The China Health Care Regulatory and Compliance Landscape David J.D. Dai, Partner, MWE China Law Offices John Z.L. Huang, Managing Partner, MWE China Law Offices John C. Kocoras, Partner, McDermott Will & Emery LLP Leon C.G. Liu, Partner, MWE China Law Offices Moderator: Dale Van Demark, McDermott Will & Emery LLP January 21, 2015 www.mwe.com Boston Brussels Chicago Düsseldorf Frankfurt Houston London Los Angeles Miami Milan Munich New York Orange County Paris Rome Seoul Silicon Valley Washington, D.C. Strategic alliance with MWE China Law Offices (Shanghai) 2015 McDermott Will & Emery. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery AARPI, McDermott Will & Emery Belgium LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. McDermott has a strategic alliance with MWE China Law Offices, a separate law firm. This communication may be considered attorney advertising. Prior results do not guarantee a similar outcome.
Regulatory Framework for China Healthcare Service: Overview Physician Services Licensure Immigration Telemedicine Hospital Licensure and Permit Reimbursement 2
Regulatory Framework for China Healthcare Service: Physicians Services All physicians must pass professional examination to obtain physician qualification; Qualified physicians must register with local authorities to obtain practice license through their employers (e.g. hospitals); Multi-site practice by physicians were recently permitted but faced with challenges; Foreign licensed physician may apply for short-term practice license in China; Telemedicine may be carried out by the licensed physicians in the name of their employers. 3
Regulatory Framework for China Healthcare Service: Hospital Licensure Extended approval process to establish a foreign invested hospital and obtain medical institute s practice permit in China Foreign wholly-owned hospitals are allowed in select designated regions on a pilot basis Permit to purchase and use big-ticket medical device Pricing of medical service and drugs Access to the basic medical insurance program Practice license maintenance and renewal 4
Regulatory Framework for China Healthcare Service: Reimbursement Brief introduction about the China universal basic medical insurance system; Statutory conditions for participating in the universal basic medical insurance system; Implications for foreign invested hospitals to obtain access to the above basic insurance system. 5
Anticorruption Considerations: U.S. Law The FCPA seeks to eliminate payment of bribes to foreign officials by: Prohibiting corrupt payments to foreign officials; Requiring publicly-traded companies to maintain accurate books and records and; Requiring publicly-traded companies to have effective internal controls. 6 6
Anticorruption Considerations: U.S. Law The FCPA s anti-bribery provisions apply to: U.S. public and private companies The accounting provisions apply only to companies whose securities are listed in the U.S. U.S. citizens Foreign or consolidated subsidiaries of U.S. public companies Any persons acting in the U.S. 7 7
Anticorruption Considerations: U.S. Law The FCPA prohibits: Corruptly making an offer, payment, promise to pay, or authorization of payment of any money, or offer, gift, promise to give, or authorization of giving of anything of value to any person; While knowing that all or a portion of such money or thing will be offered, given or promised, directly or indirectly, to any foreign official. Influencing any act or decision of such foreign official, securing an improper advantage, or inducing such foreign official to assist in obtaining or retaining business. 8 8
Anticorruption Considerations: U.S. Law The FCPA prohibits (cont): Prohibits corrupt payments, whether or not they resulted in any actual business Includes charitable or political contributions Includes improper payments or gifts given directly to foreign officials, or indirectly through use of agents, consultants or other third parties Includes improper travel or entertainment 9 9
Anticorruption Considerations: U.S. Law A foreign official is any officer or employee of a foreign government or any department, agency, or instrumentality thereof. An instrumentality under the FCPA is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. U.S. v. Esquenazi, No. 11-15331, (11th Cir. May 16, 2014) 10
Anticorruption Considerations: U.S. Law [C]onsider the possible range of foreign officials who are covered by the FCPA: Some are obvious, like health ministry and customs officials of other countries. But some others may not be, such as the doctors, pharmacists, lab technicians and other health professionals who are employed by state-owned facilities. 11
