AstraZeneca China President Detained: Insurance Fraud and China’s Distorted Pharmaceutical System

The image of AstraZeneca's corporate office.(Made by ChatGPT)

People News - Since late October,news has been circulating widely about the investigation into Wang Lei, the president of AstraZeneca China, with many speculating that the probe relates to an insurance fraud case involving AstraZeneca employees three years ago. Experts, however, believe that the incident reveals not only the unlawful operations of foreign companies in China but also the challenges the Chinese public faces in accessing medication under an imbalanced healthcare system.

After news of Wang Lei’s investigation emerged, AstraZeneca quickly confirmed on Wednesday, November 6, that he had been detained.

According to Radio Free Asia, although there is some inconsistency in reports about the reasons for Wang Lei’s detention, many Chinese media outlets, including The Paper and Jiemian, have linked the case to an insurance fraud incident involving AstraZeneca employees three years ago. This has stirred public memory of the bribery scandal that led to the arrest of GlaxoSmithKline executives in China more than a decade ago. This time, however, the scrutiny extends beyond the legality of foreign pharmaceutical operations in China to the structural environment that fosters such illegal practices.

Wang Lei’s Aggressive Tactics and AstraZeneca’s Expansion in China

Domestic media reports reveal that in July 2021, the Shenzhen Medical Insurance Bureau, following a tip-off, exposed that some AstraZeneca employees collaborated with gene testing companies to falsify positive gene test results, fraudulently claiming insurance coverage for the lung cancer drug Tagrisso. In January 2022, the National Medical Insurance Bureau urged Shenzhen to form a joint task force to further investigate. Over three years, the number of individuals investigated for this fraud has grown. Besides Wang Lei, AstraZeneca stated that two former and two current executives in its China subsidiary are also under investigation.

A medical doctor who previously worked for a multinational pharmaceutical company suggested that Wang Lei’s aggressive approach to seeking rapid revenue growth in China contributed to the fraud case. Due to safety concerns, this doctor spoke anonymously.

The "Shanghai Observer," a Chinese state-backed media outlet, reported that AstraZeneca China has been labeled "the most aggressive company" in the industry due to Wang Lei's tactics. Family members of some AstraZeneca employees imprisoned for the insurance fraud posted on social media, stating that court documents indicated Wang Lei was aware of the unusually high positive rate in gene tests and encouraged drug representatives to boost it. Ultimately, the funds obtained from the insurance fraud flowed back to AstraZeneca.

The doctor also learned from friends within AstraZeneca that Wang Lei was indeed aware of the fraud.

However, after Wang Lei’s detention, AstraZeneca publicly claimed that the investigation is unrelated to the insurance fraud case. There are rumors that Wang Lei’s detention may involve smuggling the drug “Infifon” by a former AstraZeneca executive, but opinions differ on this point. Lawyer Yuan Zhongrui expressed doubts on his WeChat blog, “The World in Veins,” arguing that it’s unlikely a multinational giant like AstraZeneca would engage in collective smuggling and that small-scale personal smuggling for commercial use would have little significance.

The Real Issue: China’s Medical System

Zhong Jianhua, deputy CEO of the Hong Kong Public Opinion Research Institute, told Radio Free Asia that AstraZeneca’s involvement in the insurance fraud case is connected to systemic flaws in China’s healthcare system. “The current policy in China requires many medical institutions to generate their own income, often without adequate government funding. This leads to widespread abuse of medical procedures and excessive drug prescriptions,” he said, adding that AstraZeneca, too, participates in this system, “since selling drugs is a significant source of revenue, and the choice of drugs can become a profit-sharing condition between hospitals and pharmaceutical companies. Doctors prescribing the drugs may even receive kickbacks. Therefore, pharmaceutical companies have a strong incentive to provide benefits and bribes to medical institutions and personnel. As the largest foreign drug manufacturer in China, AstraZeneca inevitably becomes part of this profit game created by the Chinese system.”

