Legal compliance is relevant in all sectors, but even more so in specific sectors such as pharmaceuticals
A North American, Latin American European and Asian view of the importance of elaborating and implementing compliance programs that evaluate legal risks and introduce measures, independent working units and procedures to avoid corrupt practices and other corporate crimes.
Compliance programs can be essential in preventing pharmaceutical companies from paying millions in fines and protect directors and executives from possible personal liability issues. A reinforcement and refining of the legal structures of compliance programs is foreseeable worldwide, although companies will need to focus on the local regulations and the differences amongst nations’ understanding of compliance when designing its program.
A reinforcement and refining of the legal structures of compliance programs is foreseeable worldwide, although companies will need to focus on the local regulations and the differences amongst nations’ understanding of compliance when designing its program.
Companies will need to focus on the local regulations and the differences amongst nations’ understanding of compliance when designing its program.
It is important to note that the activities of the pharmaceutical industry have a direct effect on public health and this translates into a stricter interpretation of the law, as well as an increased monitoring and harsher punitive measures when the rules of compliance are not satisfied
Compliance in the pharmaceutical sector. A worldwide perspective
Recently, one of the most discussed topics within the Spanish legal sector has been compliance. This term, which originates from the Anglo-Saxon corporate sphere, refers to the set of procedures and good practices undertaken by a company in order to identify and classify potential operative and legal risks, as well as the implemented internal mechanisms of prevention, management, and reaction to those risks.
Refers to the set of procedures and good practices undertaken by a company in order to identify and classify potential operative and legal risks, as well as the implemented internal mechanisms of prevention, management, and reaction to those risks
While compliance programs may be relevant to all industries, it acquires a growing importance in certain specific sectors, especially those that need to abide by stricter regulations and with an important local focus, such as the pharmaceutical sector. Therefore, pharma companies must ensure not only that they possess the proper compliance and monitoring programs to comply with the regulations, but also that these programs have been adapted to the legal requirements of every region where the company may operate and that they are permanently and continuously updated. It is important to note that the activities of the pharmaceutical industry have a direct effect on public health and this translates into a stricter interpretation of the law, as well as an increased monitoring and harsher punitive measures when the rules of compliance are not satisfied.
Therefore, pharma companies must ensure not only that they possess the proper compliance and monitoring programs to comply with the regulations, but also that these programs have been adapted to the legal requirements of every region where the company may operate and that they are permanently and continuously updated.
Due to the higher risks associated with the pharmaceutical sector, another important factor to consider is the continuous interaction between pharmaceutical companies and healthcare professionals and other public officials. Indeed, since both the government and the public administration have a key role in passing decisions that affect pharmaceutical companies, the interaction with their members becomes unavoidable. Moreover, healthcare professionals, who are in constant contact with pharmaceutical companies, may also hold status as a public official in many countries.
While the high risk that characterises the pharmaceutical sector should be enough to convince companies of the need to have a global and comprehensive compliance program (covering compliance to both deontological sectorial Codes and Criminal Codes), the consequences of lacking such a program, or even a deficient one, may pressure companies to adhere to an extensive compliance standard. Hence, in the recent years many pharmaceutical companies have been fined. By way of example, in 2012 GlaxoSmithKline suffered the largest corporate fine ever in China for using a network of travel agencies to channel around $489 million in bribes to public officials.
However, consequences of non-compliance are not limited to fines. In such cases, pharmaceutical companies usually settle, having to plead guilty to the charges they are accused of and to pay astronomical amounts as part of such settlement. Charges usually include medical programmes fraud, off-label promotion and inadequate manufacturing practices. By way of example, Johnson & Johnson in 2013 and GlaxoSmithKline in 2012 both settled with the United States Department of Justice for 2.2 and 3 billion dollars respectively and plead guilty to off-label promotion and kickbacks paid to doctors and pharmacists.
Reputational damages, which may have a more or less immediate effect are often much more relevant that the purely financial consequences of the infringement. Indeed, the publicity attached to the breach may have direct consequences in the stock market, as dramatically seen in the Facebook case.
