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People have long suspected that there are dirty bribery deals between pharmaceutical sales agents and doctors, driving up the prices of drugs and adding to the suffering of patients.
Many say the recent sentencing of Xia Yunyue, a hospital executive in Suzhou, East China's Jiangsu Province, to six-and-a-half years in jail is only the tip of the iceberg.
Xia's trial has attracted national attention because it highlights a widespread practice of doctors taking kickbacks.
Deputy director of the drugs department of a hospital affiliated to Suzhou University, Xia had a significant say about what drugs the hospital would use.
He was charged with receiving kickbacks of about 100,000 yuan (US$12,000).
China's hospitals are largely State-owned. Xia is, therefore, seen in the legal sense as an executive of a State firm.
Article 385 of the Criminal Law stipulates that any State employee who "violates State regulations by accepting rebates or service charges of various descriptions and taking them into his own possession shall be regarded as guilty of acceptance of bribes and punished for it."
Some other pharmaceutical executives in hospitals in Suzhou and other cities have also been arrested on similar charges.
It is still too early to come to the conclusion that the jailing of Xia and some other law-breaking doctors will shake up the current medical and pharmaceutical operations.
Rather, it will take years before the situation can substantially improve after effective reforms are carried out in the medical system.
Lacking fiscal resources to fund hospitals, China has adopted a de facto pharmacy-based financing system for hospitals, which are supposed to be not-for-profit and subsidized by the State, but actually sell drugs for a profit.
The kickbacks for doctors are a by-product of such an arrangement.
With the exclusive power of prescription at hand, doctors become the main target of pharmaceutical sales agents.
Those agents use every means possible to coax doctors into prescribing their drugs. As a result, kickbacks are a usual practice.
The entry of a drug into a hospital's pharmacy generally involves two steps.
First, doctors need to submit an application to the hospital's authorities for the use of a certain drug.
Then, a special expert panel discusses the merits of introducing it.
The drug department also has a role in the decision. After the hospital agrees to use the drug, the sales agents then go about encouraging doctors to prescribe it.
The more they prescribe, the more kickbacks they get. All of the kickback costs are included in the prices of drugs.
Patients usually have to pay exorbitantly high prices for drugs.
In many cases, the retail price can be 10 times that of the factory price.
The State has hammered out many solutions to the problem, but none seems to be effective.
It requires a bidding system to be implemented in hospitals when it comes to the introduction of drugs.
The State has lowered the ceiling on prices of 1,077 kinds of drugs since 2001, by an average 15 per cent. And the drug management law was amended in 2001 to stipulate that doctors who receive kickbacks could be fined up to 200,000 yuan (US$24,100).
Despite all this, people still struggle to cope with soaring medical prices.
According to results of the third national medical and health survey in 2003, China's per capita medical expenditure had increased by an average annual rate of 14 per cent. More than 30 per cent of people who suffered illnesses during the year did not go to see a doctor for fear of the huge bill, according to Rao Keqin, director of the Health Statistics and Information Centre at the Ministry of Health.
The harsh situation shows the country's medical reforms are far from effective.
People readily point the finger at the selfishness of doctors and hospitals. However, State funds only cover a small proportion of the operational costs of hospitals. They have to find extra income sources for their daily operations and development.
Experts estimate that generally, the income of hospitals from drug sales amounts to about 50 per cent of their overall revenues. Without this income, hospitals would not survive.
The highest registration fee for general outpatient services in Beijing is only 14 yuan (US$1.70). In some small cities, it is 1 yuan (12 US cents).
It means revenues from the services alone are far from enough for the hospital to pay medical workers' salaries and run daily operations and maintenance.
As a result, doctors are paid less than their foreign counterparts, meaning their skills are not reflected in their salaries.
Of course, doctors are both morally wrong and legally accountable if they take kickbacks, no matter how meagre their salary might be.
But the fact that it has become general practice for doctors to take kickbacks calls for serious attention to be paid to addressing the flaws in our system.
There is no sign the government is going to increase subsidies for State hospitals in the near future. Therefore, any further reform must take into account the financial requirements of the hospitals.
The ultimate solution, obviously, would be separating the operation of pharmacies from hospitals so they can concentrate on providing high-quality medical services.
But it is a long-term goal which we cannot expect will be achieved overnight.
The government should first identify non-profit and profitable hospitals as it is financially incapable of fully financing all of them.
For those not making money, the government should increase its subsidies while strengthening their management.
Profitable hospitals could then be left to the mercy of the market.
In the meantime, more social funding should be ushered into the sector.
Demands for high-level medical services are enormous. The public hospitals can only satisfy a small fraction of the demand. It is obvious from seeing the long queues in the registration hall of almost any hospital every morning.
The establishment of private hospitals must be encouraged so they can compete with public hospitals on an equal footing.
After effective competition is allowed, State hospitals would be forced to clean up their act.
And when the time is right, the pharmacies affiliated to hospitals should be separated to become independent players within the market.
When doctors can no longer benefit from subscribing unnecessarily expensive drugs, patients would be the winners.
(China Daily February 1, 2005)
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