A lousy reporting from IHT -- about the case of Jin Lei and Gensci

This is not to defend Dr. Jin Lei. I am just shocked at the lousiness of the NYT reporting.

IHT and NYT today carried one of the most ignorant and biased articles for such a renowned paper.

Two reporters, David Barboza and Duff Wilson, reported a case against dr. Jin Lei, founder and Chief Executive of Genesci, the market leader of Human Growth Hormone (HGH) and also one of the most successfully biotech companies in China.

A few very important facts seem to have been deliberately missed or mis-directed, which made this reporting look like total trash.

1. Jintropin is no different from any other Human Growth Hormone that is marketed by US companies such as Genetech, Eli Lilly or Swiss biotech company Sereno. However, the articles made it sound like Genesci was the only company in the world that produced such drug, and hence Gensci committed an unforgivable crime by selling this to rouge distributors in USA. The fact is, HGH is an FDA approved drug, its main function is to treat dwarfness and other growth retarded diseases. No quality related complaint about Jintropin was reported, the only difference seems to be the process of physician prescription
   
2. The reality is that Jintropin does not have FDA approval, just like any of the other Chinese drugs, such as another biotech blockbuster, recombinant insulin. When it was produced by a Chinese company, it was not allowed to be imported to USA. It is extremely costly to apply for FDA approval (US$10-100M)
3. This is simply a case of selling a China SFDA approved drug into US where it was not approved by US FDA. Yet the two reporter, whether being ignorant or lazy, or for other reasons, reported it as if it were some novel dopes Jin patented for himself. Jintropin is just a brand for a generic drug that is also sold by US companies.
   
4. In fact, it is unforgivable that these reporters missed a rumour in the past that Genentech had allegedly accused Jin of stealing its technology for manufacturing Jintropin (HGH). Perhaps this will weaken their story of misleading the reader through demonizing HGH
5. Finally, in the last paragraph of the report our 'respectable' reporters inserted an innuendo linking Jin to the executed corruptor Zheng Xiaoyu. Zheng has been the head of SFDA since its foundation. Almost all drug companies in China have photo of his visit. It is commonplace that Chinese companies (this is not unique for China) showing photograph of their bosses with Clinton and Bush, or Zheng Xiaoyu, which often has no correlation to their actual relationship. In reality, this is at best an oversight from Gensci’s web manager, who forgot to distant themselves from a corruptor. Yet the two IHT idiots tried to hint that Jin was linked to the corruptor.

I do not want to defend Dr. Jin and I do not have any knowledge about the case. All I know is that if I were Dr. Jin, the report would suffice a libel suit against IHT and the two reporters. I also believe that sloppy reporting like this will be viewed as part of the coordinated efforts in a malicious attack on anything China, the Mattel-toy mess being the other.

Cancer in China's healthcare system

The Economist (see below for more text) talks about China's failed healthcare reform

• "Hospitals, deprived of many of their subsidies, have become highly dependent on medicine sales, income from which now typically accounts for more than 40% of revenue (see chart).
• After mark-ups by hospitals and distributors (also mainly state-owned), the retail price of medicine can be 20 times higher than it is at the factory gate. [note: for most drugs it is about 3 times higher]
• In the half-reformed mess that is China's health-care sector, selective price controls are of little use. Without any significant increase in government support (the share of China's total health expenses borne by private individuals has increased from a little over 20% in 1978 to a touch over 58% in 2002), state-run hospitals will continue to regard patients as a primary source of revenue. "

China's healthcare reform is based on a half-hearted attempt to adopt the Singaporean system. It failed because it only copied half of the system. For example, without rationalizing diagnostic fees, the hospital cannot cover its cost and the physicians are badly paid, hence there is no way to correct the problem of overprescibing drugs. Without a proper insurance and reimbursement system, it is impossible to align reimbursement to insurance premium and hence no accoutnability on spending. When you have a good solution and you only get half of it, it is worse than importing a bad solution.

There is a cancer in China's healthcare system, corruption. Such corruption is hard to cure because it interwines with the whole system. Healthcare providers (hospitals and hysicains) are not paid for what they do. Diagnostic fees are capped at 10-20RMB, so they have to cover their cost through kickback at overprescibing drugs. This further exacerbates the problem because of the waste over unnecessary drugs, medical materials, equipments and operations. Cancer cells feed on the nutrients supposedly for healthy cells, but if you try to kill the cancer cells, you end up killing more healthy cells.