Anticorruption Considerations: U.S. Law [T]he types of corrupt payments that violate the FCPA... are not any different than the items of value that would violate the Anti-Kickback Statute if given within the United States cash, gifts, charitable donations, travel, meals, entertainment, grants, speaking fees, honoraria, and consultant arrangements, to name a few. 12
China Environment Healthcare Reform Essential for China s Economic Prospects $138 billion healthcare reform plan (2009) 12th Five-Year Plan (2011) Major goals: reduce the costs of essential drugs and provide affordable healthcare for the entire population by 2020 13
China Environment Corruption in the Healthcare System Prevalent in China Pay for access Perfect Storm Crackdown Chinese medical professionals and hospital employees have been targeted Unlike other periodic crackdowns, foreign companies have been swept up 14
Anticorruption Considerations: China Law Laws and policies Criminal Law Regulation on the Punishment of Civil Servants of Administrative Organs Anti-Money Laundering Law The Nine Prohibitions (No. 49, effective December 26, 2013), issued by China's National Health and Family Planning Commission (NHFPC): Seek to emphasize the importance of compliance with anticorruption rules to all hospitals and physicians. Apply to all practitioners of Traditional Chinese Medicine as well. 15
Anticorruption Considerations: China Law Laws and policies The Nine Prohibitions: No illegal payment from drugs sale or provisions of clinical services; No referral of patients to other institutions; No charge of illegal fees; No acceptance of improper donations; No participation in promotional activities or illegal health care advertisements; No collection of data for commercial purposes; No unauthorized private purchase or use of medical products; No acceptance of kickbacks; No acceptance of red envelopes from patients. 16
Anticorruption Considerations: China Law Laws and policies The Commercial Bribery Blacklist for the Purchase and Sale of Medicines (NO. 50, effective March 1, 2014), issued by NHFPC, establishes a "blacklist" system on pharmaceutical and medical device providers. The Blacklist regulates the conduct of: All pharmaceutical companies and their employees in China All medical device companies and their employees in China 17
Anticorruption Considerations: China Law Laws and policies The Blacklist includes: Engaging in a crime of bribery; Investigation and penalization by Party disciplinary authorities based on the charge of bribery; Penalization by a local finance bureau, administration for industry and commerce (AIC) or food and drug administration (FDA) based on the charge of bribery. 18
Anticorruption Considerations: China Law Aggressive Enforcement GlaxoSmith Kline, September 2014 $488.5 million fine (5) individuals pled guilty Suspended sentences of 2-3 years imprisonment Sanofi-Aventis, August 2013 (79) domestic hospitals and 503 doctors involved $280,000 bribes The second Western pharma company to be accused of bribery in China Investigations surrounding AstraZeneca, Pfizer, Bayer, Novartis, Novo Nordisk, UCB, and Roche in July, 2013 19 19
Other Compliance Considerations: China Law Anti-Monopoly Anti-Monopoly Law Anti-Unfair Competition Law The Plan for Medicines Pricing Reform to Relax Restrictions on Medicines Price (Consultation Paper) China accelerated Medicines pricing reform in 2014 The government-guided pricing and government-fixed pricing system in medicines might be abolished Price of Medicines will be determined by competition 20
Other Compliance Considerations: China Law Anti-Monopoly Anti-dumping Investigation Against Imports of Hemodialysis in 2014 Foreign firms dominate China's dialysis market Public hospitals prefer imported dialysis devices First anti-dumping investigation regarding predatory pricing of medical devices in China Surveys of production costs and prices in 2013 Charged at over 60 foreign and local drug companies in China Led by The National Development and Reform Commission (NDRC) 21
Other Compliance Consideration: China Law Data Privacy & Data Security Amendment Ⅶ to Criminal Law: Article 253 prohibits Sell or illegally provide citizens personal information obtained during medical services Illegally obtain the above information by theft or through other means Tort Liability Law: Article 62 Medical institutions and their medical personnel shall ensure the privacy and confidentiality of their patients Shall bear tort liability if divulging patients privacy or medical records without the patients consent and cause damages 22
