1. +
The Ethical Challenges of Doing
Business in China’s Healthcare
Economy
www.HealthIntelAsia.com
www.RubiconStrategyGroup.com
February 3, 2014

2. +
Where the Problem Begins …
Would it surprise you to know that in many ways, China’s healthcare
was actually better under Mao than once the country began to open
to the West?

3. +
3
Better During Mao?
Christina Ho, Fellow and Project Director of the China Health Law Initiative at Georgetown
and Yanzhong Huang of the Council on Foreign Relations have written extensively of late
on how China’s modernization has actually dramatically harmed the access to healthcare
and successful outcomes to medical interventions of nearly every sort. Mao’s “Barefoot
Doctor Brigades” were not sophisticated, but they created better outcomes for the average
Chinese than what they have today.

4. +
What Happened?

China’s economic reforms
required dismantling large parts
of the state’s involvement in the
economy.

State Owned Enterprises (SOEs)
were shut down, privatized, or
modernized.

These good and necessary steps
had a bad and unintentional
effect: the “broken rice bowl” was
not replaced by similar
investments from the private
sector.

China’s central government was
so focused on modernization and
its many down-stream
implications that it overlooked
healthcare.

5. +
What Happened? (cont.)

Government spending on healthcare
decreased from 1.1% of GDP in 1980 to
0.8% in 2002.

WHO estimates that 50% of China’s rural
poor find themselves in “entrenched
poverty” due to healthcare costs.

In 2000, the WHO ranked China 188 of
1919 countries globally regarding
“fairness of healthcare finance.”

56% of rural Chinese do not bother to
follow up on doctor recommendations
because of expense.

2012 Pew Global Attitudes Project found
that between 2008 and 2012 anxieties
over China’s healthcare system had
more than doubled.

6. +
A Broken Funding Mechanism

China’s Ministry of Health sets healthcare policy.

China’s Ministry of Finance pays for healthcare
policy.

The two are not necessarily always on the same
page.

Historically, hospitals have been chronically underfunded.

Hospitals have been starved of government
reimbursement, so they have created ways of
generating revenue.

Doctors are poorly paid, and they too have found
ways to increase their compensation through unnecessary prescription of drugs and diagnostic
procedures.

This is where China’s healthcare corruption problem
begins and ends.

This is where “red envelopes” come from, and why
both consumers and companies get extorted in
China.

7. +
What Happened This Summer
…
One of the world’s largest pharmaceutical companies found itself in
the limelight for all the wrong reasons.

8. +
A Business’ Ethical Lapse, Or the
Painful Realities of Being in China?

GSK is alleged to have routed
$489 million to bribe hospital
officials and doctors.

Use of 700 travel agencies to
wash the money.

Sinopharm, the largest
pharmaceutical distributor in
China, just charged w/ same
thing.

But what are these companies
really guilty of?

9. +
For Life Science Companies, What
Are Their Options?

Maintain western standards of compliance (FCPA, UK Bribery
Act, etc.).


Hold to the status-quo.


Was this primarily a political move by Beijing? If so, is this shortterm pain and will “rules” go back to where they were before?
Change sales strategy.


What are the implications of this? Is this even realistic?
If we can’t bribe our way to success, can we market our way?
Exit China.

Don’t laugh. Actavis, the world’s 2nd largest generic manufacturer,
just did.

10. +
Contact Information
Benjamin Shobert
Founder, Managing Director
Rubicon Strategy Group, LLC
Two Union Square
601 Union Street, Suite 4200
Seattle, WA 98101
Phone: 206-652-3572
Fax: 206-652-3205
Mobile: 317-777-2926
Email: bshobert@rubiconstrategygroup.com
URL: www.HealthIntelAsia.com