Anti-Corruption Document on the Pharmaceutical Industry Officially Released!

On July 24, the National Healthcare Security Administration issued a notice titled “Guiding Opinions on Establishing a Credit Evaluation System for Pharmaceutical Prices and Procurement (Draft for Public Comments),” inviting public input. The public may submit comments and suggestions by July 31, 2020, either in writing or via email, to our Administration.

This draft for public comment also releases a catalog of items constituting breaches of trust in pharmaceutical pricing and procurement, covering seven types of conduct.

A catalog of breaches of trust in pharmaceutical pricing and procurement shall be established. The breaches included in the catalog shall encompass, but not be limited to, the provision of kickbacks or other improper benefits in pharmaceutical purchasing and sales (hereinafter referred to as “pharmaceutical commercial bribery”), abuse of a dominant market position, tax-related violations, unfair pricing practices, malicious breach of contractual obligations, and disruption of the centralized procurement order. Effective from the date of issuance of these Opinions, any pharmaceutical enterprise—including drug manufacturing license holders, manufacturers of drugs and medical consumables, distribution enterprises that have an agency relationship with manufacturers, and logistics/distribution enterprises (the same shall apply hereinafter)—that seeks improper gains through any of the breaches listed in the catalog during pricing, bidding, contract performance, marketing, and other related activities shall be subject to the credit evaluation system for pharmaceutical pricing and procurement.

The original text is as follows:

In accordance with the spirit of documents such as the “Opinions of the CPC Central Committee and the State Council on Deepening the Reform of the Medical Security System,” our bureau has conducted research and drafted the “Guiding Opinions on Establishing a Credit Evaluation System for Pharmaceutical Prices and Procurement (Draft for Comments),” which is now being made public for public consultation. Members of the public are invited to submit their comments and suggestions by July 31, 2020, either in writing or via email, to our bureau.

Email: yysmlc@nhsa.gov.cn

Mailing Address: No. 2-9, Yuetan North Street, Xicheng District, Beijing, Department of Pharmaceutical Pricing and Bidding Procurement, National Healthcare Security Administration, Postal Code: 100830

National Healthcare Security Administration

July 24, 2020

Guiding Opinions on Establishing a Credit Evaluation System for Pharmaceutical Pricing and Procurement

(Draft for Soliciting Comments)

To the Medical Security Bureaus of all provinces, autonomous regions, municipalities directly under the central government, and the Xinjiang Production and Construction Corps:

In the pharmaceutical sector, practices such as accepting kickbacks and engaging in monopolistic control over distribution have led to artificially inflated prices for drugs and medical consumables, excessively rapid growth in healthcare expenditures, and substantial losses of basic medical insurance funds. These practices seriously jeopardize the security of the medical insurance fund, infringe upon the interests of the public, and place an undue burden on individuals’ healthcare expenses. To implement the “Opinions of the CPC Central Committee and the State Council on Deepening the Reform of the Medical Security System” (Document No. 5 of the CPC Central Committee, 2020), improve the market-oriented mechanism for setting pharmaceutical prices, and establish a credit evaluation system for pharmaceutical pricing and procurement, the following opinions are hereby put forward.

I. Guiding Principles

Based on the civil rights and obligations arising from the centralized procurement of pharmaceuticals and medical consumables, and leveraging the pharmaceutical and medical consumable tendering and procurement platform, this system integrates mechanisms such as integrity commitments, credit rating, tiered handling, and credit restoration to establish a pharmaceutical pricing and procurement credit evaluation system characterized by balanced rights and responsibilities and coordinated interagency collaboration. This initiative aims to promote honesty and trustworthiness among all stakeholders, jointly foster a fair, standardized, clean, and upright circulation order and trading environment, effectively safeguard the interests of the public and the security of the basic medical insurance fund, and enhance the people’s sense of gain, happiness, and security.

II. Establishing a Catalogue of Credit Rating Items

A catalog of breaches of trust in pharmaceutical pricing and procurement shall be established. The breaches included in the catalog shall encompass, but not be limited to, the provision of kickbacks or other improper benefits in pharmaceutical purchasing and sales (hereinafter referred to as “pharmaceutical commercial bribery”), abuse of a dominant market position, tax-related violations, unfair pricing practices, malicious breach of contractual obligations, and disruption of the centralized procurement order. Effective from the date of issuance of these Opinions, any pharmaceutical enterprise—including drug manufacturing license holders, manufacturers of drugs and medical consumables, distribution enterprises that have an agency relationship with manufacturers, and logistics/distribution enterprises (the same shall apply hereinafter)—that seeks improper gains through any of the breaches listed in the catalog during pricing, bidding, contract performance, marketing, and other related processes shall be subject to the credit evaluation system for pharmaceutical pricing and procurement.

III. Implementation of the Pharmaceutical Enterprises’ Voluntary Commitment System

Pharmaceutical enterprises that participate in, or entrust others to participate in, centralized procurement of drugs and medical consumables, platform listing, or record-filing procurement conducted by designated medical institutions under the basic medical insurance system (hereinafter referred to as “medical institutions”) shall, as independent legal entities, submit a written commitment to the centralized procurement agency for drugs and medical consumables (hereinafter referred to as “the centralized procurement agency”). The commitment shall include establishing a compliance review system, ensuring no occurrence of untrustworthy conduct listed in the catalog, assuming corresponding liability for any untrustworthy conduct committed by their employees or by distribution enterprises with which they have an agency relationship on behalf of their own drugs or medical consumables, and accepting applicable restrictive measures.

