In 2007, the Ministry of Health (now merged within the National Health and Family Planning Commission or “NHFPC”) began documenting pharmaceutical companies that have committed commercial bribery offenses and “blacklisting” them so that their products are barred from entering public medical and/or healthcare institutions. Based on the “Measures of Recording Commercial Bribery of Pharmaceutical Companies” promulgated in 2007 (2007 Recording Measures), a total of 58 companies had been blacklisted. At the end of 2013, the 2007 Recording Measures were updated.

2013 RECORDING MEASURES

On December 25, 2013, the NHFPC promulgated the “Measures of Recording Commercial Bribery of Pharmaceutical Companies” (2013 Recording Measures). After this national-level measure was released, provincial authorities and local governments issued implementation opinions to carry out the 2013 Recording Measures. Pursuant to the 2013 Recording Measures, any pharmaceutical enterprise and its agents who have committed commercial bribery may be put on a “blacklist” issued by the provincial authorities. There are five situations in which a company may be placed on the “blacklist”:

  1. If the company is deemed as having committed commercial bribery by the People’s courts, even if no criminal penalty is actually imposed by the court.
  2. If the procuratorate’s decision of non-prosecution is because of minor criminal violations.
  3. If the company investigated by the disciplinary inspection department because of alleged commercial bribery.
  4. If there are imposed administrative penalties by the Ministry of Finance, State Administration for Industry and Commerce, China Food and Drug Administration and local equivalents, etc.
  5. Other situations regulated by laws, regulations, and measures.

“Blacklisted” companies may face numerous consequences. Their products (whether drugs and/or medical devices) could be barred from entering the relevant province’s public medical institutions or the province’s medical healthcare institutions receiving public funds for a period up to two years (essentially all public hospitals in that province.) They could face reductions in scores when submitting their bids for procurement. If the company commits commercial bribery a second time within five years, its products can be barred for a period of up to two years across the country from entering all public medical institutions or medical healthcare institutions receiving public funds.

DIFFERENCES BETWEEN 2007 AND 2013 RECORDING MEASURES

The 2013 Recording Measures preserved a substantial part of the 2007 Recording Measures. We interpret the 2013 Recording Measures as amending and strengthening the 2007 Recording Measures. Specifically, the 2013 Recording Measures added the following:

  • National blacklist, in addition to provincial list.
  • If two violations occur within five years, increased penalties including eligibility to enter national blacklist.
  • Procedural requirement for anti-corruption clauses in contracts.
  • Requirement for public medical and health institutions in other provinces to give less consideration for two years for bids tendered by provincial blacklisted companies.

TWO COMPANIES CURRENTLY BLACKLISTED BASED ON 2013 RECORDING MEASURES

As of April 2015, the blacklist terms for all companies previously “blacklisted” under the 2007 Recording Measures have expired and there are no companies known to us that are currently blacklisted under the 2007 Recording Measures. However, we have identified two companies that are currently blacklisted based on the 2013 Recording Measures:

On October 16, 2014, Chongqing Weixin Medical Supplies Co., Ltd. (Weixin) was put on a provincial blacklist for a duration of two years. It is the first company to be blacklisted based upon the 2013 Recording Measures. Weixin is a private company registered in the Chongqing Municipality and specialized in selling medical equipment. It was alleged that its General Manager provided the former head of the Equipment Division of Chongqing No. 13 Hospital with “favor fees” amounting to CNY 135,000 (approximately USD 21,787) during a procurement project. According to Article 4.2 of the 2013 Recording Measures and Article 173 of PRC Criminal Procedure Law, Chongqing Health and Family Planning Commission decided to put Weixin on the provincial blacklist even though the bribery offense appeared to the authorities to be relatively minor and the People’s Procuratorate had decided not to prosecute Weixin nor its General Manager.

On February 16, 2015, Hainan Baozhiyuan Medical Technology Co., Ltd. (Baozhiyuan) was put on a provincial blacklist for a duration of two years. Baozhiyuan is a private company registered in the Hainan Province. It was alleged that the company paid kickbacks to the medical personnel of 12 hospitals based on a percentage of sales. These payments amounted to commercial bribery. The Industrial & Commercial Administration Bureau of Hainan Province imposed an administrative penalty on the company which includes the confiscation of the company’s illegal income amounting to CNY 302,621 (approximately USD 48,839) and a fine of CNY 100,000 (approximately USD 16,139). The Hainan Health and Family Planning Commission accordingly put Baozhiyuan on the provincial blacklist.