China State Administration for Market Regulation Releases Draft Compliance Guide for Healthcare Companies

The China State Administration for Market Regulation (SAMR) recently released the draft of the Compliance Guide for Healthcare Companies to Prevent Commercial Bribery (Draft Guide).

The Draft Guide, issued amid China’s intensifying anti-corruption campaign targeting the healthcare sector, comes in a year that has seen record enforcement actions and investigations. With 2024 marked by a significant crackdown on bribery and corruption, these guidelines are expected to play a key role in shaping compliance practices for companies operating in the healthcare industry. The draft provides a detailed framework for managing commercial bribery risks across nine high-risk scenarios, such as academic visits, consulting services, and medical equipment deployment.

We compiled an English translation of the Draft Guide.

NATURE OF THE DRAFT AND ITS LEGAL STATUS

While the draft is not legally binding, it is closely aligned with existing laws such as the Anti-Unfair Competition Law (AUCL) and the Pharmaceutical Administration Law. These laws already impose binding legal obligations on companies, and the Draft Guide aims to offer specific compliance guidance to help companies meet these obligations.

Therefore, it should be seen as supplementary to existing legal requirements rather than just a voluntary code, unlike the Research and Development-based Pharmaceutical Association Committee Code (RDPAC Code of Conduct), which is industry-driven and voluntary. SAMR’s Draft Guide is government-endorsed, making it likely that enforcement bodies will refer to it during investigations and reviews.

KEY HIGHLIGHTS AND COMPARISON TO EXISTING PRACTICES

Risk-Based Classification System

• SAMR Draft Guide: The Draft Guide introduces a detailed classification system, categorizing business activities as “prohibited,” “restricted,” “suggested,” or “advocated,” and provides a clear framework for companies to identify and manage bribery risks. It emphasizes internal controls based on the company’s risk assessment.
• Existing Practice Comparison: The AUCL and other anti-bribery regulations provide general prohibitions against corrupt activities but lack this detailed categorization around the various activities in which healthcare companies routinely engage. The Draft Guide’s structured approach provides clearer compliance expectations, surpassing the general risk-based approach found in the RDPAC Code, which does not provide the same level of government-backed enforcement focus or support.

Prohibitions on Sales Personnel

• SAMR Draft Guide: Sales personnel are strictly prohibited from participating in academic visits to healthcare professionals (HCPs), a role that will now be limited to registered medical representatives or medical device promotion personnel. The Draft Guide further reiterates that sales tasks should not be imposed on medical representatives and medical device promotion personnel. This clear delineation represents a significant tightening of restrictions on sales activities promoting medical products.
• Existing Practice Comparison: Although similar prohibitions have appeared in administrative rules such as the Medical Representative Management Measures and local rules on the same topic, they were not widely enforced. The Draft Guide formalizes this prohibition, signaling a stronger regulatory priority, which is stricter than current common industry practices where sales personnel often participate in such visits.

Consulting Services and Outsourcing

• SAMR Draft Guide: The Draft Guide expressly prohibits companies from using consulting agreements with HCPs to disguise bribery. It prohibits offering financial incentives through consulting services to encourage the promotion or purchase of pharmaceutical products. The scope of “consulting services” in the draft extends to speaking events held by pharmaceutical companies. While the draft does not explicitly mandate consulting fees to be paid to hospitals rather than individuals, it focuses on preventing improper financial incentives and emphasizes transparency. Companies are expected to structure consulting agreements in a way that prevents even the appearance of impropriety, which could suggest that payments to hospitals may be more appropriate in certain contexts to avoid potential violations.
• Existing Practice Comparison: While consulting service-related risks have been recognized in previous SAMR enforcement precedents, SAMR’s Draft Guide brings more clarity and specificity, particularly in high-risk areas such as speaking services, clinical trials, and outsourcing services where disguised payments could be easily overlooked. In practice, some public hospitals in China do require that fees for HCP consulting services or academic engagements be paid directly to the hospital rather than to the individual HCPs. This aligns with public institution financial controls that ensure any payments are documented and subject to oversight.

Prohibited Activities in Medical Equipment Deployment

• SAMR Draft Guide: The Draft Guide prohibits using the free deployment of medical equipment as a way to secure future sales of consumables or related services. It explicitly bans the following:
  • Bundling equipment with consumables by setting minimum purchase amounts tied to equipment deployment
  • Circumventing public tender processes through equipment donations
• Existing Practice Comparison: While the AUCL, Administrative Rules on Public Welfare Donation Acceptance, and the Notice on Strengthening Enforcement on Unfair Competition Cases in the Pharmaceutical Sector issued by SAIC (the predecessor of SAMR) in 2017 already regulate improper bundling and circumventing tender processes, the Draft Guide adds specificity by targeting the common practice of offering free equipment to gain market advantage.