IV. Establishing Channels for Reporting and Recording Dishonesty Information

Adopting a combined approach of enterprise reporting and platform record-keeping, information on pharmaceutical enterprises’ breaches of trust shall be collected in a timely, comprehensive, complete, and standardized manner, thereby establishing a database of such breaches in price-setting and procurement. Pharmaceutical enterprises shall proactively and promptly report any breaches of trust to the centralized procurement agency in the jurisdiction where the breach occurred. Under the cooperative framework established by the National Healthcare Security Administration and relevant departments, centralized procurement agencies shall regularly collate and compile publicly available judicial documents and administrative penalty decisions issued by the relevant authorities, verify and collect information on pharmaceutical enterprises’ breaches of trust, and record such information. In their day-to-day operations, centralized procurement agencies shall also monitor, issue official inquiries, conduct interviews, and handle complaints to identify and document breaches of trust by pharmaceutical enterprises in areas such as pricing, bidding, and contract performance.

V. Conducting Credit Ratings for Pharmaceutical Enterprises

Credit ratings shall be conducted in accordance with the principles of “reliable sources, clear criteria, rigorous procedures, and meticulous operations.” Based on factors such as the nature, circumstances, duration, and scope of impact of untrustworthy conduct, pharmaceutical enterprises’ breaches of trust in the local tendering and procurement market shall be classified into four levels: minor, moderate, serious, and particularly serious, with quarterly updates. For breaches of trust involving violations of laws and regulations, the factual basis for credit rating shall be determined by court judgments or administrative penalty decisions issued by law enforcement authorities. Local authorities are encouraged to explore quantitative scoring methods for credit rating, so as to enhance the standardization and regularization of the credit-rating process.

VI. Tiered Handling of Dishonest and Breaching Conduct

Centralized procurement agencies, based on the credit ratings of pharmaceutical enterprises, shall implement appropriate disciplinary measures, including written reminders and warnings, risk alerts to purchasers via the centralized procurement platform, suspension of bidding and online listing for relevant drugs or medical consumables, suspension of eligibility to supply and deliver winning bid drugs or medical consumables, and public disclosure of untrustworthy information, thereby ensuring that pharmaceutical enterprises are held accountable for breaches of trust and contractual obligations. Where the supply structure of the implicated drugs or medical consumables is highly concentrated and supply–demand conditions are tight, tiered disciplinary measures must also take accessibility into consideration.

VII. Encouraging Pharmaceutical Enterprises to Restore Their Credit Records

Establish mechanisms for the automatic and proactive restoration of credit for pharmaceutical enterprises. Where a breach of trust has been confirmed for a specified period, or where relevant judicial judgments or administrative penalty decisions have been legally revoked, the record of such conduct shall be retained but no longer factored into the credit rating. Prior to the implementation of any enforcement measures, pharmaceutical enterprises shall be duly notified, and, depending on the circumstances, afforded a reasonable period for appeal and corrective action. During this period, enterprises may supplement and rectify information, submit appeals and explanations, and apply for public hearings. Enterprises are also encouraged to take concrete, proactive steps to restore their credit, including ceasing the relevant untrustworthy conduct, submitting compliance remediation reports and undergoing compliance inspections, publicly issuing apology statements to mitigate adverse impacts, eliminating inflated pricing components in the prices of implicated drugs or medical consumables, and returning or donating improperly obtained profits to charitable causes.

VIII. Proper Application of Pharmaceutical Price and Procurement Credit Evaluation

Establishing a credit evaluation system for pharmaceutical pricing and procurement is a crucial measure for purifying the order of the pharmaceutical market, optimizing the business environment for the pharmaceutical industry, and promoting high-quality development of the sector. Local centralized procurement agencies that implement such a system shall be subject to the guidance and oversight of the medical security authorities, adhere to laws and regulations as the benchmark, be guided by market mechanisms, and take civil rights and obligations as the fundamental principle, thereby safeguarding the lawful rights of pharmaceutical enterprises to set prices and conduct business independently. Under no circumstances shall local protectionist measures or practices that undermine fair competition be adopted in the name of the pharmaceutical pricing and procurement credit evaluation system.

IX. Jointly Promoting the Development of a Credit Rating System

By the end of 2020, centralized procurement agencies across the country shall establish and implement a province-level credit evaluation system for pharmaceutical pricing and procurement, adhering to the principles of joint development, joint governance, and shared benefits. They shall encourage active participation from pharmaceutical companies and medical institutions, guide pharmaceutical firms to conscientiously comply with pricing regulations and conduct business with integrity, and direct medical institutions, under equivalent conditions, to give priority to pharmaceutical enterprises with higher credit ratings as suppliers or distributors. Centralized procurement agencies are also required to deepen standardization and regularization efforts, enhance tendering and procurement services, and make full use of information technology to provide convenient and efficient services and support for pharmaceutical companies in submitting commitments, recording information, and restoring credit.

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