Other Compliance Consideration: China Law Data Privacy & Data Security Medical Records Management Regulations: Article 15 of Chapter IV Any other institutions and individuals shall not read patients records. The official enforcements should also be noted: Ministry of Health states: Classification protection system for data security becomes the assessment basis for class III hospitals. 23
Other Compliance Consideration: China Law Data Privacy & Data Security Administrative Measures for Population Health Information (for Trial Implementation) 2014, the most comprehensive regulations Storage Management: Three database and Four levels platforms; Neither store population health information in overseas servers, nor host or rent overseas servers. Real name identification and authorization when setting-up, modification or query; No organization or individual may copy, modify or delete without authorization. 24
Other Compliance Consideration: China Law Defrauding Medicare Funds & Referral Fee Criminal Law Crime of Corruption Crime of Acceptance of Bribes Contract Fraud Administrative Laws and Regulations: Revocation of medical license 25
Other Compliance Consideration: China Law Defrauding Medicare Funds Corruption Scandal in Yibin, Sichuan Province, 2014 Forgery of medical records and hospital expenses Wei Li, Director of Shahe Medicare Center, convicted of crime of corruption Referral Fee Corruption Scandal in Shanxi Second Hospital Affiliated to Shanxi TCM University, 2014 10% of charges as Referral Fee Directors of TCM Hospital of Liquan, Shanxi, convicted of crime of corruption 26
Compliance Solutions Policies, communication, training Risk assessment Pre-acquisition and JV anticorruption diligence Build data security system 27 27
Compliance Solutions Screening third-party agents Effective controls, particularly for expenses and vendor payments Anticorruption representations and warranties 28 28
Global Standards Parallel international legislation includes: U.K. Bribery Act broader than the FCPA European Union s Convention on the Protection of European Communities Financial Interests Organization of American States Inter-American Convention Against Corruption African Union s Convention on Preventing and Combating Corruption Russia s Federal Law dated May 4, 2011, Improvement of Government Administration in the Area of Fighting Corruption www.mwe.com 29 29
Speaker Biographies WEBCAST SERIES Opportunities in the China Health Care Market 30
Speaker Biography: Dale Van Demark Dale C. Van Demark is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm s Washington, D.C., office. He focuses his practice on a broad array of merger, acquisition, investment, and strategic structuring transactions, with clients in the health industry. He has extensive experience in health system affiliation and restructuring transactions and regularly represents for-profit and tax-exempt clients in a variety of transactions, including strategic transactions with physicians and hospitals. He regularly advises clients regarding the opportunities and challenges that exist as the result of the passage of the Patient Protection and Affordable Care Act (PPACA) and the continuing trend toward greater collaboration among providers, including hospitals, community health centers and physicians. Partner McDermott Will & Emery LLP T: +1 202 756 8177 E: dcvandemark@mwe.com Dale also provides tax-exempt counseling to both tax-exempt organizations and those seeking business relationships with tax-exempt organizations. He regularly advises clients on matters related to taxexemption qualification and compliance, including issues related to private inurement, intermediate sanctions, joint ventures and governance. More recently, he has been counseling clients on exemption requirements in the context of the new accountable care dynamic brought about in part with the passage the PPACA. Dale has been at the forefront of advising clients with respect to the globalization of the U.S. health care industry. He advises foreign and domestic enterprises with respect to the formation of medical centers in developing countries, international patient programs, telemedicine and the many issues associated with the delivery of health care over national borders. WEBCAST SERIES Opportunities in the China Health Care Market 31