A senior executive at a Chinese pharmaceutical company pointed out that the AstraZeneca incident highlights the difficulties ordinary people face in accessing imported drugs due to restrictions in China’s pharmaceutical system. He spoke anonymously due to safety concerns.

The lung cancer drug Tagrisso, involved in AstraZeneca’s insurance fraud case, is widely regarded in China as a miracle drug. Public records show that since October 2018, non-small cell lung cancer patients who test positive for T790M can get insurance coverage for Tagrisso. At the time, the drug’s price had just dropped from 50,000 yuan to 15,300 yuan for 30 tablets, with insured patients only needing to pay around 5,000 yuan out-of-pocket. However, since 2019, Tagrisso has also been prescribed to patients who test negative. In March 2021, updates to the insurance catalog allowed coverage for negative patients. AstraZeneca employees were implicated in cases of fraudulently claiming insurance for Tagrisso between October 2018 and March 2021 for non-positive patients.

This executive noted that while some T790M-negative patients could potentially benefit from Tagrisso, they could not afford the high cost without insurance, thus creating an incentive for insurance fraud. This fraud allowed AstraZeneca to access insurance funds and boost sales.

The executive added that many imported drugs face similar challenges in China: they have a large market, but “everyone knows that the priority for medication is foreign patented drugs first, followed by foreign generics, then domestic joint-venture drugs, then domestic drugs, and lastly, traditional Chinese medicine. This demand creates a huge market for imported drugs, regardless of the ability to pay.” However, these drugs are restricted by regulatory agencies, making it difficult for them to reach the general public. “Policies do not allow ordinary citizens to access imported drugs,” he said.

Since 2018, China’s drug procurement program has expanded to include more innovative drugs, including many imports. Nonetheless, for a long time, the public has perceived that imported drugs are hard to obtain and that hospitals increasingly avoid prescribing foreign patented drugs.

According to China News Weekly, Chen Hao, a national medical insurance expert, explained that public hospitals rely primarily on medical insurance for income, and for drugs with the same composition, insurance will only cover the benchmark price, typically much lower than the price of patented drugs. If the patient is unwilling to pay the difference, hospitals naturally prefer affordable options from the procurement program.

The executive also disclosed that although imported drugs are scarce in the market, they are still available in some hospital pharmacies, “Hospitals always have some stock of imported drugs, but they are reserved for those with connections.”

Are Imported Drugs Reserved for Those with Connections?

In the AstraZeneca insurance fraud case, the lung cancer drug Tagrisso is referred to in China as a “miracle drug” for treating lung cancer. According to public data, starting in October 2018, patients with non-small cell lung cancer who tested positive for T790M were eligible for insurance reimbursement to cover Tagrisso costs. At that time, the price of Tagrisso had just dropped from 50,000 yuan to 15,300 yuan for 30 tablets, and with insurance coverage, patients only had to pay around 5,000 yuan out-of-pocket. However, beginning in 2019, Tagrisso was also used to treat patients who tested negative. By March 2021, the insurance catalog was updated to include negative patients as well. The AstraZeneca employees implicated in the fraud were involved in cases where non-positive patients received insurance reimbursement for Tagrisso between October 2018 and March 2021.

The aforementioned pharmaceutical executive revealed that, while imported drugs may not be readily available on the market, they are available in some pharmacies. “Hospitals consistently stock certain imported drugs, but these are reserved for people with connections,” he said.

A former pharmaceutical distributor confirmed this perspective, explaining anonymously, “There are both strong and weak connections. High-level wards in large hospitals, especially VIP rooms, certainly have access. Also, certain doctors or people who are closer to the pharmaceutical industry have access.”

He added that in some cases, the government’s procurement program significantly lowers the price of medicines and medical devices. Certain high-quality imported drugs and devices are sold at a loss to ensure they maintain access to sales channels within hospitals. For these loss-leader drugs, companies only supply a limited amount, resulting in a small quantity of imported drugs among a larger stock of domestic drugs. Only doctors or department heads hold the prescribing authority for these limited imported drugs, and they typically prioritize senior officials or reserve them for individuals within their networks.