China’s healthcare anti-corruption campaign continues its momentum in 2024: key takeaways for life sciences companies
In July 2023, China launched a sweeping national campaign against healthcare corruption. Since then, the National Health Commission (NHC), the Central Commission for Discipline Inspection (CCDI) of the Chinese Communist Party (CCP), and various central and local government agencies have ramped up regulatory enforcement efforts to eradicate corruption in the healthcare sector, marking a sharp escalation of an anti-corruption drive in the sector that started several years ago.
Government enforcers have steamrolled through hospitals across the country, arrested directors and CCP secretaries of public hospitals, launched investigations or announced prosecution against senior officials in the provincial and city healthcare commissions, and called on pharmaceutical and medical device companies to assist in investigations. The enforcers also intensified crackdowns on corruption relating to volume-based procurement (VBP) of drugs and medical devices and government medical insurance fraud.
At the end of December 2023, the National People’s Congress passed the 12th amendments to the PRC Criminal Code (effective in March 2024) with higher penalties of up to life imprisonment for bribe-givers in the healthcare sector. And the momentum of the healthcare anti-corruption drive continues in 2024. During the first few weeks of 2024, we have witnessed news reports of investigations and sentencing of healthcare providers (HCPs) and officials in public hospitals and government agencies, as well as bribe-givers in the private sector. On January 3, 2024, the CCDI published an article emphasizing investigations at the grassroots level in the anti-corruption campaign, in which the healthcare sector continues to be one of the key areas.
Launch of a year-long anti-corruption campaign
In May 2023, the NHC and 13 other government agencies, who are responsible for overseeing healthcare institutions and life sciences enterprises, jointly issued a circular regarding rectifying unethical practices related to services and procurement in the healthcare sector (the 2023 Circular). This concerted effort aimed to achieve full coverage of areas with high corruption risks such as speaker programs, hospitality expenses, sponsorships, and donations. The 2023 Circular emphasizes that not only bribe-takers but bribe-givers would be punished.
On July 21, 2023, the NHC and nine other government agencies announced the commencement of a year-long nationwide campaign targeting corruption in the healthcare industry. NHC unequivocally declared a zero-tolerance stance against corruption. One week later, the CCDI and National Supervision Committee (NSC) declared an enforcement scheme to investigate healthcare corruption and to dispatch auditors and inspectors to public hospitals and healthcare commissions.
Phase One: Self-inspection and self-correction
The anti-corruption campaign has gone through multiple phases, some overlapping, including self-inspection and self-correction by healthcare institutions and centralized rectification by the authorities.
During the first few months after the campaign was launched, hospitals across the country proactively reviewed their own practices, such as initiating independent investigations into honorarium payments to HCPs and requesting them to return illicit payments received in the past years by depositing the funds in the “clean accounts” set up by hospitals or local health commissions.
Hospitals across multiple provinces enhanced internal policies and rules governing medical representatives’ visits and calls. Some hospitals even put in place monitoring systems with facial recognition technology to identify unregistered medical representatives or unapproved visits. The hospitals restricted purchases or payments of medical products or blacklisted companies for failure to register their medical representatives. In addition, hospitals across multiple provinces arranged “compliance talks” with several hundred pharmaceutical and medical device distributors and suppliers to emphasize anti-corruption obligations.
As a result, many pharmaceutical and medical device companies temporarily suspended promotional or marketing activities and prohibited their sales representatives from visiting HCPs at hospitals out of concerns about hospitals’ potential overreaction. A dozen medical associations and societies also suspended academic conferences during the first few months after the launch of the campaign. However, after the NHC reassured its backing of legitimate academic events, a few medical associations started to resume academic meetings and gatherings.
Phase Two: Centralized rectification by the authorities
According to incomplete statistics, more than 200 high-ranking government officials, CCP secretaries, and hospital directors were investigated or detained, or voluntarily surrendered themselves to authorities regarding corruption charges in 2023. Local branches of NSC also initiated investigations into senior management and ultimate beneficial owners of several domestic pharmaceutical companies.
Multiple government agencies increased administrative enforcement actions and investigations into pharmaceutical and medical device companies, distributors, and contract sales organizations (CSOs). Market administration regulators fined companies for providing improper benefits to HCPs (such as kickbacks, entertainment and hospitality, and unjustified speaker fees), engaging in collusive bidding, and fabricating sales records. Tax bureaus audited and fined companies for soliciting or issuing fictitious value added tax invoices. Audit bureaus, one of the newly added agencies supervising the 2023 action against unethical practices, organized cross-departmental audits on hospitals and companies in the healthcare sector.
The authorities demonstrated their commitment to combat against government medical insurance fraud. In August 2023, the National Healthcare Security Administration (NHSA) and three other agencies kicked off a medical insurance audit to scrutinize the use of government medical insurance between 2021 and 2022, with a focus on medical imaging, clinical laboratory, and rehabilitation areas. Several sales representatives of a multinational pharmaceutical company were prosecuted and sentenced for defrauding government medical insurance. In November 2023, several provincial healthcare security bureaus penalized hospitals, pharmacies and HCPs for misconduct related to violations of medical insurance funds regulations, including switching products covered by medical insurance, inaccurately filing medical records, and issuing unreasonable prescription for medical examinations or drugs.
In line with the central government’s zero-tolerance stance, local governments launched their own initiatives against corruption, publishing local circulars or holding mobilization meetings to rectify unethical practices. Provincial healthcare commissions across the country posted various channels, such as hotlines, WeChat accounts, and emails, on their websites for the public to report healthcare corruption. As a result, we have witnessed soaring numbers of whistleblowing reports on social media (such as WeChat) alleging misconduct relating to life sciences companies. These allegations, most raised anonymously, have included bribing HCPs, collecting patient and prescription data, submitting fraudulent expense claims, misappropriating corporate funds, falsifying sales data, and workplace harassment and discriminations.
Local government authorities also gave unethical ratings to pharmaceutical and medical device companies, distributors, and suppliers under the credit evaluation mechanism. The mechanism, maintained by the NHSA, serves as a tool to combat unethical practices in the medical products procurement field. Companies may receive a rating of “unethical” or “highly unethical” for their roles in corruption and bribery in criminal cases even if they are not parties to the lawsuit. Companies with unethical ratings may then be restricted or disqualified from listing their drugs or medical consumables on the VBP platforms, as well as from submitting tenders or supplying drugs or medical consumables.
Key takeaways
Companies are advised to review and monitor their promotional activities and academic meetings. All benefits provided directly or indirectly to medical institutions, organizations, and HCPs (including sponsorships, grants, and donations) should be evaluated in terms of their business and legal justifications as well as whether they may unduly influence HCPs’ decisions. Companies should adopt effective mechanisms to reduce the risks of fake meetings, fake attendees, improper entertainment and hospitality, and unreasonable remuneration.
Compliance management of employees and business partners including CSOs is pertinent for companies to help avoid unethical ratings. Compliance training that keeps employees aware of the regulations on medical representatives’ hospital visits as well as recent cases on government medical insurance fraud is also vital to mitigate risks and help deter intentional violations.
Finally, effective social media monitoring and timely investigation of alleged misconduct may help companies to improve integrity and mitigate reputational damages.
Learn more about how this ongoing campaign is affecting the healthcare and life sciences sectors by contacting the authors or your usual DLA Piper relationship partner.