The impossibility to contract or terminate existing licensing agreements is another clear and straightforward risk: no company wishes to have its own reputation exposed by having commercial links with an unethical company; again, the loss of these contracts may have a substantially higher impact than the fine.
Finally, the reputation of pharmaceutical companies is of paramount importance when negotiating with the health administration. Market access, crisis management in the event of shortages or defects, and official correspondence affecting company products are only three examples of when the reputation of image makes all the difference. The ethical company is likely to obtain a more adequate price or be held to less stringent measures by the authorities.
Therefore, implementing proper compliance is not a recommendation, but rather a legal and ethical obligation for pharmaceutical companies in order to have a direct impact on their business. However, it must be taken into account that, while compliance is a global phenomenon, what compliance implies is how it is regulated, and the consequences of non-compliance may vary substantially from one region to the other. Therefore, we will subsequently analyse the state of compliance within the pharmaceutical sector in three different regions: Europe, North America, Latin America and Asia.
Regarding the current situation of compliance within the pharmaceutical sector in Europe, we begin by highlighting that we are analysing a set of different countries, all of which have their own legal regulations and deontological codes, which result in varying pharmaceutical regulations and diverse attitudes towards compliance from one country to another.
In spite of this, pharmaceutical companies have made a substantial effort in order to harmonize good practices across Europe and self-regulate the framework governing interactions between the pharmaceutical companies and other agents, let it be healthcare professionals, healthcare organisations, patient organizations, public officials or the general public. As a result, the European Federation of Pharmaceutical Industries and Associations (EFPIA), which represents the research-based pharmaceutical industry operating in Europe, has approved three deontological codes: the Code of Practice on Relationships between the Pharmaceutical Industry and Patient Organizations; the Code on Disclosure of Transfers of Value from Pharmaceutical Companies to Healthcare Professionals and Healthcare Organizations; and the Code on the Promotion of Prescription-Only Medicines to, and interactions with, Healthcare Professionals (EFPIA HCP Code). While the first two codes were recently adopted by the EFPIA Board on 2013 and 2014 respectively, the EFPIA HCP Code dates back to 1991, and it still remains the most significant of the three codes.
Adopted as an initiative of the European pharmaceutical industry, the EFPIA HCP Code has been amended multiple times in order to make it fully consistent with new legislation and to update it with the most recent trends in the industry, with the most recent updated version approved in 2014. This code, which is applicable to EFPIA member companies, their subsidiaries and any company affiliated with these members, sets out the provisions that shall govern the promotion to healthcare professionals of prescription-only medicinal products, and the interactions between healthcare professionals and pharmaceutical companies. It is important to mention that the relevance of this Code is directly linked with the frequency of such interactions, which as mentioned are very common in the industry, especially when it comes to the shaping, designing and delivering clinical research and in the context of advisory boards or consultancy services.
A substantial part of the EFPIA HCP Code regulates promotion to healthcare professionals, specifying information that has to be available to them along with its substantiality, acceptability, distribution and transparency of such promotion. The code also sets out specific provisions regarding the use of informational and educational materials and items of medical utility, as well as the organization of events and the regulation of hospitalities, donations, grants and gifts. Other regulated aspects include fees for services provided, sponsorships, the use of consultants, studies, medical samples and the staff of the pharmaceutical company.
While deontological codes quickly adapted to the regulation of these aspects, certain measures have also been undertaken at the institutional level. Specifically, the European Union has issued a series of guidelines covering compliance at the different stages of the medicinal product shelf-life, the good practices on laboratory, clinical, manufacturing, pharmacovigilance, sampling and testing, distribution and quality defects and recalls areas, and establishing the minimum standards companies must comply with.
However, while there are clear trends on the European level, the situation of compliance in the pharmaceutical sector can vary wildly from one country to another. Thus, most countries have their own national deontological codes, distinct regulatory and criminal regulations and more importantly, a different understanding on compliance.
Take Spain, for example, where compliance has become one of the most discussed topics in the legal sector. Until recently, compliance had always been neglected and overlooked, both by companies and the government, and it only played a significant role in a few sectors, one of which was the pharmaceutical field.
