Bribery serves as life-support for Chinese hospitals

Bribery serves as life-support for Chinese hospitals

5:14pm EDT

By Kazunori Takada

SHANGHAI (Reuters) – Bribery is the lubricant that helps keep China’s public hospitals running, and the health system would struggle to function without illegal payments to poorly paid doctors and administrators, say medical practitioners and industry experts.

They say government policies are partly to blame for a system in which doctors and other staff expect to be paid extra fees to perform operations and take kickbacks from pharmaceutical firms and medical-equipment suppliers.The profession’s ugly underbelly was exposed last week when police accused British drugmaker GlaxoSmithKline of bribing officials and doctors for six years to boost sales and the price of its medicines. GSK has called the developments “shameful” and on Monday said some of its Chinese executives appeared to have broken the law.

China is an appealing market for pharmaceutical firms and medical-equipment makers, with spending in the industry expected to nearly triple to $1 trillion by 2020 from $357 billion in 2011, according to consulting firm McKinsey.

The corruption stems largely from doctors’ low base salaries, which are set in line with a pay scale for government workers. Hospitals can pay bonuses but, given public hospitals are strapped for cash, compensation is usually low, say doctors and industry experts.

A doctor fresh out of medical school in Beijing earns about 3,000 yuan ($490) a month including bonuses — roughly the same as a taxi driver. A doctor with 10 years experience makes around 10,000 yuan a month, according to Peter Chen, chief executive of privately run Oasis International Hospital in Beijing.

“Without the grey income, doctors would not have the incentive to practice,” said Yanzhong Huang, a senior fellow for global health at the Council on Foreign Relations in New York.

CAN’T SURVIVE ON SALARIES

Over the past 30 years the Chinese government has made its healthcare sector more market-oriented. That means the country’s 13,500 public hospitals have to balance their own books.

Medical services accounted for just over 50 percent of public hospital revenue in 2011, according to Health Ministry data. About 40 percent came from prescribing drugs while the rest was from other income as well as government subsidies, which have fallen steadily since the 1980s.

Hospital administrators can set fees for in-patient care, nursing and laboratory tests. But the state fixes the cost of operations to make surgery affordable to ordinary Chinese. And it effectively caps the cost of many prescribed medicines by setting a suggested price.

That leaves hospitals little room to top up wages.

One Chinese doctor who used to hold a senior position at a prominent hospital in Beijing said 80 percent of his income came from bribes. Without it, he would have earned less than $600 a month, said the doctor, who left China five years ago to live in Britain where he continues practicing medicine.

“These sums (bribes) are essential. You cannot survive on your salary,” said the 50-year-old physician, who spoke on condition of anonymity due to the sensitivity of the issue.

An industry executive who has worked in China’s medical sector for more than 15 years said bribery and corruption permeated every level of a public hospital.

“They are seen as necessities in the current healthcare system,” said the executive, who also declined to be identified.

The Health Ministry did not respond to a request for comment. Officials at the National Development and Reform Commission, which sets the prices of prescribed medicines, also declined to comment.

Low base salaries are a legacy of China’s planned economy, said Jia Xijin, associate professor at the School of Public Policy and Management at Tsinghua University in Beijing, explaining the dilemma faced by the government.

China has also committed to making health care affordable for its 1.37 billion people. The government has spent 2.2 trillion yuan ($358 billion) on the system since 2009, of which more than 680 billion yuan was to provide universal health insurance coverage, state media quoted the Finance Ministry as saying earlier this year.

RED ENVELOPES

Public hospitals say recruiting new doctors is getting harder as many physicians are turned off by the wages at a time when patient numbers are growing. Health Ministry data showed the overall number of doctors rose 13 percent from 2008 to 2011, while patient visits jumped 28 percent.

“There will be no doctors left to treat the current doctors when they retire,” said the accounting director at a Shanghai hospital who declined to be identified because she was not authorized to speak to the media.

Low salaries have also spawned a system of under-the-table payments from patients. The payments are known as “hongbao” — a reference to the cash-filled red envelopes given as presents during Lunar New Year festivities — and cover various services from jumping the queue for appointments to extra surgical fees.

Bob Wang, a 35-year-old businessman in Beijing, said he gave the main surgeon who operated on his aunt’s femur bone transplant last year 5,000 yuan in “hongbao” on top of the 100,000 yuan he paid to the hospital because he was worried the doctor would not take the operation seriously otherwise.

There was unstated “hongbao” guidance for each type of surgery, he said.

“If my family or myself get sick … we won’t just go to the hospital. Everything will take forever — from registration to waiting for a bed, to getting seen by a doctor to queuing for surgery,” he said.

According to the doctor now living in Britain, patients and their families could sometimes spend two to three times more than the actual fee in “hongbao”.

Critics doubt that an anti-corruption campaign by President Xi Jinping will have much impact.

Indeed, a former doctor at a major heart hospital in Beijing said eradicating corruption would be nearly impossible.

“It would be easy to find out who was taking money if the government wanted to,” said the cardiologist, who has been working in the United States since 2009.

“But everyone would be found guilty. How could the hospitals survive?”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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