Speaker Biography: David J.D. Dai David J.D. Dai is a partner of MWE China Law Offices based in Shanghai. Before joining MWE China, David was the head of the international practice team in a reputable Chinese law firm in Southern China. With more than 10 years of post qualification experience, David has represented various European and American clients in their direct investments in China in a wide range of industries and areas from manufacturing, infrastructure and energy to chemical and agriculture, including the establishment of foreigninvested enterprises in China, venture capital investment, leveraged buyouts, strategic alliances and other merger and acquisition activities. Partner MWE China Law Offices T: +86 21 6105 0517 E: ddai@mwechinalaw.com In addition, David has a special interest in international commercial arbitration and has represented various clients in arbitrations at the International Chamber of Commerce International Arbitration Court, Singapore International Arbitration Center, Hong Kong International Arbitration Center, China International Economic and Trade Arbitration Commission and other local Chinese arbitration commissions. WEBCAST SERIES Opportunities in the China Health Care Market 32
Speaker Biography: John C. Kocoras John C. Kocoras, a partner in the White Collar & Securities Defense practice group, defends companies and individuals in criminal and regulatory investigations, leads sensitive internal investigations, assists clients with global FCPA compliance and represents parties in complex commercial litigation. John s investigation and compliance practice developed, in part, from his experience as Managing Director and Regional Counsel at the global investigations company Kroll, where he supervised investigators, forensic accountants and computer forensics professionals regarding anticorruption matters and other international investigations. Partner McDermott Will & Emery LLP T: +1 312 984 7688 E: jkocoras.com John also served for over five years as an Assistant United States Attorney in the Northern District of Illinois, where he prosecuted criminal cases, including white-collar and violent crimes, healthcare fraud, public corruption and national security matters. Awards that John has received for his public service include the National Health Care Anti-Fraud Association s Investigation of the Year Award; the President s Council for Integrity & Efficiency s Award for Excellence; and the U.S. Department of Health & Human Services Inspector General s Integrity Award. WEBCAST SERIES Opportunities in the China Health Care Market 33
Speaker Biography: John Z.L. Huang John Z.L. Huang is a founding partner of MWE China Law Offices (MWE China) and serves as its managing partner. John focuses on creating practical comprehensive solutions for a diverse array of multinational corporate clients. Providing legal counsel in China for over 20 years, he has handled numerous landmark cross-border transactions and disputes for both Fortune 500 companies and well-known Chinese enterprises. Managing Partner MWE China Law Offices T: +86 21 6105 0588 E: johnhuang@mwechinalaw.com As the Chinese regulatory environment has evolved, John has also acquired expertise in liaising with authorities at all levels of government. Whether related to tax, employment, foreign exchange, or antitrust issues, John has led multi-disciplinary international teams in proposing, negotiating, and achieving solutions for companies doing business within China. In recognition of his experience in intellectual property (IP) law, John was recently appointed by the newly established Shanghai Intellectual Property Arbitration Court as one of its arbitrators. WEBCAST SERIES Opportunities in the China Health Care Market 34
Speaker Biography: Leon C.G. Liu Leon C.G. Liu is a partner of MWE China Law Offices based in Shanghai. Leon focuses his practice on the areas of dispute resolution and regulatory compliance. Prior to joining the Firm and achieving his second law degree in the U.K., Leon was a prosecutor in Nantong City, Jiangsu Province. Leon has extensive experience working closely with foreign investment companies, multinational companies and overseas lawyers in litigation and international arbitration, particularly with legal matters in relation to intellectual property rights. Partner MWE China Law Offices T: +86 21 6105 0533 E: lliu@mwechinalaw.com Leon also advises clients on cross-border licensing structures, intellectual property litigation and intellectual property compliance issues under the laws and regulations of China. Leon is experienced with protecting clients intellectual property rights including trademarks, copyrights, patents, and trade secrets by litigious, arbitral and administrative means. In the area of regulatory compliance, Leon has provided legal services to clients on internal and external crisis management, white-collar crime, FCPA issues, and antitrust compliance. As a seasoned practitioner of the laws and regulations of China, Leon is able to leverage his strong understanding of both Eastern and Western cultures to assist many clients through the legal maze of China. WEBCAST SERIES Opportunities in the China Health Care Market 35