The Contracts Register Act has been in effect for more than six months, with a number of contracts having already been published, including, obviously, those from the health sector. In this article, we will first briefly assess how the health sector actors approached the disclosure obligation and remind some key rules to be kept in mind when disclosing contracts.
Sanctions for invalidity not to apply before 1 June 2017
First of all, let us remind you that the Contracts Register Act has been operating in a “trial mode” of sorts thus far. The provision under which a contract which has not been published in the register, although it was supposed to be published, is invalidated from inception (Section 7(1) of the CRA) should apply only from 1 June 2017 (Sections 9 and 10 of the CRA). Similarly postponed was the effective date of the provision under which a contract published in the register becomes effective on the date of its publication at the earliest (Section 6(1) of the CRA). Hence, there will be no punitive measures for failing to publish a contract in the register before this trial mode period ends.
Current status of the contracts register from the health sector perspective
A glimpse at the contracts register suggests that initiative in publishing contracts has been clearly taken by public entities, in particular hospitals (university hospitals and regional hospitals), other public healthcare providers, and health insurance companies. Manufacturers and distributors of pharmaceuticals and medical devices have so far been caught up in the tide of events, and apart from some exceptions, they do not actively publish contracts in the register, rather leaving this task up to public entities with which they conclude these contracts.
Thus, currently the contracts in the register include, inter alia, contracts on the supply of pharmaceuticals, medical devices and other medical material, agreements on the lease of medical devices, clinical trial agreements, agreements on non-interventional studies, and donation and grant agreements. Several agreements on the provision of a turnover bonus have been published as well. Health insurance companies also publish contracts concluded under the public health insurance act; among others, several agreements on securing obligations in connection with temporary reimbursement of a highly innovative pharmaceutical have been published as well.
It is not a great surprise that public entities have taken the initiative. As a matter of fact, public entities have practical experience with disclosing contracts. In particular, some university hospitals had voluntarily disclosed contracts on their internet pages before the Contracts Register Act was adopted. Also, public entities had been obliged to disclose contracts to the public on the basis of individual applications filed under the Act on Free Access to Information. On the basis of the Anti-Corruption Strategy of the Ministry of Health, “directly managed organisations” (especially university hospitals) are obliged to publish, among others, information about sponsor gifts specified therein. Thus, for public entities, publishing contracts is nothing dramatically new. However, it seems that the pharmaceutical industry remains rather passive for the time being.
Guidelines of the Ministry of Health and the Ministry of Interior
On its website, the Ministry of Health has published guidelines on how to approach the publishing of the most common types of contracts in the contract register. However, we could certainly question some of the rather categorical conclusions contained in this document. Moreover, there are indications that this document was not authored by the Ministry of Health, but by the Association of Innovative Pharmaceutical Industry, which explains the perspective from which the document was drafted. As a matter of fact, the Ministry itself expressly states that the document is, in fact, only a result of the discussions of the health sector actors and is not “a binding interpretation of law or even an instruction of the Czech Ministry of Health, as it only embodies consensus of the participants”.
Moreover, the contracts register is administered by the Ministry of Interior (Section 4(2) of the CRA), which published extensive methodological manuals for the Contracts Register Act. But the interpretation of the Ministry of Interior differs from the interpretation given in the document published by the Ministry of Health (for example, in relation to the disclosure of framework agreements).
How to determine which contracts are subject to the disclosure obligation?
Proceeding automatically according to a contract type as proposed by the document published by the Ministry of Health may be challenging in some cases, as each contract is unique to a certain extent. Accordingly, it seems to be suitable to always ask the following questions in a systematic sequence:
1. Is at least one of the contracting parties an entity referred to in Section 2(1) of the CRA?
If not, the contract is not subject to publication in the contract register. If yes, the following question should be asked:
2. Is there any exemption applicable to the obligation to disclose a contract as a whole (in particular pursuant to Section 3(2) of the CRA)?
The Contracts Register Act includes a number of exemptions and, therefore, it seems to be appropriate to always check all of them. The most frequently applied exemption is most likely the one under which the disclosure obligation does not apply to a contract, “if the value of its subject matter” is CZK 50,000 excluding VAT or less; however, it can be difficult to interpret this exemption in some cases (especially with long-term performance). If none of the exemptions apply to the contract, it must be published.
Which information can be made unreadable (blacked out) in a published contract?
If we reach the conclusion that a contract is subject to the disclosure obligation, it is necessary to consider whether it contains information which is not subject to the obligation to disclose and which can (must) be rendered unreadable. We should realise that only information which can be made unreadable under the Contracts Register Act can be made unreadable, otherwise we face a risk that the contract will not be regarded as duly published (Section 5(5) of the CRA). In practice, the information which is most frequently made unreadable is information which is a trade secret, and personal data, that being on the basis of Section 3(1) of the CRA in conjunction with the relevant provisions of the Information Act. In addition, the law makes it possible to render unreadable (to not publish) “technical templates, instructions, drawings, project documentation, models, unit price calculation methods, designs and calculations” [Section 3(2)(b) of the CRA].
In practice, difficulties are experienced in considering the question of which information should be made unreadable for trade secret protection reasons and the question of when trade secret protection is breached (pursuant to Section 9(2) of the IA). However, in this matter we can use the guidance of the extensive case-law of the Supreme Administrative Court, which has repeatedly dealt with trade secrets in interpreting the Information Act, which is referred to by the Contracts Register Act.
Which contracting party is obliged to publish a contract?
This is a matter of frequent misunderstanding. In fact, the Contracts Register Act does not impose an obligation to disclose a contract in the register upon any of the contracting parties. Both (all) contracting parties are authorised to publish a contract in the contracts register (Section 5(2) of the CRA), but none is obliged to do so under the law. Thus, it is suitable to agree contractually as to which of the parties is to procure the disclosure of the contract in the contract register. Otherwise, a risk exists that the contract will be published by both (all) parties out of cautiousness and, consequently, the published document will be duplicated in the register. However, this is not desirable, as each of the contracting parties could publish a different wording of the contract (e.g. a hospital may forget to make unreadable a trade secret of a pharmaceutical producer).
In practice, a dispute may arise between the parties as to which of them should be obliged to procure the publication in the register, since each of them has a paramount interest in being the party to procure the publication, and thus having control over the published wording. This issue can be solved by a compromise arrangement under which one party will be obliged to publish the contract within a short period of time after its conclusion; failing to do so will entitle to other party to publish it.
Who will be punished for failing to publish a contract?
It is necessary to stress that the sanction for not publishing the contract in the register which will apply from 1 June 2017, i.e. invalidation of such a contract, will be imposed on both the parties to a substantial extent, as both of the parties will be obliged to reach a settlement under the rules governing unjust enrichment. In addition, contracting parties, especially in the health sector, often agree on rather specific provisions and duties which do not arise under legal regulations. Thus, if a contract is subjected to the invalidation sanction (from 1 July 2017) in the case of its non-disclosure, then such specific arrangements and duties will simply not apply and will be legally unenforceable.
This article does not cover the topic of the contracts register by a long measure. We could mention numerous other problematic issues (such as the format of published contracts, which is the subject of frequent errors). Moreover, an amendment of the Contracts Register Act is currently being discussed by Parliament, and a number of amendment motions have been submitted. Thus, we need to closely monitor the developments of the contract register and, at the same time, get prepared for “going live” on 1 July 2017.