China Issues New Regulations Prohibiting Commercial Bribery in the Health Care Industry

This post was written by John Tan, Amy Yang, and Crystal Xu.

In late December, China’s National Health and Family Planning Commission (NHFPC), the successor organization to the Ministry of Health, issued two sets of anti-corruption regulations for the health care industry: the 2013 Regulations on the Establishment of a Commercial Bribery Blacklist for the Purchase and Sale of Medicines (关于建立医药购销领域商业贿赂不良记录的规定) (2013 Blacklist Regulations), and The 9 Prohibitions for Building a Healthy Medical Industry (加强医疗卫生行风建设"九不准) (The 9 Prohibitions). The 2013 Blacklist Regulations target pharmaceutical and medical device manufacturers and distributors. These regulations revise and update earlier blacklist regulations issued in 2007 (2007 Blacklist Regulations). In contrast, The 9 Prohibitions focus on health care providers and institutions, providing general principles for eliminating corruption in the Chinese health care industry.

These new regulations are part of the Chinese government’s ongoing focus on corruption in the health care industry, and significantly increase the risks faced by pharmaceutical and medical device manufacturers and distributors.

Blacklist Regulations

The 2013 Blacklist Regulations maintain the 2007 Blacklist Regulations’ system of provincial blacklists for pharmaceutical and medical device manufacturers and distributors who are found to have engaged in commercial bribery based on any of the following criteria:

  • A judicial finding of guilt, even if the offense was so minor that a fine or other penalty did not need to be imposed
  • The bribery was so minor that the People’s Procuratorate decided not to bring criminal charges
  • Communist Party disciplinary agencies investigated and imposed discipline for bribery
  • An administrative punishment for bribery was imposed by the Treasury Department, the Administration for Industry and Commerce (AIC), the China Food and Drug Administration (CFDA) or other administrative agency; or
  • Other evidence as determined by relevant laws and regulations

Although these criteria are the same as under the 2007 Blacklist Regulations, there are a number of new developments under the 2013 regulations.

National Publication

The 2007 Blacklist Regulations called for blacklists to be maintained by each province’s local health authorities. In practice, implementation was sporadic, with many provinces never publishing a blacklist. Although the 2013 Blacklist Regulations maintain the provincial blacklist system, they call for each province to report the contents of its blacklist to the NHFPC, which will publish a national blacklist on its website.

National Punishment

Under the 2007 Blacklist Regulations, manufacturers or distributors who were blacklisted in a province could not sell to public health care entities, e.g., government-run hospitals, in that province for two years. The 2013 Blacklist Regulations maintain this prohibition, and further provide that companies that are blacklisted in any province will receive less consideration when bidding to supply public health care entities in other provinces nationwide for two years after blacklisting.

Repeat Offenders

The 2013 Blacklist Regulations contain new penalty provisions indicating that companies that are blacklisted twice in five years will be subject to a two-year nationwide ban on procurement by public health care entities.

Integrity Agreements

The 2013 Blacklist Regulations contain a new requirement that when health care entities contract with manufacturers or distributors for the purchase of pharmaceuticals or medical devices, they should also sign an "ethical sales contract," which will list the names of relevant sales representatives and contain anti-bribery language.

Detailed Listing

The 2013 Blacklist Regulations contain new, detailed requirements for the information that will be published as part of the blacklist, including the name of the manufacturer or distributor; its place of business; the name and title of the legal representative or person responsible; the reason for listing; documents relating to the finding of commercial bribery; and the duration of listing.

The 2013 Blacklist Regulations are part of an increased focus on eradicating corruption in the Chinese health care industry. In recent years, the Chinese government has issued the Regulations on Centralized Procurement of Pharmaceuticals by Medical Institutions (医疗机构药品集中采购工作规范) in 2010; the Trial Regulations on Centralized Procurement of High Value Consumable Medical Supplies (高值医用耗材集中采购工作规范(试行)) in 2012; the Trial Regulations on Centralized Procurement of Large Scale Medical Equipment (甲类大型医用设备集中采购工作规范(试行)) in 2012; and the Ministry of Health Guidance on Strengthening Anti-Bribery Control at Public Medical Institutions (卫生部、国家中医药管理局关于加强公立医疗机构廉洁风险防控的指导意见), also in 2012 – all of which contain similar blacklisting provisions for commercial bribery, as well as procurement-specific provisions for blacklisting companies that provide falsified bidding documentation, etc.

The 9 Prohibitions

The 9 Prohibitions prohibit bribery, re-emphasize existing PRC regulations on donations to hospitals, and prohibit linking doctors’ income with prescriptions or medical tests. The 9 Prohibitions also forbid health care professionals from providing statistics about the use of pharmaceuticals or medical devices to manufacturers’ sales representatives. Where the 2013 Blacklist Regulations focus on medical manufacturers and distributors, The 9 Prohibitions primarily focus on health care professionals and institutions, although they instruct local officials to create commercial bribery blacklists as well.

Just as the 2013 Blacklist Regulations follow on earlier regulations, The 9 Prohibitions are not entirely new, but follow on the Health Care Professionals’ Code of Conduct (医疗机构从业人员行为规范), published in June 2012, and other similar regulations.

