In the past several years, sponsorships and donations to hospitals and medical associations have been the focus of anti-corruption enforcement in China, but the ambiguity of regulatory requirements has made effective compliance control very difficult for multinational pharmaceutical and device companies. On October 20, China’s National Health & Family Planning Commission (NHFPC) issued the Provisional Rules on Receiving Donations for Public Welfare by Healthcare Entities (2015 Donation Rules), which were actually passed on August 26 and became effective the same day. The 2015 Donation Rules supersede the Provisional Rules on Receiving Social Donations and Sponsorships by Healthcare Entities passed by the former Ministry of Health in 2007 (2007 Donation Rules) and are now China’s primary regulation in this high-risk compliance area.
The 2015 Donation Rules have 56 articles and set forth comprehensive requirements on key aspects of sponsorships and donations in the healthcare sector. Highlights are as follows (we have added * to requirements in the 2015 Donation Rules that are new or significantly different from the 2007 Donation Rules).
- Scope of “Donation”: Though the regulation, in its title and main body, uses the word “donation” across the board, it defines “donation” as “support and assistance in the form of funds, goods, etc. provided to healthcare entities voluntarily and not for return.” Therefore, in addition to charitable donations, some types of “sponsorships” and “grants” may be subject to this regulation as well, depending on their purpose and structure. It seems that “conference sponsorships” (such as payments for exhibition booths and satellite symposiums) are not governed by the regulation, but uncertainty still exists in this regard.
- Scope of “Healthcare Entities”: The regulation governs “healthcare entities” in China, which are defined as hospitals, and civil societies, foundations and other civil organizations supervised by NHFPC authorities at all levels. Therefore, medical associations and—to the extent supervised by NHFPC authorities—charitable foundations are subject to this regulation.
- Purpose of Donation: The regulation permits seven types of purposes for donations, the most important including (i) training of healthcare professionals, (ii) academic activities and scientific research in the healthcare area and (iii) infrastructure and equipment of healthcare entities. The significance of this article is that China’s anti-bribery enforcement agencies (the Administrations for Industry & Commerce, or AIC) usually view sponsorships and donations for these purposes as a disguised form of bribery because, in their opinion, healthcare entities should use their own funds—rather than sponsorships and donations from private companies—to conduct these activities. Therefore, this article may provide some justification for the bona fide purpose of these sponsorships and donations if donors face commercial bribery allegations.
- Prohibition:* Healthcare entities may not accept donations if any of 10 circumstances exist, most importantly when (i) the donation is connected with for-profit commercial activities, (ii) the donation appears to raise a suspicion of being commercial bribery, (iii) the donation is linked to procurement of services or goods, (iv) the donor has rights to economic interests, IPR, scientific research products or industry data or information and (v) the donation has a political purpose or other ideological inclination.
- Branch of Medical Associations:* It has been a longstanding practice that branches of medical associations receive sponsorships and donations from companies. The regulation confirms that this is allowed but only if the branch of a medical association receives an authorization from its parent association.
- Pre-acceptance Evaluation:* Healthcare entities are required to set up a pre-acceptance evaluation mechanism and conduct an evaluation for all donations, focusing on compliance with this new regulation’s various requirements.
- Written Agreement:* The regulation requires healthcare entities to enter into written agreements with donors and sets forth detailed requirements for the content of the agreements.
- Not Allowed to Designate Beneficiaries:* If a donation is to be used for training of healthcare professionals or for academic activities or scientific research, the donor is prohibited from designating individual beneficiaries of the donation.
- Received in the Name of the Healthcare Entities: The new regulation re-emphasizes the main theme of the 2007 Donation Rules—that all donations given to healthcare entities must be received in the name of those entities, and individual physicians or internal departments may not receive these donations in their personal names.
- Donation Receipt: Healthcare entities are required to issue formal receipts (the Receipt for Donation for Public Welfare) to the donor.
- Management Fee: Hospitals may not use part of the donation as a management fee or for salaries or stipends for their own personnel. Civil societies, such as medical associations, may do so only if allowed in the donation agreement.
- Surplus of Donation: If there is any surplus in the donation amount after completion of the donation project, healthcare entities should use such surplus in accordance with the donation agreement. If the agreement is silent on this, entities should find a solution with the donor.
- Transparency:* Healthcare entities should make publicly known, through their own portal websites or local media, key aspects of their use of donations, including their internal management system for donations, how they used the donation, their project audit reports and results of performance evaluations. The regulation further sets forth the timing for such publication, specifically annual publication by March 31 of each year and 30 working days after completion of the project audit report and performance evaluation.
- Feedback to Donors: After completion of a donation project, healthcare entities should provide feedback to the donor on how they managed and used the donation.
- Periodic Audit:* Healthcare authorities and healthcare entities should conduct periodic audits on healthcare entities’ use and management of donations, and healthcare entities should publish their audit results.
The 2015 Donation Rules, same as its 2007 predecessor regulation, are NHFPC’s “agency rules,” and therefore only healthcare entities have a legal obligation to comply, while pharmaceutical and medical device companies do not have to. However, the regulation provides valuable guidance on compliance control for sponsorship and donation programs, and pharmaceutical and medical device companies in China are strongly advised to comply with its substantive requirements, particularly for the purpose of mitigating commercial bribery enforcement risks. Our key observations are as follows.
First, the regulation endorses the bona fide purpose of sponsorships and donations in many circumstances, and companies may use this as indirect support if challenged by anti-bribery enforcement authorities.
Second, companies should systematically review their compliance control for sponsorship and donation programs so as to ensure compliance with the complex requirements of the regulation. For example, they should review and revise their sponsorship and donation agreements to ensure consistency with the regulation’s requirements. Also, they should pay attention to the prohibition on designating sponsorship and donation beneficiaries.
Third, disappointingly, the regulation does not provide an answer or any clarity as to sponsorships for which individual physicians are intended as sole beneficiaries (such as sponsorships for attending academic conferences)—that is, whether companies may provide these sponsorships directly to activity organizers and/or physicians or must route them through hospitals.
Fourth, as a result of the comprehensive transparency requirements, sponsorship and donation activities may invite closer public scrutiny and attract higher enforcement attention. Companies should ensure the full compliance of their sponsorship and donation programs to minimize public relationship and government enforcement risks.
Sidley Austin’s China Life Sciences Team is working on a full translation of the regulation. If you are interested in obtaining a copy, please contact Lei Li (email@example.com) or Chen Yang (firstname.lastname@example.org) at Sidley Austin’s Beijing office.
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