China widens probe into drug pricing and corruption

Pressure on pharmaceutical companies operating in China intensified on Wednesday as mainland authorities announced a broadening of their investigation into drug pricing and corruption in the healthcare sector.

The government of Shanghai – whose public hospitals buy a large proportion of medicines sold in China – instructed hospitals to look for corruption in the purchasing and prescribing of drugs, as well as in clinical trials conducted with hospital participation.

In an apparently unrelated move, the central government’s State Administration for Industry and Commerce (SAIC) announced that it would look for “bribery, fraud and anti-competitive practices” in a wide range of industries that touch the lives of consumers, from drugs and medical services to school admissions. According to the official Xinhua news agency, SAIC will also examine car dealerships and real estate agents.

Separately, China Central Television reported on Thursday that the National Development and Reform Commission would review pricing practices in a range of sectors including autos, energy and telecommunications, citing Xu Kunlin, head of the NDRC’s anti-monopoly bureau. Mr Xu oversaw a recent investigation into the baby formula market in which six companies, including five multinationals, were fined a total of $110m.

The NDRC is responsible for policing illegal pricing activities while SAIC examines other business practices that can reduce competition, such as territorial restrictions imposed on distributors.

Wednesday’s news that additional government authorities are getting involved in the China drug probe came as Novartis said it was investigating whistleblower allegations that it pressured a senior saleswoman to bribe doctors to drive sales of one of its oncology medicines.

A Chinese newspaper said a former Novartis sales representative told the paper that she was ordered to secure Rmb650,000 ($106,000) in sales of one of the Swiss company’s drugs by providing Rmb50,000 to doctors.

A Novartis spokesperson said the company started an internal investigation upon hearing of the allegations. “Novartis takes allegations of misconduct seriously and will take appropriate actions depending on the findings once the investigation is concluded.” The company added: “It is important to note, however, that this employee made a claim to Novartis in the amount of Rmb5m”.

Over the past few weeks, Chinese media have carried a steady stream of stories alleging corruption and other irregularities in the healthcare industry, following the announcement of a probe into alleged bribery by staff at GlaxoSmithKline. Police say as much as Rmb3bn was routed through Shanghai travel agencies in order to bribe doctors, and GSK has admitted that some of its staff may have broken Chinese laws.

Last week, the authorities started a probe into Sanofi, which is facing whistleblower claims that staff bribed hospital doctors in China. According to the official Xinhua news agency, Beijing municipal authorities have formed a task force to investigate whether Sanofi staff paid more than 500 doctors approximately Rmb1.7m in bribes disguised as “research grants”. Sanofi said it took the claims “very seriously” and was investigating.

The Shanghai Municipal Health and Planning Commission broadened the focus of its investigation from drug companies to hospitals and doctors. It called on them to “do a good job in prevention, investigation and punishment of commercial bribes in clinical prescriptions”, as well as improving regulation of clinical trials.

Local industry experts say there are anecdotal signs some hospitals are barring visits by pharmaceutical sales representatives in ways that could affect drug sales, at least in the near term.

The SAIC investigation, which is due to begin on Thursday and last for three months, appears to be targeted more broadly, taking in a wide range of industries apart from pharmaceuticals. “The campaign will strictly root out commercial bribery and practices that limit competition and protect consumers rights and interests. It will also strengthen regulation over agents and middlemen and root out fake advertising,” the SAIC said.

Additional reporting by Tom Mitchell in Beijing

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