China's Life Sciences Regulatory Crackdown: September 10 Update

The regulatory enforcement environment in China remains tense, as both the Chinese government and media bring new actions and allegations against life sciences manufacturers in both the pharmaceutical and device sectors. We are seeing:

  • Increased attention to medical device sector
  • Enforcement actions spreading to smaller cities
  • Continued pressure on pharmaceutical sector
  • Reports of misconduct by local manufacturers
  • Questionable vendors named

Reed Smith continues to monitor the life sciences regulatory and media environment in China and has prepared a summary of recent developments. For additional information, please contact Reed Smith lawyer John Tan at jtan@reedsmith.com.

China: Life Sciences Regulatory Crackdown Spreads to Medical Device Sector

This post was written by John Tan and Crystal Xu.

On August 15, 2013, the local Beijing office of the Ministry of Health (MOH) of the People's Republic of China announced (Chinese link) that it has started a three-month review of the use of high-value medical consumables and large-scale medical equipment in Beijing. In its announcement, the Beijing MOH noted that prior inspections of hospitals had found continuing problems with the misuse and overuse of medical devices to increase profits. The investigation is intended to strengthen hospitals’ management of the use of medical devices and to regulate the use of high value medical consumables.

In addition to this investigation, the Beijing MOH will also develop a database that will track the price and model of devices implanted in each patient, require hospitals to improve their purchasing management systems, and conduct periodic inspections of hospitals’ purchasing and management of medical consumables.

This latest investigation follows on increased regulatory enforcement actions throughout China's life sciences industry. In the last two months, there have been criminal and administrative enforcement actions targeting the pharmaceutical sector and a pricing investigation by the National Development and Reform Commission (NDRC) into the infant formula sector that culminated in the largest fine in the history of China's enforcement of its anti-monopoly law. The NDRC is also conducting an ongoing investigation of pharmaceutical industry pricing practices and considering systemic revisions to China's drug pricing system. Additionally, on August 14, 2013 the State Administration for Industry and Commerce (SAIC) announced a new three-month-long investigation into the pharmaceutical and medical services sectors, targeting bribery, fraud and anti-competitive practices.

The August 15th announcement by the Beijing MOH appears to signal the first recent enforcement action to specifically target the medical device sector.

In the run up to these enforcement actions, Chinese authorities issued a number of administrative regulations targeting the life sciences industry, including a new code of conduct for HCPs, and new guidance on strengthening anti-bribery controls in public medical institutions. Authorities also issued regulations on the centralized purchasing of medical consumables and large scale medical equipment containing provisions that would exclude companies found to have engaged in commercial bribery from participation in centralized purchasing.

At the end of 2012, China's Supreme People's Court, in conjunction with the Supreme People's Procuratorate, issued a new judicial interpretation of China's criminal law prohibiting bribery. This interpretation was widely viewed as signaling a new emphasis by Chinese authorities on prosecuting not just officials who accept bribes, but those who pay bribes as well.

China Life Sciences and Health Industry Client Briefing - November 2012 (December 13, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Mao Rong, Katherine Yang, May Wong, Amy Yin and Gordon B. Schatz.

Reed Smith’s China Life Sciences and Health Industry Client Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during November include:

  • Priorities, Practical Tips and Lessons Learned from Reed Smith’s China Device Regulatory Briefing on December 4, 2012
  • Drug Firms Pursue Joint R&D
  • Drug Makers and the Unpredictability of Drug Development; New Draft Regulations on Stem Cell Industry to be Issued
  • SFDA Approval concerning Drug Registration and Appraisal Reform on Pilot Basis in Guangdong Food and Drug Administration
  • MOH Stresses Monitoring Medical Costs in New Announcement; PRC to Allocate RMB 27.26 Billion to Support Public Health Services for 2013
  • Nestlé in Chinese Medicine Deal with Li Ka-Shing's Firm

To read the full briefing by Reed Smith China team members, click here.

China Life Sciences and Health Industry Client Briefing - October 2012 (November 16, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Mao Rong, Katherine Yang, May Wong, Amy Yin and Gordon B. Schatz.

Reed Smith’s China Life Sciences and Health Industry Client Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during October include:

  • China Becoming a Healthcare R&D Hub
  • Imported Drugs to Go on China's Electronic Monitoring Network
  • Guangxi to Build Pharmaceuticals as a Pillar Industry
  • China to Set Up Database for Organ Transplants
  • Private Medical Care Gets Boost
  • State Council Issues the 12th FYP for Public Health Services Development

To read the full briefing by Reed Smith China team members, click here.

China Life Sciences and Health Industry Client Briefing - August 2012 (September 18, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Mao Rong, Katherine Yang, May Wong, Amy Yin and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during August include:

  • New Regulations Concerning Hospital Procurement of Class-A Large-Scale Medical Equipment
  • MOH to Investigate Infection Events in Hospitals
  • Wenzhou Develops New Plans to Attract Private Medical Investors
  • Notice Concerning Public Hospital Reform in 2012
  • MOH to Establish EDLs for Secondary and Tertiary Hospitals
  • Pricing Developments for Drugs of Foreign Companies
  • Revised Regulations on Criminal Prosecutions for Leaks of Confidential Patient Information
  • State Council to Release Regulation Permitting Local Governments to Buy Commercial Insurance on for Serious Illnesses

To read the full briefing by Reed Smith China team members, click here.

