China’s healthcare compliance guidelines: insights and actionable steps for life sciences companies

Scope of the guidelines and supporting cases

The Guidelines identify nine high-risk areas: academic visits, business hospitality, consulting services (fee-for-service payments), outsourcing (service providers), discounts/rebates/commissions, donations/sponsorships/grants, free equipment, clinical research, and retail sales. These span the operational lifecycle of healthcare companies, from research to distribution. The Supporting Cases align these risks with practical scenarios, linking each case to articles in the Guidelines to clarify regulatory expectations.

Key bribery schemes

The Supporting Cases expose sophisticated bribery schemes masked as legitimate activities, with detailed examples:

• Collusion with Healthcare Professionals (HCPs): Companies exploit relationships with HCPs to drive sales. In Academic Visits (Case 1), Company A paid cash kickbacks via a medical representative to a hospital department director and head nurse, tied to prescription volumes of “Brand B” drugs, disguised as catering and travel reimbursements. In Academic Visits (Case 2), a medical device distributor repeatedly gave cash kickbacks to a nephrology director during the so-called academic visits to boost consumable sales.
• Misuse of Intermediaries: Third parties facilitate illicit payments. Outsourcing (Case 1) details Company A using shell companies, set up by employees’ relatives, to funnel “service fees” as bribes to hospital doctors. In Outsourcing (Case 2), a contract sales organization (“CSO”) paid cash bribes to doctors under a fake marketing contract, with no services rendered.
• Off-the-Books Payments: Secret transactions bypass controls. Discounts/Rebates/Commissions (Case 1) shows Companies A and B paying over CNY600,000 in cash kickbacks to a hospital director for balloon catheter prescriptions, offset via payment deductions. Retail Sales (Case 1) involves WeChat payments to pharmacy staff based on drug sales, logged as “promotion fees.”
• Donations and Equipment: Benefits are hidden as goodwill. In Donations/Sponsorships/Grants (Case 1), Company A channeled over CNY3 million to three HCPs through a foundation. Free Equipment (Case 1) reveals Company A providing free film printers to a hospital, contingent on monthly purchases of 1,000 film sheets, with ownership transferring after CNY500,000 in sales.
• Clinical Research Manipulation: Research is exploited for bribery. Clinical Research (Case 1) details Company A directing a contract research organization to pay cash and transfer 20% of an affiliate’s shares to a clinical trial director. In Clinical Research (Case 2), Company A paid over CNY200,000 in “consulting fees” for a fake research project, backed by fabricated documentation.

Industry challenges

Systemic issues complicate compliance:

• Complex Relationships: Retail Sales (Case 2) shows pharmacies paying doctors to steer prescriptions, leveraging prescriber-dispenser ties.
• Documentation Gaps: Fabricated records are prevalent. Consulting Services (Case 1) involves fake meeting materials to justify HCP payments for no services, while Clinical Research (Case 2) uses fabricated sign-in sheets and articles.
• Third-Party Oversight: Weak vetting enables abuse. Outsourcing (Case 1) highlights unmonitored shell companies, and Donations/Sponsorships/Grants (Case 1) shows misused foundations.

Compliance perceptions and gaps

Companies often assume contracts ensure compliance, but regulators prioritize substance over form. In Clinical Research (Case 2), “consulting fees” were paid under a fake project with fabricated evidence, exposing superficial compliance. Outsourcing (Case 2) similarly used a CSO contract to mask bribery, with no deliverables, emphasizing the need for service verification.

Key recommendations for industry participants

The Guidelines and Supporting Cases offer practical steps:

• Adopt Robust Anti-Bribery Policies: Ban improper incentives like sales-linked cash incentives (Academic Visits, Case 1) or excessive hospitality (Business Hospitality, Case 2), reinforced by training.
• Ensure Financial Transparency: Use bank transfers for HCP payments (Consulting Services, Case 1) and document discounts accurately (Discounts/Rebates/Commissions, Case 1). Misclassified expenses demand robust auditing.
• Conduct Thorough Third-Party Due Diligence: Verify third-party legitimacy (Outsourcing, Case 2) and links to employees/HCPs (Outsourcing, Case 1).
• Monitor High-Risk Activities: Harness data technologies to enhance risk monitoring and analysis.

Regulatory outlook and enforcement trends

The approach of the SAMR and Shanghai AMR, backed by the growing use of big data analytics across healthcare authorities and providers, signals escalating scrutiny. The Supporting Cases illustrate a wide spectrum of bribery tactics, from WeChat payments (Retail Sales, Case 1) to equity transfers (Clinical Research, Case 1), revealing regulators’ growing familiarity with sophisticated bribery schemes.  They are also a potential foreshadowing of enforcement priorities going forward.

Practical steps for compliance teams

Technology and complex structures demand adaptive compliance. Weak controls, unvetted third parties, or lax training risk penalties. To stay ahead, compliance, audit, and legal teams should:

• Enhance Training Programs: Deliver ongoing, role-specific training built around hypothetical scenarios derived from experience to maximize relevance and practical impact.
• Strengthen Risk Management: Use analytics to track interaction and payment patterns in real time, swiftly flagging irregularities that signal potential risk.
• Review Policies: Reevaluate internal protocols to detect and address risks such as bribes channeled through intermediaries or questionable donations.
• Audit Third-Party Relationships: Verify services and fair market value.
• Thoroughly Investigate Potential Misconduct: Establish transparent investigative protocols and actively assess the need to engage regulators.

For questions, contact Hogan Lovells’ compliance or regulatory teams.

Conclusion

The Guidelines and Supporting Cases better equip life sciences companies to tackle bribery risks in China’s evolving regulatory landscape. Robust controls, transparency, and proactive engagement are key to compliance success.

Authored by Calvin Ding, Tina Zhang, and Evelyn Ni.