Medications in Asia – High Revenue?!

Medications are a sensitive topic in some countries in Asia. This is typically because medication sales make up a large (and sometimes major) portion of revenue for the hospital. There are several factors influencing this.

Patient behavior in Asia (particularly China and Thailand of which I have most of my experience) is affected by a couple of factors which consequently increase the revenues of hospitals through medicine sales. Firstly, stand-alone clinics are typically not seen as providers of high quality or trustworthy medical care. Patients’ perception is that the best and most trustworthy care is provided by outpatient clinics in hospitals and therefore hospitals see very large outpatient visit numbers, unlike the West where the majority of outpatient care is provided in stand-alone clinics. Hospitals have their own pharmacy and will direct all patients to this pharmacy to collect their medication (example from 2014 here). In fact, the outpatient clinic in the hospital as a normal part of operations will not provide a prescription which can be used outside the hospital. I have only ever seen one case where a patient received a prescription so that they could get the medication outside the hospital (and not purchase the medication within the hospital), and this was only after about two hours of the patient arguing with multiple layers of administration and not giving in.

My experience is that public hospitals in general charge a lower markup than private, but still may receive a major portion of their revenue from drug sales. You can read more about this situation in Thailand from a World Health Organization study here. Drug sales can form a large part of the revenue in the public sector as the fees for other services are rather low – especially in China. For example, when I took my first job in China as CEO of a private hospital 15 years ago, the consultation fee to see a physician was less than 1 US dollar! So, hospitals have a captive audience and a system such that patients only buy medications from their internal pharmacy. Of course there are advantages to this system too, the principle one probably being guarantee that the medication is not fake. Fake medication is a problem in Asia.

A danger with revenue being so dependent upon medication sales is that of over prescribing. Over prescribing can be aggravated by compensation systems for physicians that provide a portion of salary according to how much revenue they make for the hospital. In this case an unscrupulous physician could prescribe more medications where not indicated by the diagnosis to pad their salary.

Another factor which affects the amount of medication prescribed is patient expectation. In the West if one sees the physician and the physician does not prescribe any medication – e.g. if they diagnose a cold due to a virus – then patients are typically totally ok with this. They are told to go home and rest, drink plenty of water etc. However, in Asia many patients will feel like they received poor treatment if they leave the hospital without anything tangible to show for the money they paid. They want to receive something physical, and invariably this means medications. I have seen patients arguing with a doctor that they were not prescribed any medications to take home with them! It can be very difficult for hospital staff to weather this kind of pressure.

Unfortunately over-prescribing can lead to an increase in the number of antibiotic resistant bacteria. Patients present with a cold most likely due to a virus but are prescribed antibiotics and after a few days they feel better and don’t complete the entire course. A 2014 study showed that antibiotics in China are prescribed at 10x the rate of the USA:

Due to the reasons above, in China the price of medication is a very sensitive and therefore highly controlled area. Public hospitals must adhere to the government pricing schedule for essential medications whereas private hospitals have more flexibility (in general – again nothing is 100% – see the post on interpretation of the law). Additionally, corruption may exist around drug companies incentivizing local government departments to approve their medications for sale, and incentivizing hospitals and physicians to prescribe their medications, which again leads to inappropriate medical treatment (over prescribing of medication).

There is an interesting article here which states:

Now, its common for pharmaceutical firms to bribe doctors and hospitals to prescribe their medicine or buy their medical equipment. Doctors and nurses are still considered public servants and paid meager wagesas low as 800 renminbi in rural areas or 3,000 renminbi in larger cities ($130-$500) a month. As a result, they lean on bribes, sales at hospital pharmacies and operations for the bulk of their income.

Drug makers often need to pay off officials for regulatory approval to license, import or manufacture their products in China. International companies have to compete with Chinese domestic companies for the market. In [the GlaxoSmithKline case], they had to pay bribes to whoever, the government officials, the doctors, whoever is controlling entry to the market.

China’s central government are studiously cracking down on this practice. A quick web search will provide many examples:

China’s central government is well aware of the corruption issues and are dealing with this addiction to prescription revenue through a variety of measures, including increasing the amount of revenue that public hospitals can charge for services such as consultation fees and room charges. This lowers the incentive to over prescribe medications and diagnostic services.

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