China Life Sciences and Health Industry Client Briefing - July 2012 (August 8, 2012)

This post was written by Jay J. Yan, Hugh T. Scogin, Jr., John J. Tan, Katherine Yang, May Wong and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries

Some important developments during July include:

  • Counterfeit Drug Crackdown in China
  • China Agencies Drafting Policies to Accelerate Development of Medical Devices
  • Mindray Medical Completes Acquisition of Dragonbio's Orthopedics Business
  • Multinational Medical Device Companies Focus on Grassroots Market
  • J&J Plans Training Center in China
  • New Round of Drug Price Cuts Expected
  • MOH Enhances Planning of Private Medical Institutions and Further Relaxes Threshold for Private Investors

To read the full briefing by Reed Smith China team members, click here.
 

Life Sciences Health Industry China Briefing - June 2012 (July 20, 2012)

This post was written by John Tan, Jay J. Yan, Mao Rong, Katherine Yang, and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Pharmaceuticals, Medical Devices, Health Care & Life Sciences 

News

  • China's Compulsory License Rule Has Drug Companies On Edge (Law360 2012-06 12) — June 14, 2012

China's new patent regulations allowing the government to force drug companies to grant compulsory licenses for generic versions of their products if it is deemed to be in the "public interest" has the pharmaceutical industry worried about where China will draw the line, attorneys said. The new regulations issued by China's State Intellectual Property Office last month say the government can order compulsory licenses for generic drugs when there is a "national emergency or any extraordinary circumstances, or for public interest purposes." What constitutes the public interest is very much open to interpretation and appears to give the Chinese government broad leeway to order drug companies to allow generic versions of drugs that are still covered by patents.

  • Beijing to Carry out Pilot Project of Separation of Dispensing from Prescription: Medical Service Fee up to 100 Yuan (Caixin Media 2012-05-19) — June 20, 2012
Following Shenzhen and Shanghai, Beijing will initiate the pilot project to cut off the relationship between the income of hospitals and drug sales. Beijing plans to cancel the price addition to lower drug price, and to cancel the registration fee and diagnosis fee, which will be replaced by the medical service fee. The medical service fee will be divided into four levels:  42 yuan for ordinary physicians, 60 yuan for deputy chief physicians, 80 yuan for chief physicians and 100 yuan for expert physicians. The medical insurance will reimburse 40 yuan for the medical service fee. In addition, Beijing Friendship Hospital, Beijing Chaoyang Hospital, and Beijing Children's Hospital will carry out the legal person governance mechanism in order to provide experiences for the further reform of public hospitals in Beijing.
  • Drug Company to Acquire Controlling Stake (China Daily 2012-06-28) — June 29, 2012
China Pharmaceutical Group Ltd, which derives almost half of its sales from antibiotics, will buy a maker of finished drugs from its controlling shareholder for HK$8.98 billion ($1.2 billion) worth of new stock and convertible bonds. The purchase of Robust Sun Holdings Ltd will reduce the company's reliance on drug intermediaries, bulk antibiotics, and vitamin C, which now account for 66 percent of its sales.
  • Investors Eye Chances in High-End Healthcare (Shanghai Daily  2012-06-19) — June 19, 2012
As demand for high-quality health care rises in China, venture capital and private equity companies are taking advantage of ample investment opportunities in the nation's private and specialized hospitals. There were 158 investment deals in the medical and health care sector last year, worth $4.14 billion, around the same amount as the total deals in the sector from 2006 to 2010, according to a report from the Zero2IPO research center. The report said 28 medical and health care companies were listed last year, raising $5.33 billion, and 12 of them were backed with VC or PE investment.  The State Council passed a medical reform plan in 2009 that promised to spend 850 billion yuan ($123 billion) by last year to provide universal medical services to the country's 1.3 billion people. "We treat private medical institutions equally (with public ones), and they can be included in the scope of basic medical insurance under certain conditions," said Li Jinghu, deputy director of the Institute of Social Security at the Ministry of Human Resources and Social Security. In April, the State Council issued a statement on deepening the medical system reform, which states that local governments are required to issue detailed regulations to encourage private capital into this industry, and to guide the restructuring of certain public hospitals. A total of 300 county-level hospitals will take part in a pilot program that will see them undergo reforms in finance, management and human resources, according to guidelines published on the central government's website in June.
  • CIRC Encourages Insurance Companies to Establish Medical Institutions to Expand Business (Caijing 2012-06-20) — June 21, 2012
China Insurance Regulatory Commission (CIRC) issued a Notice concerning Fulfillment of the Programs on Deepening the Medical Reform during the 12th Five-Year Period. According to the Notice, CIRC will conduct research on the feasibility and the effective way for insurance companies to establish medical institutions and become involved in the restructuring of public hospitals. In fact, the encouragement on insurance companies to invest in hospitals has been mentioned in the Opinions of State Council on Reform and Development in the Insurance Industry in 2006. Accordingly, China PingAn Insurance signed an agreement with the Longgang District Government of Shenzhen to establish a Chinese medicine hospital in Longgang last year as a pilot.
  • MOH and Medical Reform Office under State Council Respond to Questions on Opinions of Comprehensive Reform Pilot Project of Public Hospitals at County Level (National Development and Reform Commission 2012-06-15) — June 15, 2012
The State Council recently issued the Opinions concerning the Comprehensive Reform Pilot Project of Public Hospitals at County Level. The Opinions aim to ease the difficulties and the problems of expensive medical charges in the medical treatment for rural residents. The comprehensive system for the medical cost through drug-selling profits shall be eradicated. The pilot public hospitals at county level will be compensated through service charges and government subsidy. Each county (city) shall have one to two hospitals (including Chinese medicine hospital) at county level. The county (city) with more than 300,000 population shall have at least one Grade 2A hospital. Remote consultation, remote diagnosis, and distance education will be realized among hospitals at county level. In addition, excellent professionals will practice at county level hospitals through nurturing and offering preferential treatment.
  • 311 Counties to Pilot China's Hospital Reform (Xinhua News Agency 2012-06-27) — June 27, 2012
China has nominated 311 counties or county-level cities in a program to pilot reform of the country's public health care facilities, the Ministry of Health announced Tuesday. The national initiative includes 83 counties or county-level cities in East China, 136 in Central China, and 92 in West China, according to the ministry. The 311 counties or county-level cities are expected to undergo reforms in finance, management and human resources by 2015 to enhance their capacity.
  • First Wholly Taiwan-funded Hospital Opens (Shanghai Daily 2012-06-27) — June 27, 2012
The Chinese mainland's first wholly Taiwan-funded hospital opened in Shanghai yesterday. It is the first solely invested Taiwan hospital to receive the green light on the mainland after the Economic Cooperation Framework Agreement, or ECFA, was signed between the mainland and Taiwan authorities in 2010. Established by the Taipei-based Landseed International Medical Group, the Shanghai Landseed International Hospital, with a 150 million yuan (US$23.81 million) investment, is mainly aimed at Taiwanese, expatriates living in Shanghai, and locals with high-end health demands, hospital officials said.
  • Smiling Angel Children's Hospital To Go into Operation (Caixin Media 2012-06-24) — June 25, 2012
Beijing Smiling Angel Children's Hospital, the first private charity children’s hospital run by film star Li Yapeng, will go into operation July 1. The hospital will operate in nonprofit mode based on the Smile Angel Foundation. Given the current shortage of pediatricians, the hospital will provide medical services through the multi-site practice of the pediatricians from the public hospitals. Apart from the children from poor families, the hospital will also be opened to ordinary families. Some high-quality services will be charged highly accordingly. All the income will be used to develop the hospital in sectors including R&D and medical assistance, and there will not be dividends to the shareholders. The operation cost will be mainly from the social donations through charity dinners, small donations and other manners. 
  • China Medical Services Market to Hit $500B (Agencies 2012-06-25) — June 25, 2012
China needs to bolster its medical services and investors are ready to help, Bloomberg reported. The latest is Carlyle Group LP-backed Concord Medical Services Holdings Ltd, which last week completed a deal for a 52 percent stake in Chang'an Hospital, a 1,000-bed facility at the eastern end of the Silk Road, according to Bloomberg. China's medical services market is growing 18 percent annually and is projected to reach 3.16 trillion yuan ($500 billion) in 2015, Bloomberg reported, citing accountancy firm Deloitte China.