The pharmaceutical industry has often been ahead of other industries when it comes to self-regulation and deontological obligations. Thus, Farmaindustria, the Spanish Association of the Pharmaceutical Industry (which is composed by the innovative pharmaceutical company in Spain), developed a state-level deontological code, the Code of Practice for the Pharmaceutical Industry (last modified in 2016), which, in parallel with the EFPIA HCP Code, addresses three main areas: the promotion of prescription-only medicines, the relationships with Healthcare Professionals and Healthcare Organizations and the relationships with Patients Organizations.
The application of this Code of Practice, entailed within pharmaceutical companies withthe need and obligation to implement internal procedures is to govern the interaction with healthcare professionals, with healthcare organisations, with patient organizations to meet the provisions of the Code of in order to avoid economic sanctions for companies and the attached reputational damage. Based on that, most companies based in Spain have implemented compliance deontological programmes, starting with the listed companies, then with the mid-sized companies and, finally, small local companies.
That drastically changed in 2015, when the Spanish Criminal Code was amended in order to introduce, for the first time in the country, the notion of criminal liability of legal persons. While such innovation drew major attention, the amendment included another substantial change: the exoneration of criminal liability of a company which has adopted and implemented an efficient and enforceable criminal compliance programme. Understandably, such legal change provided a major incentive for companies to develop and implement such criminal compliance programmes, and compliance has been one of the most talked-about topics in the legal sector ever since.
Unlike the United States however, the Spanish legislation did not establish a standardized model for these compliance programmes. However, the legislature has recently decided to establish the minimum elements the programmes must contain: a compliance body with the capacity to make autonomous decisions and on its own initiative, specific procedures and internal protocols, asset and financial management policies, reporting obligations, a disciplinary system, monitoring and continuous training to have an effective and applicable compliance program.
The compliance programmes that companies started implementing were initially constructed from primarily a criminal perspective. However, companies are currently developing and expanding their criminal compliance programmes to global compliance programmes, covering not only criminal matters, but also taxation, antitrust, data protection and other legal concerns. Additionally, in the pharmaceutical field, it is required that regulatory compliance programmes and criminal compliance programmes are conceived not just as complementary, but as a whole, implementing the necessary measures to identify and tackle the risks the company may face from a global perspective and provide a specific coordination amongst the bodies responsible for each of the programmes.
We believe that this global approach, involving a coordination of general and sectorial compliance, as well as the creation of distinct and independent bodies in each company, are two of the pillars of European’s approach to compliance.
Pharmaceutical companies operating in the United States are subject to numerous laws and regulations, and there are several government bodies – on both federal and state levels – that regulate their conduct. Federal regulators include the Food and Drug Administration (FDA), the Centers for Medicare and Medicaid Services (CMS), the Department of Justice (DOJ), the Department of Health and Human Services’ Office of Inspector General (OIG), and the Drug Enforcement Administration (DEA). In addition, almost every state has a Medicaid Fraud Control Unit or a state Medicaid Inspector General to investigate Medicaid issues, and state attorneys general can investigate any suspected violation of state law.
US Inspector General in the to investigate Medicaid issues, and state attorneys general can investigate any suspected violation of state law.
The main laws and regulations that drive pharmaceutical compliance in the United States are:
- False Claims Act (“FCA”): Statute that prohibits anyone from knowingly submitting or causing to be submitted a false claim for payment to the U.S. government. Whistle-blowers can bring actions under the FCA’s qui tam provisions, which provide that private individuals (known as relators) may file enforcement actions on behalf of U.S. government, and are entitled to recover between 15-30 percent of the total recovery if the lawsuit is successful. Many states also have statutes that prohibit false claims.
- Anti-Kickback Statute (“AKS”): The AKS is a criminal statute that prohibits transactions intended to induce or reward referrals for (1) items or services reimbursed by federal health care programs or (2) the purchase of goods or services paid for directly or indirectly, in whole or in part, by federal health care programs. The statute is intended to protect federal health care program beneficiaries from the influence of money on referral decisions and thus guard against overutilization, increased cost, and poor quality services. Many states also have similar anti-kickback statues.