The Economist correctly stated the problem as the corruption in overcharging and overprescibing drugs. But the Economist wrongly scapegoated the government's lack of subsidy. The core of the problem is the hospital fee and insurance/reimbursement system, not the amount of government subsidy. Without a transparent pricing and reimbursement system, corruption will eat away any subsidy the government is giving.

Price control was also blamed by the Economist article. But that is not a major problem either. Chinese people have learned to circumvent price control, exacly the way we buy discounted tickets from airlines. i.e., there is an officially approved price-tag, and there is a real '(discounted) transaction price'. Unfortunately, due to lack of competition in the healthcare provider, the discount only reach the hospital/wholesaler level, and the patients end up paying for the "listed price" most of the times. As a matter of fact, the lowering of list price does help to alleviate the burden on patients. (France and many EU countries has price control for drugs as well) Then why was the drug revenue still stands at the 40% of total hospital revenue? Reasons:

1. Quantity: physicians can prescibe many differnt types of (unneccessary and even useless) drug
2. Price: physician can switch to newer products ("new" or "innovative" drugs are effectively not under price control) even if there is no visible difference in efficacy, because physician+hospital take a cut of 20-60% of the amount the patients pay

The problem of China's healthcare system is not due to lack of subsidy. It is the result of a totally screwed up system which does not align cost to price, thus creating the opportunity for corruption. It does not reward healthcare providers properly, thus encouraging and even forcing widespread corruption.

The cancer in China's healthcare system can be cured. It requires a transparent system with accountability. Moreover, to prevent corruption (and hence waste) the providers need to be rewarded for what they do. China did not fail because it imported Singaporean or American healthecare solution. It failed because it imported fragments of it and left out a number of loopholes.

The solutions to corruption in hospitals and in the city government are the same: reward them properly and align what they are rewarded to what they actually do.

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Medicine in China Gouged
Nov 17th 2005 BEIJING

Market forces have left patients hurting
“GETTING your appendix out, is a year's farming up the spout,” goes the jingle in China, where the collapse of a once widely admired state-subsidised health-care system has left many citizens unable to afford even the most basic treatment. But the government's efforts to tackle the problem by ordering big cuts in medicine prices are winning it few admirers. Demands are growing for far more profound reforms.
While most prices have been freed from state control in the past 15 years, those of prescription medicines remain government-regulated. This has been of little comfort to patients, many of whom were once able to reclaim their expenses but now have to pay themselves. Hospitals, deprived of many of their subsidies, have become highly dependent on medicine sales, income from which now typically accounts for more than 40% of revenue (see chart). After mark-ups by hospitals and distributors (also mainly state-owned), the retail price of medicine can be 20 times higher than it is at the factory gate. A government survey published last year said nearly 30% of city residents recommended for hospitalisation refuse to be admitted, with some 70% citing the cost—though the cost of medicines would only account for part of that.
In the past eight years, China has ordered 17 price reductions affecting a wide variety of prescription drugs. In September the biggest cuts yet were announced. From October 10th, retail prices for 22 types of medicine, comprising more than 200 brands, were to be reduced by an average of 40%.
The numbers were headline grabbing, but have failed to impress patients and have been greeted with scepticism even by the state-controlled media. Not surprisingly, the pharmaceutical industry has been especially vocal. It says the latest move could further damage a sector whose profit margins have already been plummeting thanks to repeated price cuts, rising raw material costs, new quality standards and growing competition. Thinner margins, the drug firms complain, mean less money for developing new products.
In the half-reformed mess that is China's health-care sector, selective price controls are of little use. Without any significant increase in government support (the share of China's total health expenses borne by private individuals has increased from a little over 20% in 1978 to a touch over 58% in 2002), state-run hospitals will continue to regard patients as a primary source of revenue. To circumvent price cuts, doctors simply prescribe more, prescribe medicines not affected by the cuts, or recommend more (and often unnecessary) tests for which patients have to pay.
The government has tried to introduce greater price competition by relaxing restrictions on the medicine retail sector. But there have been problems: some of the new pharmacies have had their windows smashed by “unknown” attackers. Some hospitals have reportedly put pressure on distributors not to deal with them. Some have found their stocks rapidly bought up by distributors' agents—great for sales, but not for consumers. And in a market awash with fake medicines, the well-established chains are often considered a safer choice, despite their higher prices.
The price cuts this year would have been bigger—an average of 60% had been proposed—were it not for the pharmaceutical industry's pleas. But for consumers, it is unlikely that this would have made much of a difference either. Poorly-paid doctors have every incentive to find ways of keeping the revenue flowing.

