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Glaxo execs held in Chinese bribery scandal

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Chinese authorities are looking into the operations of a number of multinational drug companies after four senior GlaxoSmithKline executives were detained amid allegations of widespread bribery and corruption.

Head of the Economic Crimes Investigation Unit at China’s Ministry of Public Security, Gao Feng, told The Guardian that “some clues” of illegal money transfers involving several pharmaceutical giants had come to light during a six-year investigation into the activities of executives from GSK’s Chinese subsidiary.

In a rare public briefing for national and international media, Mr Gao revealed that investigations had found almost $540 million in bribes and deals was funnelled out to doctors and lawyers through a network of more than 700 travel agencies and middle men.

“We found that bribery is a core part of the activities of the company,” Mr Gao said. “To boost their share price and sales, the company performed illegal actions.”

According to reports in Chinese newspapers, cited by The Guardian, travel agencies working for GSK would create bogus meetings that ostensibly required travel, and would use the money provided to bribe doctors to prescribe GSK drugs.

Each doctor was given a credit card by GSK, and kickbacks were transferred to the card the day after drugs were prescribed.

In return, it is alleged, travel agencies bribed GSK executives with cash and sexual favours.

Such corruption is not unusual in the Chinese health system, The Guardian said. Hospitals frequently use drug sales to make up for shortfalls in government funding, and doctors supplement their modest income with kickbacks from drug companies and patients.

The head of GSK’s Chinese operations, British national Mark Reilly, left China on 27 June, but GSK said it would cooperate fully with Chinese authorities in their investigations.

In a statement released on 15 July, the British-based company said it was “deeply concerned and disappointed by these serious allegations of fraudulent behaviour and ethical misconduct by certain individuals at the company and third-party agencies”.

The company said such behaviour, if proved, would be a clear breach of its procedures, values and standards.

“GSK has zero tolerance for any behaviour of this nature,” the company said. “GSK shares the desire of the Chinese authorities to root out corruption. These allegations are shameful and we regret this has occurred. We will cooperate fully with the Chinese authorities in the investigation.”

The pharmaceutical giant said it had already acted on the allegations.

“We are reviewing all third party agency relationships. We have put an immediate stop on the use of travel agencies that have been identified so far in this investigation and we are conducting a thorough review of all historic transactions related to travel agency use,” the company said.

The scandal has erupted as the operations of drug companies are coming under increasing scrutiny in many parts of the world.

In the United States, the Physician Payment Sunshine Act introduced as part of the Obama Administration’s health reform package requires company to disclose payments made to individual physicians, and a similar regime is being developed by the Australian medicines industry, in consultation with groups including the AMA.

AMA President Dr Steve Hambleton said that while the AMA supports increased transparency surrounding the relationship between pharmaceutical firms and doctors, the disclosure of payments to individual practitioners had to be handled sensitively to ensure the public was well informed.

The activities of foreign drug companies has already come under scrutiny in China over concerns about market position and pricing, and earlier this month Nestle, Abbot and Mead Johnson agreed to cut the cost of their infant formula by up to 20 per cent after the Chinese Government announced an inquiry into formula pricing.

Mr Gao put multinational pharmaceutical firms on notice that their activities were being closely monitored by Chinese authorities.

“I need to remind foreign pharmaceutical companies that, because they occupy a leading position in the industry and reap huge amounts of commercial profits, they should also bear a great responsibility to society and the public,” the official told The Guardian. “While we don’t expect them to set a moral example, we expect them to obey the law.”

Adrian Rollins

Image by Beng Han Ho on Flickr, used under Creative Commons licence