By Coco Fan / Jean Peng at Pharmaceutical and Healthcare Practice Group

 

Following the Opinions on Further Establishing Governance System of Healthcare Product Kickbacks(《关于加强医药产品回扣治理制度建设的意见》) released by Shanghai Health and Family Planning Commission (“NFPC Shanghai”) and Shanghai Trial Methods for Medical Representative Registration Management (Draft Version)[《上海市医药代表登记管理试行办法（征求意见稿）》] (“Methods for Medical Representative Registration”) released by Shanghai Food and Drug Administration (“CFDA Shanghai”) last month, on 13th of September 2017, CFDA Shanghai further published Shanghai Regulation on Management of Commercial Bribery Bad Records in Healthcare Purchasing and Selling Field(《关于本市进一步落实医药购销领域商业贿赂不良记录有关工作的通知》) (“Regulation on Commercial Bribery Bad Records”) and NFPC Shanghai further published Shanghai Regulation on Medicare Organization’s Reception of Representatives from Healthcare Companies(《上海市医疗卫生机构接待医药生产经营企业管理规定》) (“Regulation on Reception of Representatives”) on their websites, announcing further regulations in respect to compliant operation in healthcare industry, which demonstrates governmental authorities’ determination in both reining in commercial bribery and other non-compliant practice and furthering the reforms through establishment of specific rules and policies applicable to every market participant in healthcare industry in China. 

 

1.    Chinese authorities’ systematical regulations on healthcare industry in 2017 

 

It may be a time without precedent in the history that Chinese government authorities, from central to local level, strategically and intensively promulgated legislative documents one followed by another like this in healthcare industry, including all possible market participants in their big pictures and forming comprehensive systems which are related to and simultaneously functioning with each other.  

 

a)    Involving authorities in legislation and enforcement

 

For the time being, State Council, CFDA, and NFPC as well as their local branches in Shanghai along with local Human Resources and Social Security Bureau, Development and Reform Commission, Medicare Office and Bureau of Finance have released relevant regulations or policies in regards to medical representative registration, reception of representatives from healthcare companies in hospital, and commercial bribery record system. Depending on the severity of individual case, Administration for Industry and Commerce (“AIC”) and People's Procuratorates may also be involved in the subsequent law enforcement process. 

 

b)    Involving market participants

 

As we can see in the existing documents, all different types of market participants fall within the current regulatory scope, including hospitals, Healthcare Professionals (“HCPs”), healthcare companies and their representatives. Responsibilities of different market participants are addressed respectively in relevant documents.

 

For example, in Regulation on Commercial Bribery Bad Records, once a commercial bribery conducted, the HCP who accepts the improper benefits may be subject to suspension or revocation of his/her license, the manager and the hospital of the HCP will be subject to a public notice of criticism, and the qualification of the representative who offers improper benefits will be deregistered and his/her employer may be recorded in the credit system and prohibited from participation in bidding of local government’s purchasing department. 

 

c)    Joint functioning of multiple regulations 

 

Moreover, these regulations incorporate and relate to each other. 

 

For instance, in Methods for Medical Representative Registration, medical representatives from drug manufacturing companies in Shanghai are required to register in CFDA Shanghai’ s registration system online, while in Regulation on Reception of Representatives, hospitals in Shanghai are only allowed to receive registered representatives.

 

Another example is that any engagement in commercial bribery activities by relevant healthcare companies and their representatives will be recorded in accordance with Regulation on Commercial Bribery Bad Records, and all of the medical representatives of the recorded companies will be deregistered according to Methods for Medical Representative Registration. 

 

It shows authorities’ systematical methodology in rule-making and a foreseeable comprehensive supervision and enforcement system in the near future.  

 

2.    Tightened regulations regarding promotion to hospitals and commercial bribery in healthcare industry

 

a)    Regulations regarding promotion to hospitals 

 

i.     Medical representative registration system around the country

 

·        Central level

 

In February this year, General Office of State Council released Opinion on Further Reforming and Improving the Policies Regarding Drug Manufacture and Supply(《关于进一步改革完善药品生产流通使用政策的若干意见》) (“No. 13 Opinions”), where it explicitly states that medical representatives shall only engage in academic promotion and technical consultancy, and shall not be assigned any sales task.  No. 13 Opinions also requires the establishment of medical representative registration system. 

 

In Key Work Tasks on Deepening Reform of Pharmaceutical and Healthcare System in 2017(《深化医药卫生体制改革2017年重点工作任务》)promulgated in this April, General Office of State Council specified the legislation schedule--measures for registration of medical representatives shall be accomplished by CFDA by the end of 2017.

 

CFDA also published Related Policies Regarding Encouraging Drug and Medical Device Innovation and Implementing Drug Medical Device Full Life Cycle Management (Draft for Comments)[《关于鼓励药品医疗器械创新实施药品医疗器械全生命周期管理的相关政策（征求意见稿）》] (“No. 54 Policies”), providing general guidance on how to regulate the academic promotion activities including registration of medical representatives. 