Life Sciences Health Industry China Briefing - May 2012 (June 14, 2012)

This post was written by John Tan, Jay J. Yan, Mao Rong, Katherine Yang, and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during May include:

  • Introduction of Administrative Measures on Clinical Application of Antimicrobial Drugs
  • Two Agencies Crack Down on Violent Crime Against Medical Personnel
  • Medical Insurance Reimbursement for Hospitalization to Reach 75% of Total Expenses During 12th Five-Year Plan
  • Foreign Medical Workers to Receive TCM Training in Shanxi 
  • MOH Requires Class B and Higher Hospitals to Establish Security Offices
  • China to Expand Medical Payment Reform
  • SFDA Campaign to Regulate TCM Raw Material Market
To read the full briefing by Reed Smith China team members, click here.

 

Life Sciences Health Industry China Briefing - April 2012 (May 21, 2012)

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.  Some developments during April include:

  • Chinese Government to Review Drug Pricing Differences Between Ex-factory and Bid Prices
  • Heightened Attention to Hospital Mark-ups of Drug Prices
  • State Council to Cancel Drug Price Addition and Raise Medical and Surgery Fees
  • Cessation Drugs to be Included in Medical Insurance: Multinational Pharmaceutical Companies Play a Large Role in Government Procurement
  • 13 Products of 9 Pharmaceutical Companies Using Capsules Suspected of Excessive Chromium Contamination
  • Growth in Home Care Medical Devices

To read the full briefing by Reed Smith China team members, click here.

Life Sciences Health Industry China Briefing - March 2012 (April 13, 2012)

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.  Some developments during March include:

  • American Medical Device Maker Accused of Bribery to Doctors in China and other Countries
  • Qiagen Inks HPV Screening Deal with China's KingMed Diagnostics
  • Medical Care Administration to Improve through Health Cards
  • Cuts in Drug Prices
  • Notice Concerning Registration after Adjustment of Classification of Medical Devices
  • MOH Encourages Private Capital into Medical Rehabilitation Services

To read the full briefing by Reed Smith China team members, click here.
 

Life Sciences Health Industry China Briefing - February 2012 (March 13, 2012)

This post was written by Jay J. Yan, Mao Rong, Zack Dong, Katherine Yang, Joyce Sun, Sara Lai and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during February include:

  • Release of the 12th Five-Year Plan on Drug Safety and Standards
  • SFDA: Concentrated Rectification Action in National Drug Manufacturing and Distribution Sectors
  • Twelve Ministries: Crackdown on Serious Illegal Advertisement Broadcasting
  • SFDA: Electronic Drug Supervision Plan from 2011 – 2015
  • MOH: Administrative Measures on Health Card for Residents (for Trial Implementation)
  • MOH: Revised Diseases Classification and Code

To read the full briefing by Reed Smith China team members, click here.
 

