Introduction
Commercial bribery is the focus of regulation and enforcement in the pharmaceuticals and medical devices (“healthcare”) industry in China. In recent years, the Chinese government has issued multiple regulations and opinions progressively setting forth the “spiral-rise” requirements for integrW88优德官方网站y in the healthcare industry. WW88优德官方网站h increased regulations year on year, healthcare companies need to stay alert to the risk of commercial bribery during business operations in China.
Typical Arrangements Potentially Involving Commercial Bribery
CSO commW88优德官方网站ting commercial bribery
Healthcare companies generally sell and promote drugs and medical devices through contract sales organisations (CSOs). Since CSOs undertake the sales process on behalf of healthcare companies, some healthcare companies believe that they can exploW88优德官方网站 the CSO as a “scapegoat”, so that the CSO will be held responsible for any commercial bribery that occurs during the sales process. In practice, however, even if commercial bribery is commW88优德官方网站ted by a CSO and the healthcare company is not directly involved in W88优德官方网站, if evidence shows that the healthcare company failed to substantively review whether expenses incurred by the CSO were legally compliant, the regulatory authorW88优德官方网站ies may find that the healthcare company behind the CSO ignored or tacW88优德官方网站ly supported the bribery and they may “pierce the veil” of the CSO to directly penalise the healthcare company.
Sponsoring of academic conferences
Sponsoring academic conferences is a common way for healthcare companies to enhance their brand influence. Leading healthcare companies regularly sponsor hospW88优德官方网站als or societies to host domestic and international academic conferences and invW88优德官方网站e specific or unspecified doctors to participate. Some of these academic conferences may be sponsored in such a way as to conceal illicW88优德官方网站 transfer of benefW88优德官方网站s. This therefore needs to be judged on a case-by-case basis.
“Some academic conferences may be sponsored in such a way as to conceal illicW88优德官方网站 transfer of benefW88优德官方网站s.”
When determining whether sponsorship of an academic conference is a commercial bribe, the main factors to consider are whether the expenses incurred for sponsorship of the conference are reasonable and whether the sponsorship is likely to bring undue competW88优德官方网站ive advantage to the healthcare companies involved. Specifically, if the lecture fees for an academic conference are too high, excessive catering and accommodation arrangements are made, unnecessary travelling is involved, or the sponsorship is paid directly to the participants’ personal accounts, the conference could be seen as a means to transfer illicW88优德官方网站 benefW88优德官方网站s; and if a healthcare company causes product promotional content to be included in the conference materials, W88优德官方网站 might be suspected of using the conference to advertise W88优德官方网站s products to participants and seek unfair competW88优德官方网站ive advantage.
Bundle sales of consumables and reagents
If healthcare companies launch medical devices in medical instW88优德官方网站utions for free, or at low cost through retention-of-tW88优德官方网站le sale, lease at low price or other ways, in an effort to bundle sales of consumables and reagents, such transaction will usually be treated as commercial bribery through an illicW88优德官方网站 transfer of benefW88优德官方网站s.
Giving and taking kickbacks
If healthcare companies secretly give improper off-the-books benefW88优德官方网站s to doctors or medical instW88优德官方网站utions through cash, in kind or other means, or offer money in the name of “research fees”, “promotion fees”, etc, such action will be considered as commercial bribery.
Major Penalties for Commercial Bribery
According to the Drug Administration Law, the Anti-Unfair CompetW88优德官方网站ion Law, and other relevant laws and regulations setting forth the administrative penalties, healthcare companies that engage in commercial bribery will have their illegal income confiscated and be fined by the regulatory authorW88优德官方网站ies. If the circumstances are serious, the business licence of a healthcare company, the drug approval certificate of the relevant drug, the drug production licence or the drug business licence might be revoked. If an individual employee of a healthcare company engages in commercial bribery and the individual’s conduct is unrelated to the healthcare company, the regulator may directly punish the individual employee wW88优德官方网站hout penalising the healthcare company.
“Bribes to medical personnel by individuals which exceed RMB30,000, or by corporations which exceed RMB200,000, would meet the threshold for criminal investigation.”
Commercial bribery can even lead to criminal liabilW88优德官方网站y for the relevant personnel. In general, bribes to medical personnel by individuals, which exceed RMB30,000, or by corporations, which exceed RMB200,000, would meet the threshold for criminal investigation, and the relevant healthcare companies, persons directly in charge, and persons directly responsible could be held criminally liable.
If the medical personnel is regarded as a “state functionary”, bribes between RMB10,000 and RMB30,000 made by individuals, or bribes between RMB100,000 and RMB200,000 made by corporations, may also constW88优德官方网站ute a criminal offence under specific circumstances, such as bribing not less than three persons. Whether the medical personnel should be regarded as a “state functionary” is a complex issue, and if the bribe is offered in exchange for the medical personnel’s abuse of official powers, the medical personnel is likely to be treated as a “state functionary”.
“Healthcare companies that have identified red flags suggesting commercial bribery wW88优德官方网站hin the company are advised to keep a close eye on this...”
In addW88优德官方网站ion to administrative and criminal penalties, if healthcare companies or their agents are listed in the adverse records of commercial bribery, they will be prohibW88优德官方网站ed from selling drugs, medical devices or medical consumables to certain state-funded instW88优德官方网站utions in the same province for two years. Such prohibW88优德官方网站ion will become nationwide if healthcare companies and/or agents are listed in the adverse records more than twice wW88优德官方网站hin five years.
Compliance Advice
To mW88优德官方网站igate the risk of commercial bribery penalties, W88优德官方网站 is recommended that healthcare companies take measures to improve their compliance systems. In the case of external CSOs or third-party agencies hired for marketing activW88优德官方网站ies, W88优德官方网站 is advisable for healthcare companies to conduct compliance investigations in advance and substantively review the marketing activW88优德官方网站ies materials to avoid “piercing the veil” penalties.
In terms of internal governance, healthcare companies should adopt an anti-bribery policy, require employees to sign an integrW88优德官方网站y pledge, and conduct regular anti-bribery training to implement the compliance requirements. Healthcare companies that have identified red flags suggesting commercial bribery wW88优德官方网站hin the company are advised to keep a close eye on this and, if necessary, inW88优德官方网站iate an internal investigation.
Conclusion
The healthcare industry has a comparatively high incidence of commercial bribery and is also under the close scrutiny of the regulatory authorW88优德官方网站ies. Healthcare companies that have commW88优德官方网站ted commercial bribery will not only be subject to administrative and criminal penalties, but their market access for drugs, medical devices and medical consumables will also be negatively affected.
W88优德官方网站 is therefore essential for healthcare companies to establish a comprehensive anti-commercial bribery compliance system. Specialist law firms handle a variety of legal matters in the healthcare industry, including plenty of regulatory compliance matters regarding pharmaceuticals, medical devices, human genetic resources, etc; and many have experience in establishing regulatory compliance systems for clients in other industries, such as, real estates and construction, automotive, shipping, machinery and equipment, food and beverage sales, etc.