In recent months, debate about the need for more thorough-going reform has intensified. The debate has been given extra momentum by an unusually hard-hitting report by a government think-tank early this year. It declared medical reforms to be “basically a failure”. One proposed solution is to concentrate government resources in key hospitals (giving them sufficient funds to avoid the need to gouge patients) and turn the rest over to private control. But there are also some who argue that introducing market forces into the medical system has been the root cause of the current problems. While officials struggle to reach a consensus, the pharmaceutical industry fears there is more meddling with prices to come.

Price control in Chinese hospitals

FT on China's price control (Aug22, also Chinese translation if you don't have subscription): other than the widely publicized price control on gasoline, it is probably about time to lift the hands on hospital diagnosis, and that on utilities

"When Gao Qiang, China's health minister, responded to scathing criticism of his country's health system this month he turned his ire on local hospitals, saying they had put profits ahead patients. Mr Gao raged that patients were being billed for drugs to cover the cost of everything from wages to building maintenance, leaving an increasing number of citizens unable to afford to see a doctor.

From the hospital's perspective, however, the picture is very different. A squeeze on government funding and strict price controls on most services mean they are forced to rely on drug sales for up to 70 per cent of their budgets.

"The problem with hospitals centres on the draconian capping of doctors' fees and in-patient beds," said a foreign pharmaceuticals executive. "The result is that they run these services at a loss and have to make up the money elsewhere." The cost of a bed in China's hospitals, even in large cities, can be as little as Dollars 1 a day. Prices are kept low in the name of maintaining what the government calls "social stability".

China has extensively deregulated price controls since it abandoned the command economy in 1979, with the prices of nearly all consumer goods now determined by the market. But the prices of a host of other services - including water, oil, power and cable TV fees - remain under the command of the National Development Reform Commission, the chief economic planning body.The NDRC even controls parking fees for cars and bicycles, the latter because it is a staple cost for many workers.The controls are designed as a political tool, to ensure that ordinary citizens are not driven to protest against spikes in prices for daily necessities, and also as an economic measure to cool inflation."

What Gao tried to avoid was the fact that diagnostic charges are under strict price control, which has forced hospital to find profit from drug prescription and charging for using imported diagnostic equipments. I have visited many Chinese hospitals in the past 10 years, while consulting for pharmaceutical clients, when you enter any hospital in China, there is a price board (like the timetable in a train station, as in the picture, via Bingfeng), specifying how much each consultation cost, how much it costs for using gastroscope (imported gastroscope can charge a higher price tham domestic equipments), etc. Usually a typical visit you will have to pay RMB 5-20 for diagnosis and 50-100 for drugs. Physicians will ask about your insurance before deciding what drug to sell you. In other words, what you get might not be what you need. Furthermore, some patients are subsidizing others, while pharmaceutical companies act as the "tax agent". Plenty of opportunities arise also for corruption among physicians and wardens, via drug rebate. I am also pretty sure the new building in this picture is funded, in part, by pharmaco "donation"

This is hospital's answer to price control, although not as visible as that of the oil's companies.

Until the price control on diagnosis charges is lifted, and competition opened, it is unlikely to see this problem solved. (As to Gao Qiang, I despise anyone among the leadership of MoPH before Apr 20, 2003. Gao got "promoted" only because no one was clean and he was seen as an outsider in the clan, though he was not. I still remember Gao defended Zhang even 2 weeks after Zhang was fired. They were on the same boat. Gao was as guilty as Zhang Wenkang. I do not expect bureaucrats like Gao would be willing to solve the problem.)

Fair enough, price control should only be lifted gradually. Following the wisdom of Dengs' gradualism, I do not believe it should be changed over-night. However, there needs to be a plan and a schedule for reform, where clear milestones are set. An example is, to first use foreign insurers' reimbursement limit as an index, slowly enlarge the price cap to 10%, 20%, and finally maybe 50% or 100% of that index (or benchmarking foreign insurers, e.g. Singapore's, then adjust to RMB using PPP). The problem for MoPH under the leadership of Zhang and Gao is, they have all talked the talk without walking the walk for the past 10 years.

Merck, Vioxx, the moral of the lesson and how to align the incentives

I mentioned Merck's case in my previous post in relation to strategy (and the comments under that post). I was also aware that the verdict will be delivered in the next few days.

Today Merck was found liable for $253M for a Vioxx lawsuit. CNN said there are at least 4200 similar cases waiting on trial, many cases even stronger than this one. That would put the total liability to over $1000bn, not counting the non-death related suits. (In reality the punitative damage would not scale up in the same rate, but the total would reach $100bn, even without the punitative portion. )

Merck's market capitalization according to yahoo at this moment: $62bn (based on $28.25/share), net income $4.5Bn IN 2004, total asset $43bn.

