the government in taking tough measures in this area is indeed baffling and an important area of concern.

Conclusion:

The need to formulate ‘Codes of Business Ethics & Values’ and more importantly their effective compliance, in letter and spirit, are of increasing relevance in the globalized business environment.

Unfortunately, as an irony, increasingly many companies across the world are reportedly being forced to pay heavy costs and consequences of ‘unethical behavior and business practices’ by the respective governments.

Intense quarterly pressure for expected business performance by stock markets and shareholders, could apparently be the trigger-points for short changing such codes and values.

There is, of course, no global consensus, as yet, on what is ethically and morally acceptable ‘Business Ethics and Values’ uniformly across the world. However, even if these are implemented in country-specific ways, the most challenging obstacle to overcome by the corporates would still remain ‘walking the talk’ and ‘owning responsibility’.

That said, to uphold patients’ interests, China is already giving the perpetrators of the ongoing humongous pharma scam a ‘run for life’, as it were, despite what the industry lobbyists have been laboriously working on for the world to believe. Today, common patients’ in India being in a much worse situation for similar sets of reasons, should the domestic regulators not now wake up from the ‘deep slumber’, up all antennas, effectively act by setting examples and bring the violators to justice?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

The top two reasons for not seeking medical treatment, across the population, are not poor ‘Access to Healthcare’ in India

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“About 1.8 million children under age of 5 die in India every year; 68,000 mothers die due to maternal causes, and 52 million children in the country are stunted”.

“With 70% people living in more than 600,000 villages across rural India, not more than an estimated 30% have access to modern medicine”.

Such sensational headlines could be fallacious at times and may tend to divert the attention of all concerned from some of the key healthcare issues in India. We are indeed too negative in our approach towards a problem solution process. All stakeholders interested in improved healthcare facilities are continuously engaged in an eternal blame game. Government blames the industry and the industry blames the government and so on. In this unfortunate logjam scenario since last several decades, any possibility of breaking it will require active interference by a ‘Cerebral Braveheart”

Moreover, taking advantage of this situation, some groups of people want to progress their vested interests by projecting a ‘Weaker India’ and pontifying with crocodile tears.

Let me now try to explore these issues with hard facts.

Access to ‘round the year’ healthcare facilities in India:

As reported by the Government of India in 2004, access to healthcare infrastructure and services for the rural villages in terms of percentages were as follows (Source:India Health Report 2010) :

  1. Primary Health Centers: 68.3
  2. Sub-Centers: 43.2
  3. Government Dispensaries: 67.9
  4. Government hospitals in urban areas: 79
  5. Private Clinics: 62.7
  6. Private Hospitals: 76.7

I reckon, after implementation of National Rural Health Mission (NRHM) and National Urban Health Mission (NRUM), this situation prevailing in 2004 has improved. However, the scope for further improvement in all these areas still remains very high.

Hence, the shrill voice highlighting around 65% of population of India does not have access to healthcare or medicines seem to be motivated and highly misplaced.

‘Access to Modern Medicines’ is improving in India:

In addition to the above facts, CAGR (volume) of the pharmaceutical industry since the last ten years has been over 10%, leaving aside another robust growth factor being contributed through the introduction of new products, every year. Encouraging growth of the Indian Pharmaceutical Market (IPM), since the last decade, both from the urban and the rural areas certainly signals towards significant increase in the domestic consumption of medicines in India.

IPM maintained a scorching pace of 16.5% growth in 2010. A recent forecast of IMS highlights similar growth trend in 2011, as well.

In addition, extension of focus of the Indian pharmaceutical Industry, in general, to the fast growing rural markets clearly supports the argument of increasing ‘Access to Modern Medicines’ in India. The improvement in access may not exactly be commensurate to the volume growth of the industry during this period, but a major part of the industry growth could certainly be attributed towards increase in access to medicines in India.

For arguments sake, out of this rapid growth of the IPM, year after year consistently, if I attribute just 5% growth per year, for the last nine years over the base year, to improved access to medicines, it will indicate, at least, 57% of the population of India is currently having access to modern medicines and NOT just 35%, as I wrote in this blog earlier.

Unfortunately, even the Government of India does not seem to be aware of this gradually improving trend. Official communications of the government still quote the outdated statistics, which states that 65% of the population of India does not have ‘Access to Modern Medicines’ even today. No wonder, why many of us still prefer to live on to our past.

Be that as it may, around 43% of the population will still not have ‘Access to Modern Medicines’ in India. This issue needs immediate attention of the policy makers and can be resolved with a holistic approach. A robust model of healthcare financing for all socio-economic strata of the population, further improvement of healthcare infrastructure and healthcare delivery systems are the needs of the hour.

So called ‘Diseases of the Poor’ are no longer the ‘Leading Causes of Death’ in India:

Unlike popular belief that diseases of the poor are the leading causes of death in India. The office of the Registrar General of India (2009) highlights a totally different scenario, where the top five leading causes of death in terms of percentage, have been reported as follows:

  1. Cardiovascular diseases: 24.8
  2. Chronic Obstructive Pulmonary Disease (COPD): 10.2
  3. Tuberculosis: 10.1
  4. Cancer: 9.4
  5. Ill-defined conditions: 5.3

Thus the diseases of the developed world like cardiovascular diseases, COPD and Cancer cause over 45% of the total deaths in India, whereas Tuberculosis, Malaria, Diarrheal and digestive diseases cause around 23% deaths in the country.

