Ramping up of anti-corruption enforcement on health care sector in China
On May 10, 2023, the Chinese National Health Commission (NHC) and 13 other Chinese government agencies jointly issued a notice on its priorities for rectifying unethical practices relating to services and procurement in the health care sector (the Notice). These government agencies include ministries, health care regulators, as well as criminal and civil enforcement agencies. Collectively, they share responsibilities for regulating, supervising, investigating and/or prosecuting misconduct by health care companies and public HCPs.
The Notice is an annual update by the government agencies of their “work priorities” for tackling corruption-related issues in the health care sector. Unlike in prior years, the Notice was issued by all government agencies overseeing health care companies in order to achieve full coverage over all areas which are deemed to pose corruption risks.
A key focus of the Notice is the provision of inappropriate benefits to HCPs by medical representatives and distributors from health care companies in exchange for sales. The Notice also identified certain “unhealthy tendencies” of industry organizations and academic associations – donations, as well as academic activities or meetings, were identified as important risk areas which would be the subject of scrutiny and enforcement if these activities were intended for the transfer of illegal benefits to HCPs.
The Notice also highlighted medical insurance fraud as another important enforcement priority. In particular, the Notice stated that the submission of falsified documents or the swapping of medical products to obtain inflated reimbursements from the Chinese public medical insurance system would be “heavily punished”.
The Notice further reiterated that Chinese enforcement agencies will be investigating and levying penalties against both bribe-takers and bribe-givers. A day after the Notice was issued, the Shanghai subsidiary of a non-Chinese pharmaceutical company was fined by the Shanghai Administration for Market Regulation for providing illicit payments to HCPs of a major government hospital. Employees of the pharmaceutical company were found to have fabricated academic meetings to justify the payment of “labor fees” and “speaker fees” to HCPs. Media reports indicate that HCPs at the same hospital are also under investigation for receiving such payments.
Subsequent government announcements reinforce the Notice, and the sector-specific anti-corruption focus of the Chinese authorities. On July 21, 2023, the NHC and nine other Chinese government agencies jointly announced a year-long campaign to address corruption-related misconduct in the health care sector. A week later, the Central Commission for Discipline Inspection (CCDI) urged enforcement agencies to rectify corruption-related issues in the sector, including “investigating bribe-takers and bribe-givers together”. The CCDI is the primary anti-corruption enforcement agency in China and is responsible for investigating corruption-related conduct by government officials.
At least 160 heads of government hospitals across the country have also been reported in Chinese and international media as being under investigation for corruption-related misconduct.
New whistleblowing channels
Following these announcements, enforcement agencies in Shanghai, Beijing, Chongqing, Yunnan, Sichuan, Fujian and Zhejiang have issued new whistleblowing channels for reporting corruption-related issues in the health care sector. Notably, the Shanghai Administration for Market Regulation has implemented a trial scheme which offers financial incentives to whistleblowers of up to RMB 1,000,000 (~US$140,000) for each case.
Regulations on interactions between health care companies and HCPs
These enforcement developments can be viewed as a further evolution of regulations issued by the Chinese authorities in recent years relating to interactions between HCPs and health care companies. Since 2021, Jiangxi province and individual government hospitals in various Chinese provinces such as Anhui, Guangxi, Yunnan and Guangdong have issued such regulations. These regulations are based on those issued by the NHC and other Chinese national health authorities in 2020 and 2021.
The regulations indicate a shift towards sanctioning bribe-givers in China. Companies which breach these regulations can be blacklisted by provincial health commissions or government hospitals for “commercial bribery”. Blacklisted companies can be prohibited from selling and supplying products to hospitals for two years.
The regulations further require medical representatives of health care companies to register with hospitals before they carry out academic or commercial promotional activities. They also restrict medical representatives to visiting pre-determined HCPs at times and locations which are designated by the medical ethics departments of the HCPs’ hospitals. Companies can also be blacklisted by the authorities if their medical representatives are found to have failed to comply with the regulations.
Continuing FCPA enforcement on health care companies
These regulatory enforcement developments in China coincide with continuing FCPA and related enforcement by U.S. agencies on multinational health care companies operating in China. FCPA resolutions by the U.S. Securities and Exchange Commission with two multi-national corporations relating to FCPA violations by their Chinese health care subsidiaries in just the past three months illustrate this trend. Other global health care companies have also disclosed they are under investigation for alleged FCPA violations in their Chinese operations or elsewhere in the Asia-Pacific region.
What does this mean for you?
Following these developments, health care companies operating in China should take note of the increased regulatory enforcement scrutiny on i) employees and their interactions with HCPs; and ii) any benefits which are provided to industry organizations and/or academic associations.
There should be adequate compliance oversight over employees who interact with HCPs. Written company policies and trainings should reflect the regulations governing interactions between HCPs and employees. These should also include clear disciplinary measures for employees who do not comply with the applicable policies. There should be a system in place to timely and robustly investigate any potential breaches of applicable company policies as well as laws and regulations relating to interactions with HCPs. Adequate due diligence should also be carried out on industry organizations and/or academic associations before the provision of a monetary or non-monetary benefit.
Asia-Pacific regulatory and investigations team
Our Chambers and Legal 500-recognized Asia-Pacific regulatory and investigations team is led by Calvin Chan, who is also the managing partner of our Singapore office. The Mandarin-fluent team has deep experience in handling large and complex investigations that implicate applicable anti-corruption laws and regulations (including the FCPA and the UK Bribery Act) and is highly familiar with anti-corruption developments in China and the wider Asia-Pacific region. If you have any questions, please don’t hesitate to reach out to Calvin or other members of the team.
Client Alert 2023-194
