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Recent developments

On 20 October 2015, China’s national healthcare regulator, the National Health and Family Planning Commission (“NHFPC”), published the Administrative Measures on Accepting Donations for Public Welfare by Healthcare Entities (for Trial Implementation) (“New Donation Rules”). The New Donation Rules, which became effective from 26 August 2015, revise earlier rules1 on healthcare donations and provide an endorsement of their legitimate purposes. They also impose new requirements on the acceptance, utilization, and supervision of donations in the healthcare sector.

Implications for Healthcare Enterprises

The New Donation Rules apply to donations between foreign or domestic entities and individuals as donors, and healthcare and family planning entities (“Healthcare Entities”) as donees. The donees include healthcare institutions, social public welfare associations, foundations and other charitable social organizations, which are supervised by NHFPC and its local counterparts. While the New Donation Rules do not directly regulate donors such as pharmaceutical or medical device companies, they provide useful guidance for these companies to enhance compliance controls over sponsorship and donations to Healthcare Entities.

Highlights of the New Donation Rules

1. Scope of Donation

Donation is defined as “public welfare support and assistance in the form of funds or property” provided to Healthcare Entities “voluntarily and not for return”. Thus, in addition to charitable donations, sponsorship and grants can fall into this definition and be subject to the New Donation Rules. Comment: This definition of donation differs from the payments to conference organizers for marketing purposes (e.g., sponsorship in return for exhibition booths or speaker slots), which suggests that payments for marketing or promotional deliverables are excluded from the New Donation Rules. However, there are still uncertainties as to how the regulators will interpret this definition.

2. Purpose of Donation

The New Donation Rules endorse donations and sponsorship provided to Healthcare Entities for the following purposes: (i) training, academic activities or scientific research; (ii) reducing the expenses for medical treatment; (iii) public healthcare service and education; (iv) public infrastructure and equipment for Healthcare Entities; and (v) other non-for-profit activities. The New Donation Rules do not explicitly prohibit conference sponsorship provided to healthcare professionals (“HCPs”) individually. However, they reiterate that all donations given to Healthcare Entities must be received in the name of those entities, and individual HCPs or internal departments may not receive these donations in their own names. Further, the rules clarify that if a donation is to be used for training, academic or research purposes, the donor is not allowed to designate individual beneficiaries for the donation. Comment: The new rules helpfully clarify which purposes are legitimate. We consider that the endorsement of specific purposes support arguments on the legality of a donation in relation to research or training grants when faced with commercial bribery allegations.

3. Restrictions on Donation and Pre-acceptance Evaluation

The New Donation Rules prohibit the donation if it: (i) is connected with commercial activities; (ii) appears to raise a suspicion of being unfair competition and commercial bribery; (iii) is linked with procurement of services or goods; (iv) is attached with rights and claims for economic interests, intellectual property rights, scientific research results or industry data or information; (v) includes materials that are not compliant with national standards and requirements for quality and environmental protection; (vi) has a political purpose or other ideological inclination; (vii) harms public interests and other citizens’ legitimate rights and interests; (viii) involves any solicitation, imposed charges or disguised imposed charges; or (ix) causes any conflict of interest issue for supervision and enforcement work of the donee. As one of the key implementing measures, the New Donation Rules require Healthcare Entities to adopt a Pre-acceptance Evaluation process to ensure the acceptance of donations comply with the above-mentioned restrictions. If necessary, a third-party agency or the regulator can be invited to participate in the evaluation. Other important restrictions introduced by the New Donation Rules include: (i) Donors are in principle required to remit cash donations through bank transfer; and (ii) Healthcare Entities are prohibited from charging a management fee from donations for their staff’s salaries and welfare, except that non-profit making organizations or non-enterprise entities may do so in accordance with explicit arrangements in the donation agreement.

4. Transparency and Audit

The New Donation Rules require Healthcare Entities to publicize their policies and procedures on accepting donations, as well as the information on the donations (e.g., the donated fund or property, the utilization of the donations, the audit reports and the evaluation results of the donation project). Such information can be published on the Healthcare Entities’ own websites or through the local news media. The NHFPC and its local counterparts are encouraged to set up a unified information sharing platform to publish the information on donations. In addition, the NHFPC and other relevant authorities are entitled to conduct periodic audits on the donations and publicize the audit results as appropriate. Comment: The increased transparency and monitoring required of the Healthcare Entities is a welcome development and will enhance compliance initiatives across the healthcare sector.

Actions to consider

We recommend that companies in the healthcare sector, including pharmaceutical and medical device companies, review and improve their compliance controls and governance over donations and sponsorships by focusing on the following aspects:

  1. Ensure that the purpose of the donation is proper and legitimate.
  2. Avoid designating individual beneficiaries for donations.
  3. Remit legitimate cash donations by bank transfer.
  4. Review and update corporate policies on donations as well as the donation agreement template, if any, to address the new requirements.

Conclusion

It is important for companies in the healthcare sector to stay alert to legislative and industry developments in China. The Chinese anti-bribery landscape is rapidly changing with greater scrutiny on the healthcare industry. The New Donation Rules demonstrate the PRC government’s continued determination to strengthen its anti-corruption campaign in the healthcare sector. Our team frequently engages with Chinese regulators and have strong experience in conducting investigations, risk assessments and setting up compliance programs in China. We would be happy to provide more insights on this topic upon your request. 1 Interim Measures for the Administration of the Acceptance of Social Donations and Financial Aids by Medical and Healthcare Institutions, issued by the Ministry of Health and the State Administration of Traditional Chinese Medicine, effective from 6 April 2007.

Author

Mini vandePol was appointed as the Chair of Baker McKenzie's Global Compliance & Investigations Group on 1 September 2014, after successfully completing five years as the Asia Pacific Regional Chair of the Dispute Resolution Practice Group. In this role, she leads a global team of more than 900 compliance and investigations practitioners in Asia Pacific, EMEA, Latin America and North America. Ms. vandePol's work engagements focus on anti-bribery and corruption investigations and risk management and mitigation in China, India and other parts of Asia in a variety of industries. Ms. vandePol and her team are responsible for the Global Overview of Anti-Bribery Laws (2nd Edition 2016) and is the editor of the very popular Global Attorney-Client Privilege Handbook (2nd edition 2014). She has written a number of articles in journals and other publications both in Australia, India and elsewhere in Asia Pacific on topics ranging from corporate compliance investigations and enforcement, fraud risk, international trade and sanctions compliance, and ethical business practices. She is also a highly sought after media spokesperson and has made several appearances in business media in Hong Kong, India, Australia and the US.

Author

Simon Hui is a partner and leads Baker McKenzie’s Dispute Resolution Group in Shanghai. Mr. Hui is ranked among the leading lawyers for dispute resolution/regulatory and compliance in China by Chambers Asia Pacific, Chambers Global and Legal 500 Asia Pacific. He has conducted complex internal investigations for a large number of multinational companies across a range of industries. He is also a skilled investigator and has experience in dealing with PRC government authorities and regulators such as PSB, SAMR, NSB and SPP. He has been interviewed by leading business media, such as the Financial Times, for his work on assisting the SOE in the establishment of compliance system as the country pushes for its SOEs to participate in the Belt & Road Initiatives.

Author

Vivian Wu is a partner in Baker McKenzie's Beijing office, advising US and European corporations on regulatory, compliance and FCPA-related matters in China. Ms. Wu worked at our Washington D.C. office in 2014, graduated from Harvard Law School, and is admitted to practice in New York and China.

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