[Q&A] Compliance Measures for Pharmaceutical Enterprises Amidst Anti-Corruption Campaign
2023. 9. 7
[Q&A] Compliance Measures for Pharmaceutical Enterprises Amidst Anti-Corruption Campaign
As a corporate law firm, we are used to answering many questions from our clients about their business in China. In this series of Q&A articles, we will discuss some of the topics that our clients have shown interest in.
Question: What are the compliance measures that pharmaceutical enterprises should take given the current anti-corruption situation?
Answer: Anti-corruption has always been a key concern in China, and in recent years, there has been increased attention and measures taken to address corruption issues in the pharmaceutical industry, as reflected in the growing number of regulations and the continuous refinement and strengthening of measures. In May, the National Health Commission and fourteen other departments jointly issued the "Key Points for Remedying Unhealthy Practices in the Pharmaceutical Buying and Selling Field and Medical Services in 2023," which specifically targets the problem of bribery in the pharmaceutical sales process.
In July, the Health Commission and ten other departments held a working conference to deploy a one-year nationwide crackdown on corruption in the pharmaceutical field. The recent investigations into some doctors practicing in major hospitals, as well as some executives of pharmaceutical companies, also demonstrate the strong stance and determination to combat corruption in the pharmaceutical industry.
The field of pharmaceutical sales has always been a high-risk area for corruption in the pharmaceutical industry, and with the current anti-corruption focus, pharmaceutical companies should establish a sound compliance management system to strengthen research and development innovation and gain a competitive advantage in the market, while complying with laws and regulations.
For the enterprises that are currently not involved in the anti-corruption investigation, they can focus on compliance measures in their sales activities:
1. Strengthen the implementation of "entity to entity" practices between hospitals and pharmaceutical companies.
In the traditional pharmaceutical sales model, there is a direct interest relationship between hospitals, doctors, and pharmaceutical companies. Pharmaceutical representatives promote drug sales by providing economic incentives to doctors, who in turn may receive financial benefits, sometimes leading to corruption issues. Therefore, it is important to avoid private communication between pharmaceutical representatives and doctors during the sales process and instead conduct sales in an "entity to entity" manner between the pharmaceutical representative and the hospital. In recent years, the pharmaceutical industry has introduced third-party organizations independent of pharmaceutical companies and hospitals to ensure risk compliance. The most common practice is the Contract Sales Organization (CSO). The CSO model inserts a third-party organization as a pharmaceutical representative between the pharmaceutical company and the hospital/doctor, effectively severing the direct relationship between the two. This helps the pharmaceutical company to operate in compliance with regulations. Both in traditional models and under the CSO model, pharmaceutical representatives from third-party organizations should directly communicate with the official hospital, rather than individual doctors, to ensure fair and transparent transactions.
2. Strengthen the assessment and constraints on third-party organizations in the sales outsourcing model.
When pharmaceutical companies adopt a sales outsourcing model, they need to be vigilant about compliance risks related to third-party organizations. In addition to exercising proper supervision and management beforehand, it is also advisable to strengthen the constraints on third-party organizations in the signed cooperation agreements. This can include enhancing the demand of behavioral standards and guidelines for pharmaceutical representatives of third-party organizations as well as periodic inspections of their conduct. Additionally, it is recommended to include penalty clauses such as liquidated damages in the cooperation agreements to ensure that third-party organizations are bound and to mitigate potential risks that may adversely affect pharmaceutical companies.
In summary, the pharmaceutical industry is closely related to people's health and is a topic of common concern internationally. Many guidelines on anti-corruption compliance in the pharmaceutical industry have been issued worldwide. China's current anti-corruption efforts in the pharmaceutical industry are in line with the global development trend in the sector and aim to align with international standards. If you want further advice from experienced legal professionals in this field, do not hesitate to contact us.