- Food, Drug, and Cosmetic Act (“FDCA”): The FDCA regulates several areas of prescription drug development and marketing, including clinical studies, manufacturing, market approval, safety, clinical studies, and promotion. The purpose of the law is to protect consumer health.
- Physician Payments Sunshine Act (“Sunshine Act”): The Sunshine Act requires “applicable manufacturers” to report certain payments and other transfers of value given to physicians and teaching hospitals, and any ownership or investment interest physicians, or their immediate family members, have in their company. The law is intended to improve transparency into the financial relationships between industry and physicians as well as teaching hospitals. Information reported under the Sunshine Provision is published on public websites.
- Health Insurance Portability and Accountability Act of 1996 (“HIPAA”): HIPAA provides data privacy and data security protections to all individually identifiable protected health information (“PHI”) held or transmitted by a broad group of healthcare and service providers and their associates in any form or medium. PHI is information that (1) relates to (a) the individual’s past, present or future physical or mental health or condition; (b) the provision of health care to the individual; or (c) the past, present or future payment for the provision of health care to the individual; and (2) identifies the individual or for which there is a reasonable basis to believe can be used to identify the individual.
- Foreign Corrupt Practices Act (“FCPA”): The FCPA is an antibribery statute that prohibits the corrupt payment of “anything of value” to foreign (non-U.S.) government officials for the purpose of obtaining or retaining business, or securing a business advantage. The statute is of particular relevance to the pharmaceutical industry because, in many countries, health systems are run by the government and therefore their employees – ranging from administrators to doctors – may be considered foreign government officials for the purposes of the statute. The FCPA also applies to payments made to government officials through third parties, such as contract research organizations and event-planning agencies.
Whistle-blowers can bring actions under the FCA's qui tam provisions, which provide that private individuals may file enforcement actions on behalf of U.S.
Violations of the FCA, AKS, FCPA, and the other laws outlined above may subject pharmaceutical companies to criminal, civil, and/or administrative penalties, including imprisonment, fines, and/or exclusion from Federal and state healthcare programs, such as Medicare and Medicaid. Individual employees can also be held accountable for violations.
Financial penalties can be substantial. Consider FCA recoveries, which have totalled over a billion dollars in recoveries per year from pharmaceutical and medical device companies over the last four year. Most recently, in 2018, the DOJ recovered more than $1.1 billion from FCA-related settlements with such companies, including one action – the largest FCA enforcement settlement of 2018 – that resulted in a $625 million penalty.
In 2018, the U.S. government devoted significant attention and resources to regulating the pharmaceutical industry, including initiatives to address the ongoing opioid epidemic, attempts to limit drug price increases, and efforts to police “patient assistance programs”—programs intended to help needy patients obtain access to free or low-cost medications.
- Combatting the Opioid Epidemic: In 2018, the DOJ employed a number of law enforcement tactics to combat opioid abuse, including leveraging the AKS and the FCA to investigate and prosecute opioid manufacturers. For instance, In August 2018, a U.S.-based pharmaceutical company agreed to pay at least $150 million to resolve claims that the company paid kickbacks in violation of the AKS to doctors to induce them to prescribe the company’s opioid product. The DOJ claimed that the company paid doctors sham speaker fees, hired doctors’ friends/relatives, and provided doctors with extravagant meals and entertainment to induce prescriptions. Several former company employees pled guilty to criminal charges relating to these alleged kickbacks, and, in May 2019, a federal jury convicted the company’s founder and four of its former executives of racketeering and other crimes.
- Regulation of Drug Prices: In May 2018, the Trump Administration announced a new initiative – “American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs” – intended to lower drug prices for consumers through a combination of increased competition, strengthening Medicare’s negotiating power, and lowering Medicare/Medicaid list prices. More recently, in January 2019, the House Committee on Oversight and Reform “launched one of the most wide-ranging investigations in decades into the prescription drug industry’s pricing practices” with the goal of determining why drug companies are increasing prices so dramatically, how drug companies are using the proceeds, and what steps can be taken to reduce prescription drug prices. The House Committee on Oversight and Reform has requested detailed information on drug pricing practices from a number of pharmaceutical companies and, along with the U.S. Senate Finance Committee, has held hearings with senior pharmaceutical executives on high prescription drug prices. In addition, the CMS has proposed several new rules that could impact drug pricing, including a rule that would require direct-to-consumer television ads for certain products to list prices.
