China healthcare crackdown now includes blacklist

China has issued two new documents in the last two weeks that evidence a continuing emphasis on cracking down on bribery and corruption in the healthcare sector from both the supply and demand sides.

First, on December 25, China’s National Health and Family Planning Commission (“NHFPC”) issued the Regulations on the Establishment of Commercial Bribery Records for the Purchase and Sale of Medicines, which require details of companies blacklisted at a provincial level for commercial bribery violations to be published on a national website. (See Covington’s translation here.) 

The rules, which reinforce and expand similar rules issued in 2007 and 2010, will take effect on March 1, 2014.

While the provincial-level blacklists have been in place since 2007, implementation has been uneven and, in many provinces, absent.Notably, in addition to being subject to an outright ban on procurement in the province in which a company or individual is blacklisted, companies and individuals blacklisted in one province will now have “points deducted” from their procurement scores during the procurement process in other provinces.Companies and individuals whose names appear on any provincial blacklist two or more times within five years will be blacklisted nationally for two years.

Companies will continue to be subject to monetary penalties for commercial bribery violations, but the threat of blacklisting in a province — or nationwide — presents a significantly larger commercial and reputational risk.

Second, the NHFPC on December 26 promulgated Nine Prohibitions for Strengthening Ethical Conduct in the Healthcare Industry (“Nine Prohibitions”), which reiterate and expand on earlier regulations prohibiting certain conduct by healthcare professionals (“HCPs”) and healthcare institutions. (See Covington’s translation of the Nine Prohibitions here.) 

Many of these provisions mirror those found in previous regulations issued by NHFPC and its predecessor, the Ministry of Health. Of particular note for healthcare companies, the Nine Prohibitions includes a ban on accepting improper “donations and subsidies” from outside parties, and specifically includes a prohibition on “accepting donations or subsidies [in the form of] international tourism or disguised tourism.” 

The Nine Prohibitions also refine slightly an earlier ban on participating in “entertainment activities [held] in commercial entertainment venues” provided by companies in the healthcare industry.

For more details, see Covington’s e-alerts in English here and Chinese here.

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Eric Carlson, a contributing editor of the FCPA Blog, is a Beijing-based partner at Covington & Burling LLP. He specializes in anti-corruption compliance and internal investigations, with a particular focus on China and other regions of Asia. He speaks Mandarin and Cantonese and can be contacted here.