China pharma blacklist could be weakened by patchy enforcement

Published: 6-Mar-2014

Lack of consistent enforcement across the regions could limit the effectiveness of the proposed Chinese blacklist of pharma companies found guilty of bribery

Although Chinese regulators are pushing ahead with a blacklisting system to combat bribery in pharmaceutical procurement, enforcement problems have undermined similar initiatives in the past, warns PaRR, a specialist in global intelligence, analysis and proprietary data on competition law, IP and trade law, and regulatory change.

The National Health and Family Planning Commission of China (NHFPC) plans to bring in new guidelines that would blacklist pharma companies, agents and distributors found to have bribed staff at medical and health institutions. But the blacklist, which is due to apply from 1 March, will not be easy to enforce, nor is it likely to wipe out corruption at a stroke.

It is true that for the same regulation different provinces follow it differently in practice

According to an official from the Shanghai Food and Drug Administration (SFDA), enforcement of similar blacklists in the past has been inconsistent at local level. This was confirmed by an NHFPC official, who told PaRR: ‘It is true [that] for the same regulation different provinces follow it differently in practice. Some follow it strictly, but some local provinces have their own considerations.’

If a large multinational drugmaker such as GSK were to be put on a blacklist, there is no guarantee that all hospitals in China would comply with a blanket ban. One or two regions might adhere to a blacklist but some hospitals could still buy a drug regardless of a government directive, especially if access to an important drug still under patent without an obvious generic replacement was cut off, Andrew Henderson, a vice president with the compliance advisory firm the Red Flag Group, told PaRR.

They still need drugs, and the Chinese are going to figure out a way to get them

According to a US industry source, while the impending blacklist poses ‘a very serious threat’ to companies, it is not clear how such a system would work. ‘They still need drugs, and the Chinese are going to figure out a way to get them,’ the source said. ‘If you’re the only one providing a certain medicine, they are not going to cut you out completely.’

However, the SFDA official warned that pharma companies should not overestimate the importance of one particular drug. ‘When we say some medicine is irreplaceable we are actually talking about the “best treatment effect” it will bring about. If a certain company is put on the blacklist, the message is clear that their medicine is not deemed as irreplaceable.’

The official agreed that there were structural areas with China’s healthcare sector that needed to be addressed. ‘We do need to address fundamental issues related to medical and health system reform, such as how to increase [the] salary of doctors and fund the development of medical institutions.’

An NHFPC spokesperson told PaRR that in recent years the agency had encountered ‘some difficulties and problems in the process of implementing the negative record regulation’ – the previous version of the blacklisting system. Henderson said that a lot of due diligence work involves efforts to make sure that distributors and agents have a clean record. But it is relatively simple for an agent or distributor to change its name to circumvent being on a blacklist.

Along with strengthening the existing penalties, the NHFPC spokesperson said the new guidelines have clarified how companies would be put on the blacklist and how affected parties could defend themselves if so accused.

Some local government department might fine a company but not report it to central level

But Harry Liu, a partner with global law firm King & Wood Mallesons, told PaRR that there are many unanswered questions regarding local enforcement, in particular how the NHFPC will get the information and whether local governments will report cases in a timely fashion to central authorities. ‘Local protectionism is still a problem,’ Liu said. ‘Some local government department might fine a company but not report it to central level.’

Given that the NHFPC lacks the enforcement powers of other agencies, bringing other government departments on board will be key to the initiative’s success. ‘If this blacklisting regulation is issued jointly by NHFPC and other enforcement bodies or issued by the State Council, the legal effect will be higher,’ Liu said.

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