Life Sciences Health Industry China Briefing - January 2012 (February 13, 2012)

This post was written by Jay J. Yan, Mao Rong, Zack Dong, Katherine Yang, Joyce Sun, Sara Lai and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during January include:

  • Outline of China's Nursing Development Plan from 2011 to 2015
  • Promulgation of Eight Recommended Medical Product Industry Standards
  • Strengthening Implementation of 2010 GMP Amendment
  • Circulation of the 12th Five-Year Plan for Medical Device Technology Industry

To read the full briefing by Reed Smith China team members, click here.
 

Life Sciences Health Industry China Briefing - December 2011 (January 12, 2012)

This post was written by Jay Yan, Mao Rong, Zack Dong, Gordon Schatz, and Katherine Yang.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during December include:

  • SFDA Issues Catalogue of Class II Medical Devices Exempted from Submitting Clinical Trial Materials
  • SFDA Issues Notice Concerning Circulation of Guiding Principles of Phase I Clinical Trial Management of Drugs
  • SFDA Issues Notice on Soliciting Comments on Revisions of the Good Supply Practice for Pharmaceutical Products
  • China Adopts Drug Safety Plan: All Drugs to be Qualified by 2015
  • NDRC Issues Rules on Drug Price Parity to Prevent Disguised Price Hikes
  • Guangdong Issues Drug Price Adjustment Program: 307 Western Drugs’ Price have a 22 percent Reduction in Average
  • Shenzhen Public Hospitals to Revoke Drug Price Addition by the End of 2012

To read the full briefing by Reed Smith China team members, click here.

Life Sciences Health Industry China Briefing - November 2011 (December 6, 2011)

This post was written by Jay Yan, Mao Rong, Zack Dong, Zhao Hong, Gordon Schatz, Dr. David Kan and Katherine Yang.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during November include:

  • Beijing Hospital Requirements: Overuse of Antibiotics
  • SFDA Issues Second Batch of Class II Medical Devices, For Which Distributors Do Not Need to Apply for Medical Devices Distribution License
  • Interim Measures on Appraisal of Traditional Chinese Medicine Hospitals: Request for Comments 
  • Two Pharmaceutical Companies Fined for Monopolizing Compound Reserpine API
  • China to Build ADR Monitoring System
  • NDRC to Investigate Ex-factory Prices of Drugs
  • China Finalizes Healthcare Reform 12th FYP
  • China to Launch Massive Survey on TCM Resources
  • Notice Concerning Circulation of the 12th Five-year Plan of Biotechnology Development

To read the full briefing by Reed Smith China team members, click here.

Life Sciences Health Industry China Briefing

This post was written by Jay Yan, Mao Rong, Zack Dong, Zhao Hong, Gordon Schatz, Dr. David Kan and Katherine Yang.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during October include:

  • SFDA Issues 2010 Annual Report on Drug Registration and Approval
  • CCTV to Restrict Advertisement of Alcohol, Medical Institutions
  • MOH Requires Improvement of the Reward and Penalty System for Antibacterial Drug Administration
  • Draft Mental Health Law Submitted to NPC Standing Committee for First Deliberation
  • SFDA: All Drugs on Market to Have E-ID by End of 2015
  • SFDA Releases 3rd Batch of Illegal Drugs, Medical Devices and Health Food Advertisements in 2011
  • SFDA issues Notice on Release and Delivery of GMP Certification Announcement
  • SFDA issues Notice concerning Circulation of the Administrative Measures on Drug Supervision in Medical Institutions
  • Detailed Summary of SFDA 2010 Annual Report on Drug Registration and Approval

To read the full briefing by Reed Smith China team members, click here.

Life Sciences Health Industry China Briefing

This post was written by Jay Yan, Mao Rong, Zack Dong, Zhao Hong, and Gordon Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Some important developments during September include:

  • SFDA Circulates Guidelines for Monitoring Adverse Events Involving Medical Devices
  • SFDA Issues Letter Soliciting Public Comments on Communication Methods for Responsible Food and Drug Safety
  • Swiss Drugmaker Novartis Expands in China
  • China to Divide Emergency Patients into Four Classes for Medical Treatment
  • China’s Biopharmaceutical Industry to Accelerate Internationalization
  • MOH surveys Clinical Application of Antimicrobials
  • Medtronic Opens Orthopedic R&D Center with Weigao
  • DHL Establishes Second Life Science and Health Care Logistics Center in Beijing

To read the full briefing by Reed Smith China team members, click here.

Life Sciences Health Industry China Briefing

This post was written by Jay Yan, Mao Rong, Gordon Schatz and Abraham Sorock.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Food & Health Care Industries.
Some important developments during June include:

  • Chinese drug company to build production and training center in U.S.
  • Drug company challenged for environmental contamination in China
  • China's national biomedical plan to be released soon
  • Issuance of administrative measures for device recalls
  • Designation of four professional associations to examine Class III medical technology
  • Extension of Drug GMP certificates
  • Recall of an antibiotic

To read the full briefing by Reed Smith China team members, click here.