- Scrutiny of Patient Assistance Programs: While pharmaceutical companies have supported patient assistance programs for years, and the government has generally approved of such arrangements, several pharmaceutical companies were caught in the crosshairs of government investigations for their relationships with patient assistance programs in 2018, and we expect that scrutiny to carry forward through 2019. In December 2018, the DOJ announced that a global pharmaceutical manufacturer under investigation had agreed to pay $360 million to resolve claims that it used a charitable foundation to cover the co-payments of patients taking its pulmonary arterial hypertension drugs. The DOJ alleged that the company violated the AKS by improperly obtaining and using data from the foundation to contribute amounts sufficient to cover the co-payments of only those patients using the company’s products. The DOJ further alleged that the company referred Medicare patients to the foundation rather than allowing them to participate in the company’s free drug program in order to generate revenue. The DOJ has accused other global pharmaceutical companies of similar conduct and at least two companies have already acknowledged reaching agreements in principle with the regulator.
Compliance Program Expectations
U.S. regulators expect pharmaceutical companies to devise and maintain compliance programs, and have set forth several guidance documents outlining those expectations. Consider, for example, the OIG’s “Seven Fundamental Elements of an Effective Compliance Program” guidance, which provides that healthcare businesses such as pharmaceutical companies should:
- Implement written policies, procedures and standards of conduct.
- Designate a compliance officer and compliance committee.
- Conduct effective training and education.
- Develop effective lines of communication.
- Conduct internal monitoring and auditing.
- Enforce standards through well-publicized disciplinary guidelines.
- Respond promptly to detected offenses and undertake corrective action.
Similarly, the DOJ has outlined what it considers to be the hallmarks of an effective compliance program – many of which overlap with the elements outlined above – in its April 2019 guidance document titled “Evaluation of Corporate Compliance Programs.”
When government regulators like the DOJ are considering whether to bring charges against business organizations such as pharmaceutical companies, they take into consideration a number of factors, including “the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of a charging decision.”
Predictions for 2019
Regulation of the pharmaceutical industry has long been – and continues to be – an enforcement priority in the United States. We predict that the initiatives described above, including efforts to address the opioid epidemic, limit drug price increases, and police patient assistance programs, will continue through 2019. For example, during the first half of 2019, U.S.-based pharmaceutical companies have already agreed to pay over $350 million in settlements to a single state – Oklahoma – to resolve allegations that the companies’ helped fuel the opioid crisis, and thousands of similar cases are pending throughout the country.
Compliance has been gaining momentum in Latin America (Latam), as a result of diverse factors such as:
- the implementation of OECD Anti-Bribery Convention;
- the growing extraterritorial application of the Foreign Corrupt Practices Act (FCPA) by U.S. officials to companies and individuals engaged in local/regional schemes; and
- numerous local investigations and enforcement actions in the region over recent years .
Nevertheless, compliance in Latam is still a challenge. Transparency International’s Corruption Perception Index 2018 , for instance, depicts how the progress of enforcement is contrasted with worst perceptions about many countries, as follows: Venezuela (Score 18/100 - Position 168/180); Ecuador (34/100 – Position 114/180); Brazil (Score 35/100 - Position 105/180); Colombia (36/100 – Position 99/180); Argentina (Score 40/100 - Position 85/180); Chile (Score 67/100 - Position 25/180) and Uruguay (Score 70/100 - Position 23/180). Of these countries, only Ecuador and Argentina improved their 2017 positions.
From another perspective, "The Compliance Complexity Index 2018” indicates 3 Latam countries among the top 10 (Argentina - 4, Brazil - 7, and Uruguay - 10), with another 3 in the top 25 (Peru - 14, Venezuela - 21, and Colombia - 25). This complexity arises from distinct territorial and legislative regimes within each country, with the rise in abundance of law makers and enforcers.
Pharmaceutical compliance, by its turn, is even more complex, with Federal, State and Local laws, as well regulations and rules from specific Government entities that set forth obligations on the relationship of individuals with public officials, and claim that companies can be found liable for actions of its agents and employees that act to obtain a benefit for them.
