Corporate Compliance News Alert: China Launches Compliance Guidance for Pharmaceutical and Medical Device Companies to Prevent Commercial Bribery Risks
Since 2023, the Central Commission for Discipline Inspection (CCDI) of the Chinese Communist Party (CCP), the National Supervision Commission, the National Health Commission (NHC), and other authorities have launched a sweeping national campaign against bribery in the healthcare industry. After a one-year-long anti-corruption campaign which is the strictest ever in China, the signals released by these regulators in 2024 indicate that they will maintain high-pressure deterrence and strict enforcement of healthcare corruption.
On October 11th, 2024, the State Administration for Market Regulation (SAMR), the authority of the administrative laws enforcement against commercial bribery in China, released the Draft of the "Pharmaceutical Companies’ Compliance Guidance for Preventing Commercial Bribery Risks for Collecting Public Comments" (hereinafter referred to as the "Guidance").
There are 49 articles in four chapters in the Guidance.
I. Chapter 1: the General Provisions include a systematic explanation of the purpose, basic principles, scope of application, definition of terms, etc., and it was made clear that the Guidance, is not a compulsory law and it is to provide a reference for pharmaceutical companies to carry out compliance management for preventing the commercial bribery risks.
II. Chapter 2 Establishment of a Compliance Management System to Prevent Commercial Bribery Risks in Pharmaceutical Companies draws on the PDCA management concept to provide guidance for the establishment of compliance management systems for pharmaceutical companies, advocates that the management of pharmaceutical companies shall improve the compliance awareness, support the establishment of the compliance management system, and encourages the pharmaceutical companies to establish compliance management organization, compliance system, compliance operation mechanism and development of compliance culture.
III. Chapter 3 Pharmaceutical Companies’ Commercial Bribery Risk Identification and Prevention includes nine figurative activity scenarios as follows:
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academic visits and communications
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hospitality
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consultancy services
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outsourcing services
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discounts, allowances, and commissions
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donations, sponsorships, and grant
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free deployment of medical devices
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clinical studies
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pharmacies retail
Each scenario is described in detail in accordance with the same framework structure, which is divided into three parts: definitions and contents, compliance requirements, and risk identification and prevention.
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The compliance requirements of business behavior in each specific scenario are divided into four levels: "should", "can", "suggested", and "advocated". While the non-compliant behaviors that pharmaceutical companies should identify and prevent are also divided into four levels: "prohibited", "avoided", "limited", and "attentive" according to the degree of illegality risks.
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Four levels of compliance requirements
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Among levels of compliance requirements, the corporate operational compliance obligations clearly stipulated in the current "Anti-Unfair Competition Law," "Drug Administration Law," and international standards or national standards such as the "Anti-Bribery Management Systems--Requirements with Guidance for Use" and "Compliance Management Systems—Requirements with Guidance for Use," they are expressed as "should" category compliance requirements in the Guidance;
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for those that are industry consensus, comply with the relevant compliance requirements of health and drug administrations and other industry authorities, and do not belong to operational compliance obligations of pharmaceutical companies, they are expressed as "can" category compliance requirements in the Guidance;
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for advanced compliance practices and typical practices of pharmaceutical companies to prevent commercial bribery risks that have been studied and demonstrated, they are expressed as "suggested" category compliance requirements in the Guidance;
- for those that are conducive to guiding enterprises to establish and implement long-term mechanisms for governing commercial bribery behaviors and promoting the high-quality development of the medical and health industry, they are expressed as "advocated" category compliance requirements in the Guidance.
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Four levels of non-compliant behaviors
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Among them, for the commercial bribery behaviors that are clearly prohibited by the current "Anti-Unfair Competition Law," "Drug Administration Law," and other laws and regulations, as well as those identified in typical cases of commercial bribery in the pharmaceutical field investigated by SAMR and its local bodies in recent years, pharmaceutical companies are prompted to clearly prohibit them in their operations;
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for those that the law does not clearly stipulate, but according to current law enforcement practices and industry consensus, they may create conditions that facilitate the commission of commercial bribery illegal acts, pharmaceutical companies are prompted to avoid them as much as possible in their operations;
- for medium and low-risk business behaviors that do not conform to general corporate compliance principles and may lead to commercial bribery under certain conditions, pharmaceutical companies are prompted to reasonably limit and pay appropriate attention to in their operations.
However, it is worth noting that the Guidance is silent on medical meetings hosted by pharmaceutical companies, which are one of the most common academic promotion methods in the healthcare industry, and usually, speaker fees are paid to healthcare professionals correspondingly. Considering NHC circulated an internal notice to hospitals in 2023, which prohibits healthcare professionals from (i) being engaged in meetings organized by pharmaceutical companies or (ii) directly receiving speaker fees paid from pharmaceutical companies, such silence in the Guidance further triggers concerns of pharmaceutical companies about whether SAMR still views it as lawful to directly engage healthcare professionals in the meetings directly organized by pharmaceutical companies. This issue, along with many other issues, in the draft of the Guidance, reflects the different opinions from the enforcement authorities.
IV. Chapter 4 Pharmaceutical Companies’ Commercial Bribery Risk Management guides pharmaceutical companies to (i) effectively control risks by improving internal control measures and cooperating with regulatory enforcement and (ii) take the initiative to report their own illegal risks in advance and cooperate with market regulation departments in investigations in accordance with the law, and gives hints on the circumstances that may lead to mitigated, reduced, or waived administrative penalties.
In sum, the Guidance takes into account the characteristics of the pharmaceutical field, business models, management structures, and other actual situations and compiles and organizes nine scenarios covering the business, processes, and supply chains within the pharmaceutical sector, identifying commercial bribery risk points. They provide positive guidance on standardized matters and negative warnings on risk identification and prevention, offering specific and actionable guidance for pharmaceutical companies in the management of commercial bribery risks. The Guidance also assesses the risk factors in various concrete scenarios within pharmaceutical companies, and determines the priority order and graded prevention and control measures for risk control according to the severity of behavior.
The Guidance will be the first national compliance Guidance for the prevention of commercial bribery in the healthcare industry issued by a government regulatory authority in China, which is of great significance and exemplary for China’s anti-corruption supervision and practice. Global Law Office participated in the preliminary issue collection, a series of seminars with regulators, industry associations, industry enterprises, and academia, and the drafting of this Guidance. We look forward to the release of the official and final version of the Guidance and suggest that pharmaceutical and medical device companies in China (i) conduct a gap analysis between their compliance management system and this Guidance; (ii) prepare upgrade and improvement plan of its compliance management system and business practice accordingly upon the gap analysis results; and (iii) keep an eye on SAMR’s promulgation of the official and final version of the Guidance and timely implement its upgrade and improvement plan.