Food and Drug Law Institute's Upcoming US-China Food and Drug Law Conference in Beijing, China

The Food and Drug Law Institute (FDLI) has an interesting upcoming conference on June 13-14 in Beijing, China that will address current legal, regulatory and economic issues regarding food, cosmetics, dietary supplements, pharmaceuticals and medical devices in China and the United States. Speakers are top government officials and internationally renowned experts who will discuss the issues in both countries.  They include Dr. Margaret A. Hamburg (Commissioner of Food and Drugs, US Food and Drug Administration), Wu Zhen (Deputy Commissioner of China's State Food and Drug Administration), Ralph Tyler (Chief Counsel, US Food and Drug Administration), Rosemary Gallant (Principal Commercial Officer Beijing, US Embassy Beijing, Commercial Section), Ding Jianhua (Deputy Director-General, Department of International Cooperation, SFDA), Wang Lanming (Supervisor-General, Department of Medical Devices Supervision, SFDA), Lin Wei (Deputy Director-General, Bureau of Import-Export Food Safety, AQSIQ) and Jinjing Zhang (Deputy Director General, Department of Food Licensing, SFDA).  Reed Smith partner Gordon Schatz will be speaking on the panel "Innovation and Access: Key Success Factors in China."

China's New Tort Liability Law Takes Effect on July 1, 2010

China's long-awaited Tort Liability Law, passed on December 26, 2009 by the Standing Committee of the National People’s Congress of China, will take effect on July 1, 2010. The law, which serves to provide a stronger basis for the development of tort law and practice in China, offers standard guidance on issues ranging from product liability, environmental pollution, medical malpractice to employee-related liabilities. For example, prior to the enactment of the law, defective product recall obligations were only applied to a limited number of products, including medicine, food, toys and automotive products. The new law, however, expands the recall system to cover all products manufactured or sold in China.

Reed Smith Beijing Counsel Mao Rong and Michael H. Dardzinski and Consultant Joyce Sun recently drafted a brief summary of China's new tort law provisions regarding product liability, medical-related damages and environmental pollution. Read the full summary here.

Drugs for the Masses: Taking a Closer Look at China's Healthcare Reform and Its Impact on Pharmaceutical Manufacturers

As noted in our September 2009 post discussing China’s new National Essential Drug System (NEDS), China continues to make progress in its healthcare reform efforts. However, new national drug lists and price caps designed to provide low-cost drugs to the masses, have at the same time raised questions about the program’s economic impact on local and multinational pharmaceutical manufacturers.

To learn more about how China’s healthcare reform package and how it may affect your company, we invite you to read Reed Smith Life Sciences Partner Gordon Schatz and ZS Associates Inc. consultant Patrick Nowlin’s “Drugs for the Masses,” recently published by China Business Review.

China Launching National Essential Drug System

This post was written by Hugh T. Scogin, Gordon B. Schatz, Amanda Tao and Amanda Yang .

The Chinese government officially launched the National Essential Drug System (NEDS) Aug. 18, 2009 at a press conference held by the State Council, during which it explained the concentration of specific drug purchases in urban and county grass-roots health institutions as the first step in the implementation of NEDS. By 2009, NEDS will be implemented in 30 percent of government-run urban and county health care institutions in each province, region, or municipality. NEDS could have significant implications for the marketing, sale, distribution, and pricing of drugs by multinational and Chinese pharmaceutical companies in China.

As part of the implementation of NEDS, nine government ministries, including the Ministry of Health (MOH), National Development and Reform Commission (NDRC), Ministry of Industry and Information Technology (MIIT), Ministry of Supervision (MOS), Ministry of Finance (MOF), Ministry of Human Resources and Social Security (MOHRSS), Ministry of Commerce (MOFCOM), State Food and Drug Administration (SFDA), and State Administration of Traditional Chinese Medicine (SATCM), jointly issued the "Implementing Opinions on Establishing the National Essential Drug System," the "Administrative Measures on National Essential Drug List (Interim)," and the "National Essential Drug List – Section for Primary Medical and Public Health Institutions Use (2009 Version)."

NEDS is intended to more effectively manage the selection, production, distribution, usage, pricing, reimbursement, supervision, and evaluation of essential drugs, as well as to improve public health, medical services, and medical security. The new regulations note that all government-run grass-roots health care institutions are required to purchase and use essential drugs, while other types of health care institutions are required to use essential drugs based on standardized percentages for minimum use. 

To read the full alert, click here.

New Developments in Nanotechnology

A recent study suggests that exposure to nanoparticles may have caused the death of two female workers and the illnesses of five others in China. Life science health industry companies that manufacture, integrate, sell or buy products that contain nanomaterials may want to monitor reaction to this report, which may garner attention from media outlets, scientists, regulators and the plaintiffs' bar. For a full discussion of these issues, review the full Client Alert written by Reed Smith attorneys Antony Klapper, Jesse Ash and David Wagner.

Chinese Regulations on Medical Device Advertisements

This post was written by Hugh Scogin, Gordon Schatz, Amanda Tao and Amanda Yang.

On May 20, 2009, China's State Administration of Industry and Commerce, the Ministry of Health, and the State Food & Drug Administration together issued new regulations for medical device manufacturers and distributors who advertise medical devices and diagnostic products, entitled, "Measures for the Examination of Medical Device Advertisements" and "Standards for the Examination and Release of Medical Device Advertisements." To read a summary of key points contained in the regulations, click here.