Moreover, the pharmaceutical sector’s intricacies result in many practices that, due to complexity and uniqueness, do not appear in laws and are, self-regulated by the Trade Associations, with rules focusing on customary practice issues. Such regulations often include the following examples: (i) Relationship with Public Officials, Government Authorities and Patient Association; (ii) Contracting of Specialized Services; (iii) Events; (iv) Visit to Healthcare Professionals; (v) Donations; (vi) Market Research; (vii) Communication Initiatives; (viii) Promotional Materials; (ix) Communication on New Drugs and Indications off-label; (x) Offer of Gifts to Healthcare Professionals; (xi) Free Samples; (xii) Over-The-Counter Drugs (OTC); (xiii) Contact with Patients; and (xiv) Research and Education.
As example, the pharmaceutical industry in Brazil is subject to:
Federal level: (i) Law 12,846/2013 (“Clean Company Law”) – anti-corruption; (ii) Federal Decree 8.420/2015 - regulates the Clean Company Law; (iii) Law 12,813/2013 – conflict of interest in the Executive Power; (iv) Law 8,429/1992 –administrative impropriety; (v) Law 8,666/1993 - rules and penalties in case of fraud in public bids. In addition, the protection of personal data will be another main point of attention in the coming years, bearing in mind it was recently published in Brazil the Law 13,709/2018, will come into force in 2020
Regulatory level: ANVISA’s Resolution 96/2008 - advertising of drugs and medical events.
State level: 14 of the 27 Brazilian Sates have regulated the Clean Company Law with their own decrees. The State of Minas Gerais, more specifically, created its own Sunshine Act (Laws 22,440/2016 and 22,921/2018), forcing healthcare companies to report any relationships held with HCP enrolled in Minas Gerais Professional Councils.
Self-regulation: Sindusfarma and Interfama´s Codes of Conduct
The scenario above is similar in several Latam countries, with at least coexisting Federal Laws on corruption and Codes of Conduct by Trade Associations (Chile - Law 20,880/2016 - conflicts of interest and Law 21,121/2018 – anti-corruption; Peru - Law 30,424/2018 - criminal offenses related to corruption, money laundering, and terrorist financing and ALAFARPE´s Code of Conduct - Peru; Argentina - Law 27,401/2017 – anti-corruption and CAEMe’s Code of Conduct – Argentina; Colombia - Law 17,78/2016 – anti-corruption; Resolution 2,881/2018 – sunshine act, and AFIDRO´s Code of Conduct; and Mexico - General Law on Administrative Responsibilities; changes on the Penal Code and the National Anti-corruption System ).
In this sense, it is worth to notice that internal Compliance Programs are essential to Latam companies, not only to comply with such scattered frameworks, but also because the existence and effectiveness of such programs are considered as a potential factor for mitigation and for sanctions.
The internal Compliance Programs are essential to Latam companies, not only to comply with such scattered frameworks, but also because the existence and effectiveness of such programs are considered as a potential factor for mitigation and for sanctions.
In order to be considered effective, compliance programs must follow these minimum requirements: (i) top management commitment, (ii) standards of conduct, codes of ethics, internal policies; (iii) periodic training, (iv) accounting records; (v) internal audits, (vi) complaints channels, (vii) disciplinary measures; (viii) procedure for prompt interruption of the irregularity; (ix) independence of the internal body responsible for the supervision and enforcement of penalties; (x) Due Diligences; (xi) transparency (donations, for example); and (xii) risk assessment.
As per sanctions, apart from individual’s incarceration, there may be administrative and judicial, imposing significant fines, extraordinary publicity of the conviction, prohibition of hiring and tendering with, or getting incentives, subsidies, donations, loans from public entities, suspension or partial prohibition of activities, and ultimately the compulsory dissolution of the legal entity.