The key reasons for not seeking medical treatment are not poor ‘Access to Healthcare’:

As I wrote before, the key reasons for not seeking medical treatment across socio-economic status in the country are not predominantly ‘Poor Access to Healthcare ‘. The following data will vindicate this point:

Reason Rural Poorest 20% Rural Richest 20% Urban Poorest 20% Urban Richest 20%
Financial Reasons 39.7 21.2 37.2 2.3
Ailments not considered serious 27.2 45.6 44.3 84.4
No Medical facilities 12.8 10.0 1.6 _
Others 20.3 23.2 16.9 13.3
Total 100 100 100 100

(Source: India Health Report 2010)

Conclusion:

Thus even if the government ensures ‘Access to Healthcare’ to 100% of the population of India by taking all drastic infrastructural, policy and delivery measures, still a large section of the population both rich and poor and from urban as well as rural India will not seek medical treatment assuming many of their ailments are not serious enough. Such a situation will definitely not materially improve the healthcare scenario of India, adversely affecting the economic progress of the country by a robust productive population.

This necessitates continuous disease awareness campaigns with active participation of all stakeholders, including the civil society across the country, sooner rather than later, in tandem with all measures as will deem necessary.

By: Tapan J Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

The heated debate on WHO IMPACT definition of Counterfeit Drugs is now on a ‘pause’ – A time to evaluate the reasons for supporting and opposing it.

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The World Health Organisation (WHO), in December 2008, proposed the following new definition, as prepared by the International Medical Products Anti-Counterfeiting Taskforce (IMPACT):“A medical product is counterfeit when there is a false representation in relation to its identity and/or source. This applies to the product, its container or other packaging or labeling information. Counterfeiting can apply to both branded and generic products. Counterfeits may include products with correct ingredients/components, with wrong ingredients/components, without active ingredients, with incorrect amounts of active ingredients, or with fake packaging.”This definition, indeed, created a furor in India. The Ministry of Health of the Government of India initiated discussions, on this issue, with the stakeholders and by mid-January, 2009 a consensus was arrived at between the Drug Controller General of India (DCGI) and the generic industry on much debated definition of counterfeit drugs. It was reported that the Government had decided to place this definition before the World Health Organisation (WHO) in its next meeting on the subject. The consensus definition, after the above meeting, was reported as follows:

“A medical product (medicine, vaccine, diagnostics and medical implants/devices) is counterfeit when it is deliberately and fraudulently mislabelled with respect to its identity and/or source. Counterfeit can apply to components with wrong ingredients/components without active ingredients, with incorrect amounts of active ingredients, or with fake package”

In end-January 2009, although it was reported that under pressure from the developing countries like, India, WHO has dropped this new definition, it is very likely that the initiative is now just on a ‘pause’ mode.

Let us now try to explore the ‘Eye’ of this stormy debate and its relevance to India. The ‘eye’ of the storm lies mainly within the following 3 key concerns of the opponents of the definition:

1. False representation of identity and source applies not only to labeling but also to the ‘product,
its container or other packaging’
2. The new definition could include Intellectual Property Right (IPR) issues and as a cosequence of
which, Indian generics could run into the risk of being branded as counterfeit
3. Removal of the words ‘fraudulent and deliberate’ from the original definition and replacing them
with ‘false representation’ will shift the burden of proof

In India, the share of voice of those opposing this definition was undoubtedly much more than those who were supporting it. However, the rationale for supporting the definition, in Indian context, appears to be much stronger than opposing it.

While arguing on this point, I am of the view that most of the apprehensions expressed above have been abundantly clarified in the definitions of Misbranded drugs (section 17), and Spurious drugs (Section 17 B) of the Indian Drugs and Cosmetics Act, 1940.

Let us now have a quick look at the Section 17 and Section 17 B of the Drugs and Cosmetics Act to find out whether the WHO IMPACT definition is way off the definitions for Misbranded and Spurious drugs as indicated in the above Act.

“Section 17. Misbranded drugs – For the purposes of this Chapter, a drug shall be deemed to be misbranded –

(a) If it is so coloured, coated, powdered or polished that damage is concealed or if it is made to appear of better or greater therapeutic value than it really is; or

(b) If it is not labelled in the prescribed manner ; or

(c) If its label or container or anything accompanying the drug bears any statement, design or device which makes any false claim for the drug or which is false or misleading in any particular.”

Does Section 17 of the Drugs and Cosmetics Act, 1940 answer the ‘concern 1’ above?

“Section 17B. Spurious drugs – For the purposes of this Chapter, a drug shall be deemed to be spurious

(a) If it is manufactured under a name which belongs to another drug; or

(b) If it is an imitation of, or is a substitute for, another drug or resembles another drug in a manner likely to deceive or bears upon it or upon its label or container the name of another drug unless it is plainly and conspicuously marked so as to reveal its true character and its lack of identity with such other drug; or

(c) If the label or container bears the name of an individual or company purporting to be the manufacturer of the drug, which individual or company is fictitious or does not exist; or

(d) If it has been substituted wholly or in part by another drug or substance; or

(e) If it purports to be the product of a manufacturer of whom it is not truly a product.”

Does Section 17B of the Drugs and Cosmetics, 1940 Act answer the ‘concern 2′ above?

The ‘concern 3’ above deals with shifting the ‘burden of proof’ with replacement of the words ‘fraudulent and deliberate’ by ‘false representation’. Many legal experts opine that this change will only mean that “criminal intent (fraudulent and deliberate) shall be considered during the legal procedures for the purpose of sanctions.”

What could then possibly be the reasons for opposing the revised WHO IMPACT definition of Counterfeit Drugs in India, especially when we have similar definition in place in our own Drugs and cosmetics Act, 1940? Does it make sense for the Government to reinvent the wheel? Who knows?

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.