With these numbers, Merck cannot afford the payment of $100bn even if it were to sell off the whole company (all future anticipated income based on market projection and discount rate), or twice its total asset. It would take 22 times its annual income to settle these suits, more for non-death related ones. This is no better than what the tobacco industry received. In fact, the fine for the tobacco industry, who is more guilty that Merck in any measure, has been significantly reduced recently. Where is justice?

Merck probably was not doing the right thing before it voluntarily withdrew Vioxx, or withdrawing it too late. I certain would not pity Merck had it continued to sell the drug knowingly before the fault was identified, like Pfizer did. But I am not sure whether the Merck's voluntary withdrawal of Vioxx and the related disclosure of information has adversely affected the verdict. If it does, it would be a sad news for all of us. Because Merck is punished for finally doing the right thing, or at least voluntarily stopped doing the wrong thing to contain the damage. If Pfizer, which has stood firmly behind its Celebrex and Bextra despite strong evidence against the COX-2 Selective Inhibitors (which include both Vioxx, Bextra and Celebrex), and even promoted its products by capturing the opportunity of Vioxx withdraw, emerges as a winner over the conscience struck (although belatedly) Merck, it would surely set a bad example for corporate America. Gilmartin's following Merck's mission statement might pay off in the longer term, as demonstrated in the last 100 years. But Gilmartin is also guilty of not enforcing such principles to his marketing ans sales team before the withdraw. But the judge and the government has the responsible to align the incentives and encourage corporation to do the right thing.

Based on the verdict, Merck was guilty at concealing some crucial facts before the withdrawal. It would be unfair to the patient or the public if Merck can get away with it. Is there a better solution to this dilemma? Yes, there is. This is what I would do if I were the judge

1. Maintain the same verdict, and same amount of damage, but distribute the "punitative damage" of $229M to 3 parties: whistleblower, victim and a fund (e.g. 70%, 20%, 10%, with some flexibility by case)
2. Whistleblower fund should be distributed to the company and the individual who helped to control the damage. In this case Merck and Gilmartin and team should be the among the recepients of the whistleblower award. In this particular situation perhaps the whilstleblower should recieved the bullk of the punitative damage awarded, if it is proved that without the proactive release of information by Merck and decision by Gilmartin, the case would not have even been made. This will ensure the act of correcting the wrongs are rewarded
3. Even better, the well-behaved companies may be in a position to profit from their good deed. For example, if Pfizer is convicted in a similar lawsuit, Merck gets the share of whistlerblower award as well. Therefore, the "good" company might end up better off, if there are contrasting responses from these companies
4. The fund (this would require legislation and government effort) would be used to reward companies which does the right thing in future, e.g. when it does not get compensated by punitative damage from a third company with wrong doing but refused to correct the mistake
5. Now this is a competitive environment which encourage and reward compnaies that do the right thing

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Edited to add (Aug 22):

This is another proof that WSJ reporters are much brighter than the editorial writers.

Op-ed today on "Vioxx Verdict" appears like a sponsored ad by the pharma industry.

It said "[The verdict is] bad news for other COX-2 pain relievers and drug reseach generally.....also bad news for the millions of Americans who suffer from the kind of chronic pain for which stomach friendly COX-2 inhibitors like Vioxx, Celebrex..."

• How so? traditional NSAID (aspirin, ibuprofen), with side effect on the stomach (GI, or gastro-intestinal system), is now proved to be a good alternative to COX-2 inhibitors. Pharmacos do not like it because these are generic drugs and they don't make obscene profit from them
• COX-2 themselves can still be applied to patient with no CV (cardio-vascular) risk. As for Bextra or Celebrex, they deserve it. If my proposal is adopted, Merck is going to benefit from suits agaisnt Bextra
• For generally drug research, there is a golder opportunity to be innovative and find another blockbuster which will address both the GI and CV problems
• The verdict only place a clear warning agaisnt deceptive sales and marketing methods which try to conceal the potential risks and side-effects. In the long term, it is going to boost patient's confidence on drugs, just SOX do to corporate accounting governence. All Merck has to do is to honestly tell the physicians and patients what the risks are, exactly like what they have correctly done last year this time
• As the op-ed has noted, "earlier this year, an FDA advisory panel recommended that the drug go back on the market, with appropriate labeling"

The incompetent lawyers Merck hired are the ones to be blamed. As for the pahramcos, play by the rule and you will get rewarded.