China's Premier Wen Jiabao Confirms Major Healthcare Reform

This post was written by Sharon J. Mann, Hugh Scogin, Gordon B. Schatz and Amanda Yang.

At the 2nd Session of the 11th National People’s Congress (NPC) convened on March 5, 2009, China’ Premier Wen Jiabao confirmed the major contents of the healthcare reform in the 2009 Government Work Report. On January 21, 2009, the State Council approved the Opinions on Advancing Healthcare Reform and the Implementation Plan on Advancing Healthcare Reform 2009-2011 in principle. The opinions and the plan are expected to be published after the NPC session, with the Government Work Report representing the first government document that confirms work focuses in the coming healthcare reform program.

According to the Work Report, the Chinese government will spend US$124 billion (850 billion RMB) on healthcare reform between 2009 and 2011, including 331.8 billion RMB from the central government. The funds will be used in five primary areas 1) medical insurance, 2) essential medications, 3) basic healthcare service systems, 4) equal access to basic public health services, and 5) reform of public hospitals.

For additional information, please see Reed Smith’s full alert.

GAO Report on Drug Safety/Foreign Drug Inspections

On October 22, 2008, the Government Accountability Office (GAO) issued a report entitled "Drug Safety: Better Data Management and More Inspections Are Needed to Strengthen FDA's Foreign Drug Inspection Program." Among other things, the GAO found that: FDA databases contain inaccurate information on foreign establishments subject to inspection; FDA inspects relatively few foreign establishments each year to assess the manufacturing of drugs currently marketed in the United States; and FDA’s identification of serious deficiencies has led foreign establishments to take corrective actions, but inspections to determine continued compliance are not always timely. The GAO recommends that FDA improve the data that it uses to manage its foreign inspection program, conduct more inspections of foreign establishments, and ensure more timely inspection of foreign establishments where FDA has identified serious deficiencies. HHS agreed that FDA should conduct more foreign inspections, and discussed other FDA oversight initiatives, such as database improvements.

FDA to Open Offices in the People's Republic of China

On March 14, 2008, the U.S. Food and Drug Administration (“FDA”) received approval from the U.S. State Department to place eight full-time, permanent FDA employees at U.S. diplomatic posts in the People’s Republic of China, pending authorization from the Chinese government. The FDA will also be hiring five local Chinese nationals to work with the new FDA staff at the U.S. Embassy in Beijing and the U.S. Consulates General in Shanghai and Guangzhou. The FDA expects to be fully staffed in China within 18 months.

In China, the proposed permanent offices are intended to allow the FDA greater access for inspections and increased interactions with manufacturers to help assure products shipped to the United States meet U.S. standards for safety and manufacturing quality. With the opening of an FDA China Office, the FDA’s enforcement arm will more easily extend across the globe and bring some benefits as well as greater challenges for global life sciences companies. The FDA is clearly positioning itself for the demands of the current economy. According to a statement from FDA’s deputy commissioner for International and Special Programs, Murray M. Lumpkin, M.D.:

In an age when a border is not a barrier, the globalized economy demands nothing less than heightened regulatory interoperability, information exchange, and cooperation, especially on product quality and enforcement matters.

The FDA’s “Beyond the Borders” initiative is intended to facilitate the building of stronger cooperative relationships with the FDA’s counterpart agencies around the world, and to enhance technical cooperation with foreign regulators.

Private Sector Responsibility for Import Safety

Although the FDA’s announcement of a permanent presence in China is the latest indication of significant U.S. administrative activity on import safety, ultimate responsibility for product safety and regulatory compliance still generally rests with the private sector manufacturers, importers, distributors, and retailers. The private sector may look to government initiatives for guidance, but must simultaneously employ corporate best practices to contract safely with Chinese manufacturers and suppliers. Such best practices include an appropriate level of due diligence, contract terms that highlight product safety and protect the company, implementation of import compliance procedures, enhanced safety through independent testing, and development of a recall strategy in the event imported products are determined to be unsafe or fail to meet quality standards.

Due Diligence

Proper due diligence must be undertaken with respect to the overseas suppliers or manufacturers. Begin with the basics—know the manufacturer’s name, address, telephone number, fax number and e-mail address. Understand how the manufacturer is incorporated, organized, and registered to do business. Know how the manufacturer is owned—whether it is government-owned, owned by government officials, or otherwise. Understand who owns the manufacturer’s parent company, and the citizenship of any individual owners. Have a handle on the manufacturer’s profile—does it have the expertise and capacity to undertake the work required? Where does the manufacturer bank? Has the manufacturer been involved with any criminal charges, convictions, bankruptcies, or cases of civil litigation in which the company has been a defendant?

Other questions to ask include: What is the manufacturer’s record of and reputation for product safety, plant safety, workers’ rights, and environmental protection? What can be discovered through business references, personal references, and financial references? What information can you obtain from public sources, the local chamber of commerce, the diplomatic corps, from a media search of local and international press accounts, or from lawyers and consultants who are knowledgeable about Chinese manufacturers?

Contracting. As a threshold matter, importers should include clear specifications and safety or quality standards that are to be met by the supplier. The supplier should warrant and certify that it understands and will comply with the applicable specifications or standards. Contracts should include testing procedures and an agreement as to how testing will be accomplished. The contract should include terms about the rejection of non-conforming goods and resulting remedies.