Clinical Research

• SAMR Draft Guide: The Draft Guide introduces stricter controls on clinical trials, prohibiting the establishment of false clinical projects or using improper incentives to manipulate research outcomes in favor of specific pharmaceutical products.
• Existing Practice Comparison: Building on existing legal principles under the Pharmaceutical Administration Law and regulations from the National Medical Products Administration (NMPA), the Draft Guide adds more explicit prohibitions on manipulating clinical research, particularly through third-party service providers.

Cooperation with SAMR Investigations

• SAMR Draft Guide: Companies are required to fully cooperate with SAMR investigations, and obstruction is defined by specific examples, such as delays caused by invoking business secrets, internal approval processes, or the absence of personnel. Notably, there is no clear threshold for when such reasons are deemed legitimate, giving SAMR broad discretion to characterize a delay as a lack of cooperation.
• Existing Practice Comparison: While the AUCL and other anti-bribery laws already require cooperation, the Draft Guide introduces more specific scenarios of obstruction, highlighting the risk of non-compliance even in situations where companies may be acting to protect their legitimate business interests.

Internal Investigations and Risk Management

• SAMR Draft Guide: For the first time, the SAMR has emphasized in the Draft Guide the importance of internal investigations in managing commercial bribery risks. Companies are expected to conduct thorough internal investigations, assess the level of risk, and take appropriate corrective actions. These actions may include holding individuals accountable, revising internal policies, and improving compliance systems to prevent future occurrences. The draft encourages companies to adopt a continuous compliance improvement process, aligning with global practices stressing internal accountability and risk management.
• Existing Practice Comparison: While Chinese laws such as the AUCL and Pharmaceutical Administration Law address commercial bribery risks in broad terms, they do not provide detailed guidance on internal investigations. SAMR’s Draft Guide adds clarity by encouraging a structured approach to internal investigations and corrective actions, which reflects global standards aimed at strengthening compliance programs.

Self-Reporting Mechanism

• SAMR Draft Guide: Companies may receive penalty reductions for voluntarily disclosing violations, and they are required to include findings from internal investigations as part of the disclosure. However, unlike the FCPA, the SAMR draft does not offer detailed thresholds for cooperation credits, leaving the level of leniency uncertain.
• Existing Practice Comparison: The FCPA provides more structured guidance for self-reporting and cooperation credits, whereas the Draft Guide provides only basic criteria. This uncertainty with respect to leniency may complicate self-reporting decisions for companies under SAMR’s jurisdiction. The requirement to disclose internal investigation findings during self-reporting, combined with the absence of attorney-client privilege protections in China, further complicates multinational companies’ self-reporting decisions, as sensitive internal findings may be exposed to regulatory scrutiny without the privilege protections afforded under US law.

Increased Documentation Requirements

• SAMR Draft Guide: Companies are required to maintain comprehensive documentation of financial transactions, internal approvals, and interactions with HCPs. This significantly increases the administrative burden, compared to previous regulatory expectations.
• Existing Practice Comparison: Current laws, such as the AUCL and Pharmaceutical Administration Law, require accurate recordkeeping but do not specify the level of detail now required under the Draft Guide, which may necessitate considerable upgrades to compliance systems.

Donations, Sponsorships, and Support

• SAMR Draft Guide: Companies are prohibited from using donations or sponsorships to gain competitive advantages. For example, companies are not permitted to tie donations of equipment to future purchases of consumables or influence hospital procurement decisions.
• Existing Practice Comparison: The AUCL and Administrative Rules on Public Welfare Donation Acceptance already prohibit these types of practices, but the Draft Guide provides more explicit examples and further refines what constitutes inappropriate influence through donations.

To help illustrate the guardrails and prohibitions in the Draft Guide, we compiled the attached bilingual chart of “9 Commercial Bribery Risk Scenarios” and “39 Risky Behaviors.” 

WHY THIS DRAFT GUIDE IS IMPORTANT

Although the Draft Guide is not legally binding, it is expected to significantly impact enforcement actions. Many of the general provisions under existing laws are now given more concrete examples and frameworks, making it essential for companies to align their compliance programs with these guidelines to avoid non-compliance under laws like the AUCL.

RECOMMENDED ACTIONS

Companies should:

• Thoroughly review the Draft Guide, with a focus on the provisions around sales personnel, medical equipment deployment, clinical trials, and documentation.
• Consult with outside counsel to assess how the draft compares with current compliance practices and identify potential risks.
• Prepare for the final version by reviewing and updating compliance programs to meet these new expectations, particularly in high-risk areas, such as sales interactions, clinical research, and documentation practices.