 

·        Local level

 

Following the call by central government, CFDA Shanghai released Methods for Medical Representative Registration, providing further details and implementing methods for such system:

 

a)    It defines medical representatives as “professional personnel engaging in transmission, communication and feedback of pharmaceutical information on behalf of drug manufacturing company”, which doesn’t include personnel from medical device and medical consumables company. It also emphasizes that medical representatives’ responsibilities shall be making the plans and strategies for academic drug promotion (focusing on new drugs), and educating and assisting HCPs in using such drugs, collecting information regarding drug clinical application and adverse events.

 

b)    Drug manufacture companies are required to sign formal employment contracts with medical representatives and shall be responsible for managing and providing training to those representatives; 

 

c)    Drug manufacture companies shall be responsible for the registration process and the authenticity of registration information provided. Any medical representatives who carry out their work in Shanghai will need to register their name, gender, ID number, education background, practice year and telephone number information, as well as the employing drug manufacturing companies’ name, address, legal representative and other relevant information; 

 

d)    An official registration platform will be subsequently launched and will be accessible to the public (except for ID number and telephone information of medical representatives). Such platform will be the only official system for medical representative’s registration in Shanghai, and drug manufacture companies shall use this platform to complete and maintain required registration.

 

e)    A principle of honesty and reliability shall be applied during this registration. Any willful misinformation or failure to timely update the information will be recognized as dishonest act and may be subsequently determined as bad credit record. Such bad credit record, along with commercial bribery bad record set forth in Regulation on Commercial Bribery Bad Records, constitute a comprehensive public record system for drug manufacture companies. 

 

Compared to No. 54 Policies, Methods for Medical Representative Registration impacted on local government’s adjustment of the guidelines from central government. It adjusts medical representatives’ scope of work from “academic promotion for new drug” (as stated in No. 54 Policies) to “academic promotion for drug, focusing on new drug”, which seems more reasonable for the industry practice. 

 

ii.    Management on reception of representatives in Shanghai

 

Through Regulation on Reception of Medical Representatives, a formal and specific set of rules regarding reception of representatives in hospitals is promulgated by Shanghai authorities.

 

In this regulation, NFPC Shanghai defines representatives of healthcare manufacture and distribution enterprises as the agents and staffs of drug, medical device and medical consumable companies;

 

It also provides specific guidelines for reception of representatives in hospitals, such as:

 

·        Only the representatives properly registered could be given reception in hospitals;

·        A credit record regarding healthcare companies and their representatives shall be filed by hospitals;

·        Principle of “certain time, certain location, certain personnel with record” must be followed during reception of representatives;

·        During the reception, representatives must wear working badges issued by the visited hospitals and no less than two employees of the hospitals must be in present at the same time during the reception;

·        Hospitals shall conduct daily monitor and security check on the visits of representatives of healthcare companies; 

·        If engaging in unlawful sales promotion, healthcare companies may be listed in black list of procurement in the hospital and hospitals may stop purchasing the products of this company for 3-6 months. 

 

b)    Establishment of commercial bribery bad records for healthcare enterprises in Shanghai

 

With the publication of Regulation on Commercial Bribery Bad Records, Shanghai will officially establish a commercial bribery bad records system. In this regulation, the responsibility of healthcare companies, HCP, administrative office and hospital are all respectively and specifically addressed. 

 

i.     For healthcare companies and their representatives

 

Other than offering cash and equivalents (gift cards or shopping coupon) to HCPs, healthcare companies and their representatives are also prohibited from paying fees that ought to be own expenses of HCPs and their family members, or inviting HCPs and their families to entertainment places or for traveling. 

 

For any healthcare companies and their representatives who have one (1) bad record in commercial bribery recording system in Shanghai or have two (2) or more bad records in commercial bribery recording system in other provinces within 5 years, Shanghai authorities in charge of centralized procurement for healthcare products will stop purchasing the involving products of such companies (except for products in short supply) for a period of two (2) years, and local hospitals shall not purchase any products of such companies for a period of two(2) years.  

 

When signing the product purchasing contract between healthcare companies and hospitals, an integrity agreement must also be included, under which the designated representative’s names shall be listed and the product purchasing contract will be terminated if the healthcare company or its representatives have any commercial bribery bad record.

 

ii.     For HCPs

 

Pursuant to Regulation on Commercial Bribery Bad Records, any HCPs receiving commercial bribery will be subject to the following penalties:

 

·        If the value of improper benefits is below RMB 1000, such HCPs will be subject to public notice of criticism from hospital, as well as administrative warning from NFPC;

 

·        If the value of improper benefits is between RMB 1000 and RMB 5000, such HCPs may be subject to public notice of criticism or dismissal from hospital, as well as a suspension of license for a period from 6 months to 1 year;

 

·        If the value of improper benefits is above RMB 5000, or HCPs accept or solicit improper benefits for twice or more times, such HCPs will be subject to dismissal from hospital, as well as revocation of license. 

 

iii.   For hospitals

 

Pursuant to Regulation on Commercial Bribery Bad Records, in the event that HCPs accept improper benefits, the employing hospitals may be subject to public notice of criticism and mandatory correction within a fixed period of time, as well as record of bad practice and other penalties determined by NFPC. 