The contact should provide the purchaser with visibility into the supplier’s own supply chain. Importers may insist that the supplier certify facts or make warranties regarding the source of raw materials, manufacturing techniques, or the chain of custody of particular products, such that the manufacturer assumes liability in the event that any of this information is false and the products cause harm.

If intellectual property or know-how is to be exchanged, then the contract should account for and protect those assets. The contract should specify the supplier’s duty to complete the paperwork and assign liability for any failure. The contract may require the inclusion of information required by customs on invoices, such as the date of sale, the identity of the seller, Harmonized Tariff Schedule (“HTS”) classification and valuation of the items, and the port of entry. The contract should require the provision of country-of-origin markings as required.

Child or prisoner labor issues should be verified along with the conditions of general workers’ rights. Environmental degradation possibilities should also be investigated and addressed in contracts. The contract may rightly address local anti-corruption compliance in addition to these other “social” concerns.

An importer should be sure that the Chinese supplier has indemnified it for any harm that may be caused by the products being supplied. This warranty may require the supplier to submit to jurisdiction in the United States for disputes arising under the contract, particularly if the supplier has U.S.-based fixed assets. If the supplier has no fixed assets anywhere other than China, international arbitration is probably preferable to attempting to collect a foreign judgment in China itself.

Import Compliance. In general, it is advisable to have an import compliance program. Such a program should cover overall importation requirements such as shipping, entry, inspection, and related business aspects. An import program should include classification (what is the unique HTS number the product falls under?), appraisal (how much in import duties must be paid based on the tariff rate and value of the imported product?), and country of origin (where does it come from and does it need to be marked “Made in China”?). An import compliance program should address all customer recordkeeping requirements (essentially five years for key documents supporting the entry process). The compliance program should also address what to do in the case of an audit or enforcement action involving customs issues.

 

Inspections/Audits. An important provision of the written agreement between the parties should allow the importer to have access to the supplier’s or manufacturer’s facility and records for purposes of inspecting the manufacturing operations and evaluating the level of regulatory compliance. Regulatory agencies such as EPA, FDA OSHA, USDA, etc. have broad inspectional authority in the United States. Through memoranda of understandings, certain agencies such as the FDA are allowed to inspect foreign manufacturing sites that produce products or ingredients destined for import into the United States. The reach of these ex-U.S. inspections, although greater with the opening of the FDA office in China, remains much less than in the United States. Allowing a firm’s own employee auditors or third-party auditors retained by a firm to be on-site to observe manufacturing operations and review production records can provide an “early warning” of potential issues to be addressed or avoided.

Product Testing and Systems Evaluation. Product safety and product testing must be an integral part of any supplier or manufacturing contract. This product testing procedure should set forth who will conduct the testing, whether opposite party verification will be available, what party or non-party entity will conduct the testing, and which party will be responsible for payment of testing costs. Parties will need to understand which regulatory industry standards apply, how those standards will be monitored, and how those standards will be extended and enforced though the supplier-sub-prime supplier supply chain—think lead paint on children’s toys.

Importers should consider utilizing “pre-approved” testing facilities such as those identified by National Oceanic Atmospheric Administration and the Consumer Product Safety Commission as identified above. Importers should also consider separate independent testing to be utilized should a level of doubt be raised as to the safety of a particular product or line of products.

In addition to product testing, mechanisms should be put in place, through contract, that allow for the evaluation of the quality control processes extant at the supplier’s operations. This access affords an opportunity to identify potential deficiencies in production, quality control, inspection, and quality assurance/tracking. These mechanisms can be included as part of the provisions allowing for inspections or audits of manufacturers’ facilities.

Recall Strategies. Prudent importers should have a plan in place to minimize the impact of shortcomings in their import safety measurers. That plan should include a recall strategy that addresses the products at issue and the relevant government agencies, such as the CPSC, USDA, and NHTSA, or the FDA. Likewise, the plan should include a tailored approach to address the particular safety risks at issue. The FDA has several levels of recalls that should be addressed—Class I for the recall of products that could cause serious health problems or death, Class II for recall of product that may cause a temporary health problem, and Class III for those recalls involving minor labeling violations. Devising tailored recall plans requires an understanding not only of the company’s supply chain, but also of its distribution chain, and might rightly even include discussions with cognizant governmental recall officials prior to any recall event occurring.

Reed Smith’s Life Sciences Practice In China

Through its offices in Hong Kong and Beijing, Reed Smith represents many life sciences clients regarding their activities in China. From pharmaceutical and medical device companies to distributors, hospitals and physicians, Reed Smith’s lawyers in China advise on foreign direct investment, corporate organization, business operations, securities, protection of intellectual property, technology transfer, mergers and acquisitions, drug registration, product registration, distribution, clinical testing, regulatory compliance, regulatory approval, employment, and dispute resolution. Two members of Reed Smith’s life sciences team in China are dual-qualified physicians and lawyers.

Chris Howse heads up Reed Smith’s leading medical/product liability practice in Hong Kong, advising doctors, hospitals, device and pharmaceutical companies in matters involving the Medical Council, and in civil and criminal litigation disputes.

Hugh Scogin has been based in Beijing for 20 years and is recognized as one of the foremost authorities on Chinese law in the United States, having taught at leading law schools including Yale Law School and New York University School of Law. Hugh’s clients include medical device and diagnostic product manufacturers, and he advises on numerous China-related medical device issues, mergers & acquisitions, foreign direct investment, technology transfer, business operations, securities, and employment and dispute resolution.