China’s First Official Anti-Corruption Guidance for the Healthcare Industry

On October 11, 2024, the State Administration for Market Regulation (SAMR, 国家市场监督管理总局) issued the Draft Compliance Guidelines for Healthcare Companies to Prevent Commercial Bribery Risks (the Draft Guidelines, 医药企业防范商业贿赂风险合规指引). These Draft Guidelines were published for public comment, due by Sunday, October 20, 2024. While China’s public comment system is still developing, the Draft Guidelines provide valuable insight into regulators’ views and expectations. We have prepared informal translations of the Draft Guidelines and their related Drafting Statement which provides additional background.

Overview

The publication of these Draft Guidelines is a new milestone in the development of China’s anti-corruption regulatory framework, similar to the Foreign Corrupt Practices Act (FCPA) Resource Guide published by the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission. Like the FCPA Resource Guide, the Draft Guidelines primarily summarize the requirements of existing laws, regulations, and guidance, such as the Anti-Unfair Competition Law (AUCL) and the Drug Administration Law (DAL), with two notable exceptions:

• The Draft Guidelines recommend that companies proactively report misconduct to regulators. While this is in line with enforcement trends in other jurisdictions, China does not have a formal regulatory framework for proactive disclosure such as that found in the U.S. or UK.
• The Draft Guidelines appear to allow manufacturers to organize academic and promotional meetings and to pay service fees to healthcare professionals (HCPs), in contrast with prior guidance that HCPs should only lecture at events organized by government agencies, healthcare institutions, and similar organizations, and should only receive service fees from such organizations.

The Draft Guidelines show the continued development of China’s anti-corruption compliance framework and its continued adoption of global standards. The Draft Guidelines also signal the Chinese government’s continuing focus on the healthcare industry and can be seen as a continuation of the government’s ongoing anti-corruption campaign targeting the healthcare industry.

In recent years, multiple Chinese regulators have issued a number of regulations and guidance documents regarding corruption in the healthcare industry. These documents have primarily focused on the conduct of healthcare institutions and practitioners, but there has been relatively little guidance for other industry participants. The Draft Guidelines are intended to fill this gap by providing comprehensive and practical guidance on anti-corruption issues.

The SAMR, previously known as the Administration for Industry and Commerce, or AIC, is the primary regulator responsible for enforcing the AUCL, which imposes administrative penalties for commercial bribery, e.g., fines, confiscation of profits, and suspension or cancellation of business licenses. China’s AUCL is broader than the U.S. FCPA, encompassing payment of bribes by both individuals and organizations. The AUCL also encompasses the payment of bribes to government officials.¹

The Draft Guidelines are divided into four chapters:

1. General principles
2. How to establish an effective compliance program
3. How to identify and prevent anti-corruption risks
4. How to remediate anti-corruption risks

Below is a high level overview of some of the key content:

Drafting Statement

Along with the Draft Guidelines, the SAMR also published a Drafting Statement providing additional detail on the background, drafting process, main content, and highlights of the Draft Guidelines.

The Drafting Statement notes that the positive and negative recommendations in the Draft Guidelines are each organized into four categories:

Recommendations:

1. “Required” (应当): These recommendations reflect the content of China’s laws, such as the AUCL and the DAL.
2. “Permitted” (可以): These recommendations are based on industry standards and regulatory guidance.
3. “Suggested” (建议): These recommendations offer suggested best practices within the industry.
4. “Encouraged” (倡导): These recommendations outline measures which can further help and improve a compliance program.

Restrictions:

1. “Prohibited” (禁止): Conduct that violates applicable laws and regulations, and includes conduct identified as commercial bribery in recent enforcement actions.
2. “Avoided” (避免): Conduct that is not directly prohibited by law or regulation, but is considered to have high anti-corruption risk.
3. “Restricted” (限制): Conduct inconsistent with general compliance principles, which may increase anti-corruption risk in some circumstances.
4. “Noted” (关注): Conduct inconsistent with general compliance principles, but generally of low risk.

General Principles

Chapter I explains that the Draft Guidelines are intended to provide guidance for participants in the healthcare industry, including companies engaged in research and development, manufacturing, distribution, marketing, and sales. This chapter also clarifies that the Draft Guidelines are limited to the regulation of commercial bribery under the AUCL and do not apply to criminal enforcement actions under China’s Criminal Law.

This section provides general obligations for various participants. It encourages large- and medium-sized companies to implement compliance programs and suggests that they engage third parties to evaluate such programs, while small companies are encouraged to manage compliance-related matters in accordance with the Draft Guidelines. This section also encourages the public to report potential bribery cases in the healthcare industry, and encourages healthcare institutions to implement internal rules in line with the Draft Guidelines.

Compliance Programs

In Chapter II, the Draft Guidelines require companies to establish effective compliance programs. The recommendations and guidance are consistent with most multinational companies’ compliance programs. Examples of required measures include designating a compliance management team, formulating policies, setting up systems for approval and audit of transactions, and providing training to employees. The Draft Guidelines also encourage companies to set up internal whistleblower programs and implement anti-retaliation measures.

High Risk Activities

In Chapter III, the Draft Guidelines list nine types of activities that are considered high risk and provide guidance on how to identify and prevent these risks. The nine high risk activities include:

• Academic Visits and Communications (学术拜访交流)
• Hospitality (接待)
• Speaker Fees/Service Fees for HCPs (咨询服务)
• Outsourcing (外包服务)
• Discounts, Rebates, and Commissions (折扣、折让及佣金)
• Donations, Sponsorships, and Grants (捐赠、赞助、资助)
• Free Placement of Medical Devices (医疗设备无偿投放)
• Clinical Research (临床研究)
• Retail Sales (零售终端销售)

The Draft Guidelines provide concrete examples of dos and don’ts in each of these areas, which are generally in line with best practices in other jurisdictions. For example, the Draft Guidelines recommend that sponsorships should be arranged transparently and in response to a public request for sponsorship and prohibit the use of sponsorships to influence HCPs to prescribe or use products.

As noted above, the Draft Guidelines recognize the need for companies to directly engage HCPs for legitimate business purposes. This appears to ease prior guidance that had limited HCPs to speaking at events organized by government agencies, healthcare institutions, or industry associations, and required any service fees to be paid by such organizations. To this end, the Draft Guidelines recommend that companies adopt best practices, such as calculating service fees based upon HCPs’ expertise, paying service fees through bank transfers, and documenting the performance of services.

Remediation

In Chapter IV, the Draft Guidelines provide suggestions on how to mitigate any risks identified.

With respect to internal mitigation of risks, the Draft Guidelines recommend that companies not only conduct internal investigations, but also recommend that they engage third parties to conduct investigations as appropriate.

The Draft Guidelines also encourage companies to proactively report potential misconduct to the Administration for Market Regulation. This section of the Draft Guidelines provides mitigating factors for law enforcement’s consideration to lower or eliminate potential penalties, showing the government’s efforts to encourage self-reporting of misconduct. As noted above, while this effort to encourage proactive disclosure is in line with trends in other jurisdictions, China does not have written guidance for law enforcement similar to the U.S. DOJ’s corporate enforcement policy or the UK Serious Fraud Office’s guidance on corporate prosecutions.

We believe these Draft Guidelines, once effective, will play a vital role in the development of compliance programs for China’s healthcare companies. For questions on this or any other subject, please reach out to the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations practice group.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.