Do You Really Know Your China Telemedicine Partners? China Anti-Corruption Effort Focuses on Major Medical Institutions

This post is the fourth in Foley’s blog series, “Realizing the Potential of Telemedicine in China,” meant to address top issues facing U.S. companies looking to enter the Chinese telemedicine market.

As U.S.-based health care providers look to China for new telemedicine opportunities, it is important to know your China partners before signing the contract. It is equally important take steps to ensure your own business development activities in China comply with both U.S. laws (such as the Foreign Corrupt Practices Act or FCPA) and China regulations (such as the “Nine Prohibitions”).

In February, the National Health and Family Planning Commission of the People’s Republic of China (NHFPC) released a “Work Plan on Inspection of Large Hospitals (2015-2017)” [大型医院巡查工作方案(2015-2017年度)].

U.S. health care providers are already familiar with the U.S. Department of Health and Human Services, Office of Inspector General’s (OIG) annual Work Plan, in which OIG sets forth the compliance and enforcement projects and priorities it intends to pursue in the coming year. The OIG’s Work Plan does not offer details on investigations and litigation involving specific hospitals and providers, but is instead an aspirational document in which many projects are carried over from year-to-year as priorities shift and projects planned in the beginning of the year are set aside. You can learn more by reading our annual coverage of the 2015 OIG Work Plan.

Unlike the U.S. OIG Work Plan, the NHFPC’s Work Plan contains much more specific detail, including the names of those China medical institutions that will be inspected for regulatory compliance. The NHFPC Work Plan arises from broader government efforts to curb corruption and other disruptive practices in China. The NHFPC Work Plan states that, in specific years during the 2015-2017 time frame, the more than 40 listed large medical institutions in China will be inspected by regulators. Although larger medical institutions are the focus of this particular inspection campaign, the NHFPC Work Plan is aimed at sending a broader message to institutions and businesses in the health care sector throughout China.

The key focus of the inspections will be China’s so-called “Nine Prohibitions.” They are:

1. Prohibition on linking a physician’s income to pharmaceutical/drug and examination income;
2. Prohibition on receiving commissions for pharmaceutical/drug and examination prescriptions;
3. Prohibition on charging patients for services and items which are not included in the institutions medical service items;
4. Prohibition on accepting “illegal” social donations;
5. Prohibition on participating in pharmaceutical/drug, food, and nutritional product promotion and “illegal” medical advertising;
6. Prohibition on providing pharmaceutical/drug and medical consumable statistics for commercial purposes;
7. Prohibition on “illegal” procurement of medical products;
8. Prohibition on acceptance of “kickbacks;” and
9. Prohibition on acceptance of “red envelopes” (cash gifts, such as at the Lunar New Year, are traditionally placed in red envelopes in China).

The inspections during 2015-2017 will focus on the following aspects in particular:

1. Anti-corruption;
2. General implementation of the “Nine Prohibitions;”
3. Hospital management; and
4. Hospital (and associated medical personnel) financial management.

Here are key aspects of China hospital implementation of the “Nine Prohibitions:”

1. Establishing a scientific medical-performance evaluation mechanism and an internal distribution and incentive mechanism;
2. Implementing a pricing publicity system and increasing cost transparency;
3. Drafting implementation rules on the management of social donations;
4. Requiring that medical advertisements comply with national law and specifying that the advertisement content must be authentic and reliable;
5. Strengthening the management of Chinese medicine and medical consumable materials use;
6. Establishing a formal sanctions/discipline system and strict implementation plan for corrupt activities, including receipt of kickbacks; and
7. Establishing a complete “red envelope disclosure” and “red envelope agreement” system.

Keep in mind, a China medical institution named in the NHFPC’s Work Plan does not necessarily indicate the NHFPC believes that medical institution has violated the “Nine Prohibitions” or is otherwise noncompliant with China regulations. That said, the issuance of the NHFPC Work Plan underscores China’s intensified vigilance in regulatory oversight in the health care sector. It similarly serves as renewed caution to U.S. medical institutions and business partners seeking to do business in China.

Like the “Nine Prohibitions,” the Foreign Corrupt Practices Act (FCPA)similarly prohibits providing anything of value to “foreign officials” – a category that includes most health care providers in China – in order to obtain or retain business. The takeaway: U.S. companies should maintain meaningful compliance programs to govern not only their domestic activities, but internationally as well, including provisions for adherence with the Foreign Corrupt Practices Act.

Without doubt, telemedicine continues to attract attention within China and from international partners, placing China squarely on track to become one of the largest telemedicine markets in the world. U.S. health care business have ample opportunities to partner with Chinese medical institutions, but should first learn how to conduct proper due diligence on potential China business partners. U.S. health care business should also take steps to ensure their business development activities in China comply with U.S. laws and China regulations.

Are you interested in learning more about telemedicine in China? Foley offers opportunities to get up to speed with the latest developments:

1. English Translations of China’s NHFPC Opinions (August 2014)

Foley’s Telemedicine and China Practices have completed English-language translations of two opinions issued in August 2014 by the NHFPC, available free for readers at Promotion of the Medical Institution Telemedicine Services.

2. China’s Plans for National Telemedicine Network (January 2015)

China issued a new document, outlining an ambitious plan to build a uniform national telemedicine service network in China.  The document, “Technical Guideline for Telemedicine Information System Construction (2014)” (Technical Guidance), is a visionary 200-page blueprint for the creation of an interoperable, uniform service network in China, designed to allow China patients and medical institutions to enjoy seamless telemedicine services anywhere in China.

3. Web Conference “Telemedicine: Doing Business in China”

Access a recording of Foley’s “Telemedicine: Doing Business in China” webinar, geared toward U.S. health care providers, start-ups, and manufacturers interested in entering the China market to sell telemedicine devices, software, or services.  A panel of industry speakers share their thoughts on the reasons why (and why not) entering the China telemedicine market makes business sense for U.S. companies.

4. Resources

For more information on telemedicine and China, including publications, presentations and other materials, visit www.foley.com/telemedicine.