Carlos Barria / Reuters A man walks in front of a GlaxoSmithKline factory in Shanghai's Pudong district on July 11, 2013

The anxious Chinese woman wanted to ensure that her mother would receive the best care during her upcoming gall-bladder surgery. So the woman, surnamed Cheng, cornered the dean of surgery at a hospital in eastern China’s Anhui province and pressed an envelope in the doctor’s hands. Inside the hongbao — or “red packet,” as such cash bequests are known in China — was 1,000 yuan, or around $160. The doctor took the envelope without questions. “Everybody does this,” Cheng recalls. “If you don’t give a hongbao, you’ll stand out.”

China’s medical system has to treat the world’s largest national population, a massive cohort that is rapidly aging. The illnesses that plague Chinese patients are shifting from life-threatening third-world ailments that can be treated relatively cheaply to the more complex and chronic infirmities of economically developed societies. It’s a daunting task — and an expensive one. Since China’s transition from a completely socialist model, medical bills have become one of the most common factors sending Chinese into poverty. That’s because hospitals have had their government funding slashed, forcing clinics to pass the cost burden to patients. In recent years, the central government has rolled out public health coverage to increase access to affordable care.

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These reforms notwithstanding, China’s medical system is still deeply diseased, riddled by corruption that impedes efficient caregiving and sends costs skyrocketing for patients. Beyond the proliferation of hongbao, hospitals recommend unnecessary but expensive tests and procedures to keep afloat departments now starved of public money. Extra fees for ambiguous items often end up on medical bills. Medical manufacturers and drug companies are also complicit, handing out cash to health workers in exchange for their products being used in hospitals.

China’s corrupt health care sector was exposed last month when foreign pharmaceutical giant GlaxoSmithKline was accused by government regulators of bribery and overcharging for its drugs. GSK staff in China have been detained and implicated in allegedly channeling up to $490 million through conduits to physicians and other medical staff to prescribe their drugs at inflated prices. In a statement, GSK admitted that “certain senior executives … appear to have acted outside of our processes and controls which breaches Chinese law.” Other Western pharmaceutical companies are now being probed by government investigators, although these firms’ representatives maintain the inquiries are routine. Whatever the outcome, the fact remains that China’s doctors and clinics are woefully underfunded, leaving ample space for the kind of bribery that is poisoning the country’s health care system.

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In Beijing, for instance, the average after-tax monthly income of a deputy chief physician is less than about $480. Salaries for other Chinese white collar professionals have dramatically increased in recent years, but doctors’ wages have stagnated. “When I was young, being a doctor was still a highly esteemed job and salaries of doctors were comparatively high,” says a senior surgeon at a top Beijing hospital. “Since Chinese doctors are now very underpaid, why are there still so many people who want to study medicine? One reason is that they are really interested in this job, and they can get professional satisfaction from curing patients. The second reason is hongbao and kickbacks.”

So endemic is corruption that cleaning out the system will require a herculean effort — a reality that mirrors the difficulties faced by China’s President Xi Jinping as he spearheads a campaign to tackle graft among Communist Party ranks. Says the Beijing surgeon, who did not want his name used because of the sensitivity of the subject: “If the government is really serious, all the Chinese doctors and drug companies will be found guilty because no drug manufacturer or doctor is innocent. If doctors are to be laid off for receiving hongbao, then every Chinese doctor will be laid off. But then who will take care of the patients?”

Already, patients are struggling with spiraling costs, even as China has launched a basic public health-insurance program. In 2000, surgery for stomach cancer, to take one example, would have cost a patient around $1,600. Today, the fee is five times that. And yet at certain Beijing hospitals, surgeons are paid less than $50 for performing a relatively complicated operation. Little wonder that red envelopes are so eagerly accepted. Bribes don’t just come in cash form. One Beijing contemporary-art-gallery owner says that a surprising demographic of art buyers are patients who need an appropriate gift for their doctors. (The price of Chinese modern art has rapidly appreciated in recent years.) An apple a day may keep the doctor away, but a contemporary canvas apparently keeps other physicians at work.

— With reporting by Gu Yongqiang and Chengcheng Jiang / Beijing

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