Recently, the China National Health and Family Planning Commission ( the “Commission”) issued the Rules on Establishing Commercial Bribery Blacklists for Purchase and Distribution in the Health Care Industry (Guo-Wei-Fa-Zhi-Fa[2013 No.50]) (the “Rules 2013”), which will become effective from 1 March 2014. These rules were based on and updated from an old set of similar rules with the same title, published by the former Ministry of Public Health on 19 January2007 (Wei-Zhen-Fa-Fa[2007] No.28) (the “Rules 2007”).

Since Rules 2007 took effect, Beijing and Shanghai, among China’s other major provinces and municipalities, have already established their respective blacklist systems to expose and crack down on commercial bribery involving pharmaceutical and medical device manufacturers, distributors and their agents. In contrast with Rules 2007, the newly-issued Rules 2013 dictate that the nation will set up its first-ever unified and nationwide blacklist system to monitor the purchase and sales in the health care industry, with greater efforts to crack down on commercial bribery in the sector. Below are discussions on the major differences between Rules 2007 and Rules 2013.

Firstly, Rules 2013 provide that the commercial bribery blacklist should be published by competent authorities at the highest level. Rules 2007 only require provincial health administrations (the “Provincial Authorities”) to release the blacklists on their respective website, while Rules 2013 further require the national health administration, i.e. the Commission, to post on its own website the blacklists published by all the Provincial Authorities, with a view to transforming the separate provincial blacklist systems into a nationwide network.

Secondly, Rules 2013 widen the scope of circumstances under which a person or entity should be blacklisted. As compared with Rules 2007, Rules 2013 incorporate an additional circumstance under which the pharmaceutical and device companies as well as their agents should be blacklisted even if they have been exempted by a court of law from criminal punishment as their bribery is deemed as a misdemeanor. On another front, certain language in Rules 2007 has been altered – the expression of “any other circumstances as required by provincial health administrations” has been replaced by “any other circumstances as required by the laws, rules and regulations”. This change indicates that Rules 2013 subject the blacklisting to those statues and rules at a state level rather than lower levels as before.

Thirdly, Rules 2013 expand the scope of bribe takers and increase penalty on pharmaceutical and device companies as well as their agents included in the blacklist.

  1. Rules 2013 expand the scope of bribe takers to include all “the personnel of health care institutions” as compared with the “personnel in charge of health care institutions, drug purchasing personnel and medical professionals” as specified in Rules 2007.  Specifically, Rules 2013 expressly provide that pharmaceutical and device companies and their agents should be entered into the blacklists subject to satisfaction of certain conditions if they offer any property or other benefits to any of the personnel of a health care institution in exchange for the latter to purchase and use their products.
  2. For the first time Rules 2013 impose increased punishment on “recidivist”. According to Rules 2013, the companies which have been blacklisted “only once” will face consequences different from those which have been blacklisted “twice or more within 5 years”.  Any of the public or government-funded health care institutions are prohibited from purchasing any medical products from the pharmaceutical and device company for a period of two years if it or its agent has been blacklisted twice or more within 5 years.
  3. Rules 2013 expand the scope of public or government-funded health care institutions that are restricted from purchase from the blacklisted companies; that said, not only the public or government-funded health care institutions located in the same province as the blacklisted companies but also those public or government-funded health care institutions in other provinces across the country are subject to the same ban.  According to Rules 2013, as to a pharmaceutical and device company that have been put on the blacklist for one time, the above-mentioned health care institutions located in the same province should be prohibited from purchasing any medical products from this company for a period of two years, while the above-mentioned health care institution located in other provinces should downgrade this blacklisted company’ products in the tendering and procurement process during a period of two years. Those companies that have been put on the blacklist twice or more within five years should be disqualified from supplying goods to all public and government-funded health care institutions across the country for a period of two years. Thus, for the first time the ban on trade with blacklisted companies has been made applicable nationwide.

Fourthly, Rules 2013 clarify the matters to be published in the blacklist. According to these rules, among the information to be made public in the blacklists are the name and business address of the pharmaceutical or device companies or their agents, and the name and title of their legal representative, persons-in-charge and the persons immediately accountable, as well as the causes of violation of law, the relevant judicial award and punishment decision instrument and the commencement and ending dates of such blacklist publication.  

Fifthly, Rules 2013 further provide for the prior notice requirement before blacklisting a pharmaceutical or device company or its agent. Under Rules 2017 the Provincial Authorities must notify the pharmaceutical or device company or its agent before putting it on the blacklist. According to Rules 2013, such notification must be made in writing.

Lastly, Rules 2013 further define the circumstances under which a hearing may be held to examine the objection to the blacklists. According to Rules 2007 pharmaceutical or device companies or its agents who have been put on a blacklist may file an application for hearing. While Rules 2013 provide that these blacklisted companies or its agents who has any objections to the blacklisting may present a statement or defense in addition to request for hearing. However, the hearing may be held only on a need-to-do basis.