 

c)    Comparison with other applicable laws 

 

Besides Regulation on Commercial Bribery Bad Records, both Criminal Law and Anti-unfair Competition Law have relevant clauses in regards to commercial bribery. A comparison has been prepared as follows for reference: 

 

3.    Potential Impact on healthcare industry

 

Under the trend of more comprehensive and strict regulations in healthcare industry in China, every market participant is now facing impacts on its operation. 

 

a)    For healthcare company and their representatives

 

Subject to broader and stricter regulations with the furtherance of industry reforms, healthcare companies now are suggested to adjust their compliance system in the following direction: 

 

i.     As an employer, when entering into an employment relation with relevant personnel, companies shall first conduct qualification and background check; when evaluating potential candidates, companies need to take the expertise in medical field into consideration instead of sales ability of such candidates.

 

ii.    Companies shall timely and truly register and update their representatives’ information as required; regular compliance training and education of medical representatives is highly recommended; 

 

iii.    Although there’s no clear boundary between “academic promotion” and “sales promotion” under current regulations, it’s highly suggested that KPI of medical representative position does not include the sales volume of product, to avoid any suspicion. 

 

b)    For hospitals and HCPs

 

As the direct recipient of the academic promotion and technical consultancy service provided by medical representatives, hospitals and HCPs in Shanghai must establish and improve their standard operating procedures on receiving medical representatives pursuant to Methods for Medical Representative Registration and Regulation on Reception of Representatives, including only allow registered medical representatives to enter their premises and engage in lawful activities, and strictly follow the principle of “certain time, certain location, certain personal with record” when having contract with medical representatives.

 

For avoidance of severe punishment on any commercial bribery as stated hereinabove as employers of HCPs, hospitals shall maintain adequate internal training and supervision of HCPs and comply with the requirement under current regulations; and HCPs shall timely acquire necessary training regarding the regulatory updates and avoid non-compliant contact with medical representatives or other personnel from healthcare companies.  

 

c)    For CSOs

 

After the temporary prosper along with the furthering of Two-invoice System, Contract Sales Organizations (“CSOs”) now face major challenge and difficulty in operating its business under the current regulatory scope. As stated in Methods for Medical Representative Registration, only medical representatives employed by drug manufacturing enterprise may be registered and shall have contact with HCPs only for the purpose of “academic promotion” and “technical consultancy”; thus, personnel from CSOs will not be able to register under the system and it will bring genuine concern for CSOs to provide their drug promotion and sales service. 

 

There may be three possible resolutions out of above dilemma: 

 

i.     First, drug manufacturing enterprises and CSOs may reach into a special arrangement where medical representatives will be hired by and sign employment contracts with drug manufacturing enterprises, and the actual management and work assignment of these medical representatives will be CSOs’ role. But considering the high risk of assigning the management work to third party, and also the purpose of Methods for Medical Representative Registration is to track down the responsibilities of medical representatives directly to drug manufacturing enterprises, this mode may not be very viable in practice; 

 

ii.    Second, personnel from CSOs will be separate from medical representatives and will fall into a different category of position: “sales representatives”. In this position, sales representatives will be undertaking the work of drug sales and promotion (with no contact to HCPs), coordination between drug company and purchasing department of local authority and hospital in bidding process, after-sale service of drug and so on, which are divided from the work scope of medical representatives; or

 

iii.    Last, since the Methods for Medical Representative Registration is still in draft version and is receiving opinions from society, authority may sooner or later add CROs in its regulatory scope by either allowing representatives from CROs to also be able to register as medical representatives, or establishing an individual management or registration system for CRO personnel in name of sales representatives or other form.   

 

4.    The implementation of current regulations 

 

At the present, except for Related Policies Regarding Encouraging Drug and Medical Device Innovation and Implementing Drug Medical Device Full Life Cycle Management (Draft for Comments) Methods for Medical Representative Registration that are still in draft versions, all the other legal documents mentioned herein have come into effectiveness and shall be applicable to relevant market participants. 

 

Since Methods for Medical Representative Registration is still in draft version, and Regulation on Commercial Bribery Bad Records and Regulation on Reception of Representatives are both related to it, there has been great attention on when the “Shanghai Medical Representative Registration System” will be officially launched, and before that whether medical representatives are allowed to continue their work without registration. Per our consulting with Shanghai CFDA and NFPC, before the system is launched, medical representatives may still carry out their work without registration, but are suggested to consult with the hospital about its reception policies before visiting; once the system is launched, every medical representative must register within 60 days. Other official documents mentioned above shall be strictly carried out, except for those parts that are related to the pending registration system.  

 

Currently, many hospitals such as Shanghai No.10 People’s Hospital have already deployed their own registration system, which they take pictures of medical representatives and use auto face recognition system to recognize them, and any medical representatives who are not registered in the system will be denied access to the hospital.  

 

As scheduled in Key Work Tasks on Deepening Reform of Pharmaceutical and Healthcare System in 2017(《深化医药卫生体制改革2017年重点工作任务》), the formal regulation regarding medical representative registration system by CFDA will be released by the end of this year, and we will continue to keep constant attention on this matter in both central and local level.