China’s Compliance Guidelines for Healthcare Companies Signal Areas of Future Enforcement

On October 11, 2024, China’s State Administration for Market Regulation (“SAMR”) issued the Draft Compliance Guidelines for Healthcare Companies to Prevent Commercial Bribery Risks (“Draft Guidelines”). These guidelines largely focus on the same key elements of anti-corruption compliance that are found in long-standing guidance from the U.S. DOJ and SEC, but additionally highlight areas of risk specific to China’s healthcare sector. Once finalized in the coming months, the Draft Guidelines will be an important point of reference for healthcare manufacturers operating in China.

A Risk-Based Approach

The Draft Guidelines list nine categories of high-risk activities involving healthcare professionals (“HCPs”) and reveal SAMR’s likely areas of focus for future enforcement actions:

(1) fees-for-service for HCPs;

(2) sponsorships, donations, and grants to healthcare organizations (“HCOs”);

(3) hospitality and entertainment;

(4) academic meetings and exchanges;

(5) distributor and third-party discounts, rebates, and commissions;

(6) provision of free samples;

(7) clinical research;

(8) outsourcing services to vendors; and

(9) retail sales.

The Draft Guidelines set out compliance “Dos and Don’ts” for each of these high-risk activities:

“Dos”: Mandatory or Encouraged Practices

“Don’ts”: Prohibited or Discouraged Practices

Other Key Takeaways

Focus on the Passthrough of Improper Benefits

The Draft Guidelines shed light on improper value transfers disguised as legitimate educational or promotional activities. For example, they focus on transactions that funnel improper benefits via disguised research projects, targeted donations, or using HCOs such as medical foundations as passthroughs for payments to HCPs in exchange for business gain. It also requires healthcare manufacturers to consider the fair market value of fee-for-services with HCPs or sponsorships with HCOs and conduct due diligence reviews in advance of such engagements. Additionally, the Draft Guidelines also focus on scenarios where employees of healthcare manufacturers own or otherwise control third‑party business partners (e.g., distributors or service vendors) and use them as passthroughs to facilitate improper benefits to HCPs.

Segregating Academic Activities from Sales Targets

Healthcare manufacturers are expected to clearly segregate academic activities and personnel from sales activities. First, the Draft Guidelines allow medical education (non-commercial) personnel at healthcare manufacturers to participate in academic activities such as medical education presentations or conferences for HCPs. However, sales personnel are prohibited from participating in these activities. Second, the Draft Guidelines explicitly prohibit healthcare manufacturers from assigning sales targets to medical education personnel, consistent with the Administrative Measures for the Registration of Pharmaceutical Representatives (for Trial Implementation) published by the National Medical Products Administration in 2020.

Encouraging Self-Reporting

Under the Draft Guidelines, healthcare manufacturers are expected to thoroughly investigate and timely remediate anti-bribery risks. Consistent with measures implemented by foreign regulators, these rules encourage healthcare manufacturers to self-report potential misconduct to regulators to receive credit for reduced penalties.

*Morrison Foerster Trainee Solicitors Liam Shao also made contribution to this article.

As further explained in the Terms / Notices linked below, the information provided herein is not legal advice. Any information concerning the People’s Republic of China (PRC) is not an opinion on, determination on, or certification of the application of PRC law. We are not licensed to practice PRC law.