04 November, 2015
In a further bid to curb corruption in the medical sector, China’s National Health & Family Planning Commission (NHFPC) has issued revised rules governing the giving and receiving of donations, sponsorships and other benefits to “healthcare entities” in China.
The Provisional Rules on Receiving Donations for Public Welfare by Healthcare Entities 2015 (2015 Rules) apply with immediate effect and largely govern the procedure for acceptance, receipt and publication of donations by healthcare entities. Both domestic and foreign companies and individuals should take heed of the provisions when considering donations or gifts to any state-run hospital or public welfare organisation in China. The 2015 Rules contain a framework around which the provision of donations will be assessed.
“Donations”
Under the 2015 Rules, donations are described as including “…public welfare support in the form of funds, materials, etc…”). Non-tangible benefits such as event sponsorship, training and hospitality aimed at influencing medical institutions and professionals are therefore likely included. The provision of such benefits has been a focus of China’s anti-corruption campaign for several years, notably when provided to healthcare officials by pharmaceutical companies in exchange for the practitioner or healthcare entity in question recommending or prescribing the company’s products. The 2015 Rules specify that donations made for training and education of healthcare professionals, academic activities and research should not appoint a “receiving entity” as the beneficiary. This signals a shift away from donor influence over the manner in which such benefits are deployed.
Prohibited purposes
Healthcare entities may not accept donations which (among other things):
- do not comply with any law or regulation;
- involve suspected unfair competition and commercial bribery;
- are linked to the procurement of goods or services for the organisation;
- have incidental economic benefits or a political purpose; or
- include any demand or (disguised) charges.
- Procedure for dealing with donations by healthcare entities
Healthcare entities must appoint a leading function (“donation management department”) responsible for co-ordinating and managing donations and only this function may handle and approve the donation. This is intended to root out casual direct offers to individual healthcare professionals and prevent such practices passing ‘under the radar’. All donations should therefore now be centrally managed by the healthcare entity and be evaluated by its donation management department according to specific criteria. Issues such as the relationship between the donor and donee, and whether the donation involves any for-profit commercial activities, must be assessed, alongside the prohibited purposes listed above.
Donation agreement
Decisions should be communicated to the donee in writing and, if accepted, an official written donation agreement should be entered into. The 2015 Rules contain details on what that agreement should include. In addition, an official receipt should be provided to the donor, creating a formal paper trail.
All cash donations must be transferred to the healthcare entity’s bank account. All non-cash donations are encouraged to be subject to a third party review for validity.
Internal controls and public transparency
Under the 2015 Rules, the finance department within a healthcare entity is required to develop and maintain a system for donated property and is expected to exclusively manage donations, and verify whether they are used in accordance with the donation agreement. Specific provision for donated funds should be included in each healthcare entity’s annual accounts. Additionally, an “information disclosure mechanism” is required such that all aspects of donations to healthcare entities are publicly available, transparent and easy to access. This encompasses all information about specific donations, the rules and procedures managing them, and information about the management department.
Finally, the 2015 Rules require healthcare entities to conduct regular internal inspections and audits of their management of donation activities, and provide feedback to donors on the use to which donations have been put.
Sanctions
Violations by healthcare entities require immediate rectification under the 2015 Rules, failing which, after consultation with the donor, government officials may assign the donated property to another public welfare social group or institution. Sanctions for breach may also be imposed on the healthcare entity and “responsible persons” in accordance with applicable laws. If criminal activity is suspected, this will be separately investigated by the authorities.
Commercial impact
The effectiveness of the 2015 Rules will be followed with interest. It will inevitably take some time for the new procedures to bed down and issues to materialise. How breaches are escalated and enforced may be challenging as a combination of self-reporting and external oversight appears to be required.
But the practical impact is clear: both healthcare entities and companies and individuals who support them should apprise themselves of the 2015 Rules, taking particular care to ensure that donations are transparent, centrally managed and objectively used.
The 2015 Rules are assessable here in Chinese, and here in English.
For further information, please contact:
Kyle Wombolt, Partner, Herbert Smith Freehills
kyle.wombolt@hsf.com
