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China fines British drug maker GlaxoSmithKline $492 million for bribery, orders exec deported

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BEIJING — Drug maker GlaxoSmithKline was fined $492 million on Friday for bribing doctors in China, the biggest such penalty ever imposed by a Chinese court.

The court sentenced the company's former China manager, Briton Mark Reilly, and four Chinese co-defendants to prison but postponed the sentences for two to four years, suggesting they may never be served. The court said it granted leniency because the defendants confessed.

The case, first publicized in mid-2013, highlighted the widespread use of payments to doctors and hospitals by sellers of drugs and medical equipment in a poorly funded health system that Chinese leaders have promised to improve. The fine is the largest such penalty ever imposed by a Chinese court.

In a statement, Glaxo said it would pay the fine and had made changes in its business to remedy flaws cited by Chinese authorities. It said it would change the incentive system for employees and reduce its engagement with health professionals.

"Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this," said CEO Sir Andrew Witty in the statement.

While large by Chinese standards, the fine is dwarfed by the $3 billion GlaxoSmithKline agreed to pay the U.S. government in July 2012 for paying doctors kickbacks to prescribe several of its drugs and for having sales representatives promote popular drugs for improper uses. The penalty is still the biggest U.S. health care fine in history, according to the nonprofit group Taxpayers Against Fraud.

Reilly was sentenced by the court in the central city of Changsha to three years prison with a four-year reprieve and was ordered deported, which meant he might leave China immediately. His co-defendants received prison terms of two to four years, with reprieves of two to four years.

In other cases, convicts have been spared prison if they are deemed to have reformed during their reprieve.

The police ministry said in May that Reilly was accused of operating a "massive bribery network." It said Reilly ordered salespeople beginning in January 2009 to pay doctors, hospital officials and health institutions to use GSK's products.

A police investigation found that GSK employees funneled as much as 3 billion yuan ($490 million) through travel agencies and consulting firms, which kicked back some of that money for use as bribes. Police have not made clear how much was paid out in bribes.

PHOTO: FILE - In this July 24, 2013 file photo, a Chinese flag is hoisted in front of a GlaxoSmithKline building in Shanghai, China. Drug maker GlaxoSmithKline was fined $492 million on Friday, Sept. 19, 2014 for bribing doctors in China in the biggest such penalty ever imposed by a Chinese court. The court sentenced the company's former China manager, Briton Mark Reilly, and four Chinese co-defendants to prison but postponed the sentences for two to four years, suggesting they may never be served. The court said it granted leniency because the defendants confessed. (AP Photo/Eugene Hoshiko, File)
FILE - In this July 24, 2013 file photo, a Chinese flag is hoisted in front of a GlaxoSmithKline building in Shanghai, China. Drug maker GlaxoSmithKline was fined $492 million on Friday, Sept. 19, 2014 for bribing doctors in China in the biggest such penalty ever imposed by a Chinese court. The court sentenced the company's former China manager, Briton Mark Reilly, and four Chinese co-defendants to prison but postponed the sentences for two to four years, suggesting they may never be served. The court said it granted leniency because the defendants confessed. (AP Photo/Eugene Hoshiko, File)

Investigators said the scheme appeared to be aimed at evading GSK's internal controls meant to prevent bribery.

Glaxo had said earlier the employees acted without its knowledge and violated its policy. In December, it said it would stop offering financial support to doctors and other health care professionals to promote its products.

Such informal payments pervade China's dysfunctional health system. Low salaries and skimpy budgets drive doctors, nurses and administrators to make ends meet by accepting money from patients, drug suppliers and others. The Glaxo case brought the flow of illicit money to international attention, but within China the practice is common knowledge.

Many blame a system in which China's hospitals nearly all are state-run but get too little money from Beijing. Most of the country's 2.3 million doctors are hospital employees and are barred from adding to their income by taking on second jobs.

The ruling Communist Party has promised higher health spending as part of efforts to spread more of China's prosperity to its poor majority. But with a population of 1.3 billion, the cost of a full-scale overhaul will be daunting.

A second foreign drugmaker, AstraZeneca, said in July 2013 that police in Shanghai were investigating one of its salespeople.

In a separate case, China's biggest drug distributor, Sinopharm Group Ltd., said in January that two former executives were the target of a corruption investigation.

GlaxoSmithKline is among many multinational drugmakers that have crossed legal or ethical lines to boost sales of prescription medicines.

Most cases involve promoting prescription medicines for uses that aren't approved — and for which there is often no evidence that they are effective or safe. Some drugs have grown to become multibillion-dollar annual sellers primarily from patients taking them for unapproved uses.

It was also common practice for decades for drugmakers to pay doctors in the U.S. and elsewhere "consulting fees," send them on junkets and give them gifts, with the expectation that the doctors would prescribe more of that company's medicines and even encourage colleagues to do so. The industry has attempted to eliminate or at least reduce those excesses under pressure from the government and others. Companies will soon begin publicly reporting payments to doctors, as required under provisions of the Affordable Care Act.

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Business Writer Linda A. Johnson in Trenton, New Jersey, contributed to this report.

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PHOTO: FILE - In this July 11, 2013 file photo, a woman enters an office of GlaxoSimthKline in Beijing. Drug maker GlaxoSmithKline was fined $492 million on Friday, Sept. 19, 2014 for bribing doctors in China in the biggest such penalty ever imposed by a Chinese court. The court sentenced the company's former China manager, Briton Mark Reilly, and four Chinese co-defendants to prison but postponed the sentences for two to four years, suggesting they may never be served. The court said it granted leniency because the defendants confessed. (AP Photo/Alexander F. Yuan, File)
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