Informal Business Practices in the Russian Pharmaceutical Sector

by Elena Denisova-Schmidt

In spite of the financial crisis and its consequences, Russia still remains a potentially attractive market, presenting some promising investment opportunities with the potential for dynamic growth in sales and profits. But foreign investors might be faced with several significant challenges while working in Russia, because informal practices—the spoken and unspoken understandings that complement or sometimes even contradict official procedures—often prevail over formal rules and laws.

Using one pharmaceutical company as an example, this contribution shows what informal practices foreign companies might expect in Russia and how they could manage them.1


Cooperation with the State

Like other pharmaceutical companies operating in Russia, one particular company has spent much time dealing with the country’s antiquated and often business-unfriendly regulations and laws. For example, Russian hospitals have a quota on the medication they prescribe: 30% should be of domestic origin. The company produces its medication abroad, but packs it in Russia—so according to Russian law, the company produces domestic medication. Many physicians and patients alike are not satisfied with this protectionism, however; the quality of Russian drugs needs improvement. Domestic insulin produced in one Russian region, for example, is actually provided free of charge to patients, but it is completely ineffective. Foreign insulin is available on the market, but it must be bought by patients directly and most of them cannot afford it.


Cooperation with Hospitals

Russian law prohibits pharmaceutical companies from providing direct financial support to a hospital. An indirect donation through a third party (e.g. a charity organization) is still a possibility, however. Consider the example of a hospital undergoing renovation: its budget is unfortunately not sufficient to modernize its own infrastructure, so a charity organization might make an offer of new furniture, new equipment and other consumables on the condition that the hospital buys and distributes a certain amount of drugs from one of the organization’s sponsors (figure 1 and figure 2).


Figure 1

Figure 2


Cooperation with Physicians

The company cooperates with local physicians. Physicians are an important link in the product distribution chain, but they are also an important channel for professional discussions and feedback. There are some regulations that restrict such cooperation, however.

Federal law No. 323,2 covering the health protection of citizens—effective since January 1, 2012—makes this relationship more complicated. For example, representatives of a pharmaceutical company are no longer allowed to meet with physicians during their working hours—but the law does not stipulate if lunch time counts. Physicians are not allowed to accept any gifts from pharmaceutical companies, including office supplies and medical uniforms. Many hospitals in Russia have a very poor budget, however; they are not even able to provide their employees with pens or coveralls.

Before the introduction of this new law, pharmaceutical companies used to invite physicians for various events, including different types of entertainment and trips abroad. The new law prohibits this, although educational events, such as roundtables and trips for educational purposes—including coveted trips abroad—are still permissible (figure 3 and figure 4).


Figure 1

Figure 2

So, for example, a physician researching his or her Ph.D. thesis might undertake a study on the use of a company’s drugs. To comply with the degree requirements in Russia, a Ph.D. student must have published a certain number of articles in academic journals before submitting a thesis. The pharmaceutical company sponsors these publications,3 which explicitly contain information on this company’s products. Usually these are publications in recognized Russian academic journals. The company might also cover travel costs and provide a small honorarium for a physician talking about its products at an academic conference or during continuing education for practicing physicians.4

This pharmaceutical company, like the other foreign pharmaceutical companies operating in Russia, seems to use the same business practices in Russia as they do at home. The difference is in the starting point: under-financed Russian state hospitals that lack some basic instruments such as thermometers and blood pressure devices, and underpaid Russian physicians, as well as the lack of effective government control to verify that the regulations are being followed. This situation gives foreign pharmaceutical companies more latitude than they have at home.

 

1. The results of this project were presented at the 11th Annual International Young Researchers Conference, Post-Communist Corruption: Causes, Manifestations, Consequences, Havighurst Center, Miami University, Oxford (USA), March 29-31, 2012, and at the Research Centre for East European Studies (Forschungsstelle Osteuropa) at the University of Bremen, Germany, April 27, 2012. The author would like to thank the participants for all of the feedback received during both events.

2. A full version can be found at http://www.rg.ru/2011/11/23/zdorovie-dok.html, last visited September 28, 2013.

3. An author usually pays for a publication in Russia. Medical journals charge about 10 USD per page at least.

4. Practicing physicians in Russia have to take special courses (continuing education) every five years to be eligible to work.