Although such complexity of rules, laws and sanctions, to date, the most significant examples of practical applications of penalties for corrupt acts at the pharmaceutical industry in Latam derives from the FCPA application, per example:
Notwithstanding, this should not lead to the premature conclusion that the local enforcement is scarce or ineffective. As empirical evidence shows, the actual status of local enforcement within the pharmaceutical industry is still unknown, since the main investigations are often under seal. Thus, it is reasonable to infer that there are many ongoing efforts that may be revealed in the coming years, as the investigations unfold.
In that sense, companies’ financial reports are often a possible way to learn about ongoing investigations. For instance, in 2014 Aegerion disclosed it was under investigation by the Brazilian authorities linked to the Company's sales activities of JUXTAPID®. Nonetheless, in 2019 we still lack public information about that case.
Finally, considering all the above, it is possible to conclude that compliance in Latam has gained relevance and effectiveness in recent years, with the creation of new laws and regulations in several countries. On the other hand, there is still much to be achieved, with countries in different stages in the enactment of legislation and local enforcement measures.
The number of registered companies in Asia has been in a state of rapid growth. Due to the different development status of the countries in Asia, the enterprises in different countries own their particular operating style and characteristics. Therefore, companies in Asian countries are mainly rely on their specific laws,regulations and policies of their own countries combining with the internal control that provided by the companies to achieve their compliance goals. However, which is similar to the global trend, governments in Asia are committed to streng then the compliance supervision of enterprises.
For example, in China, a series of laws and regulations are developed to restrict the corporate behavior, such as the Anti-unfair competition law, Interim provisions on the prohibition of commercial bribery, which regulate the behavior of the enterprises directly. In addition, the governments provide guidance documents or guidelines to lead the development of the corporate compliance. For instance, the publication of GB/T 35770-2017 Compliance Management System Guide, which manages compliance issues by adopting a globally recognized ISO management system approach, has become a guiding document for the formation of enterprises’ internal compliance system. Moreover, significant violation of the corporate compliance may commit crime in China, whether the enterprise or the person that directly responsible will be subject to serious criminal punishment. This serves as a warning to the enterprises on their review of compliance.
In China, a series of laws and regulations are developed to restrict the corporate behavior, such as the <Anti-unfair competition law>, <Interim provisions on the prohibition of commercial bribery>, which regulate the behavior of the enterprises directly
Therefore, this trend and current situation of legislation require the enterprises to perform their responsibilities to achieve compliance, including but not limited to comply with the laws and regulations; enhance the awareness of the corporate compliance culture; step up staff training; ensure the establishment and operation of the compliance management system by employing professional managers, making use of advanced technology, formulating appropriate structure of compliance system.
The pharmaceutical companies, who has special industry environment and sales habits, has been a focus area for compliance enforcement. The specific compliance risks in the pharmaceutical sector are mainly as follows:
- Anti-commercial bribery compliance. The commercial bribery of pharmaceutical enterprises has always been the enforcement priorities of law-enforcement agencies. For example, lots of medical companies pay bribes to medical institutions by inviting or sponsoring doctors to attend the academic conferences and pay the fee to a third party to avoid supervision. Or the rebates in the process of the sale of medical products.
- Tax compliance. For instance, the cases of issue false VAT invoice in the process of drug production and distribution in China.
- Drug quality compliance, such as the drug safety issues.
- Antitrust policy. It is mainly about the restrictions and unfair competition in the distribution contracts upon the price of the products, the distribution territory and resale terms.
- Advertising compliance, including the bidding of medical institutions and the promotion of medical products.
The commercial bribery of pharmaceutical enterprises has always been the enforcement priorities of law-enforcement agencies.
At present, there is no visible uniform international rules or organizations in Asia toward the compliance in the pharmaceutical industry. In Asian countries, the domestic laws and regulations play a guiding and mandatory role for the compliance of pharmaceutical enterprises. However, in practice, these external compliance programs often combine with the internal control system that provided by the companies themselves to regulate company compliance management. These compliance programs regulated the pharmaceutical enterprises as follows:
National Laws and Regulations
Compliance risks in the pharmaceutical industry are commonly existing in various of Asian countries. As a result, in order to maintain orderliness and ensure its development, most countries in Asia are constantly issuing a series of national compliance laws and adopting administrative measures to regulate the pharmaceutical industry compulsively.
China, for example, in terms of the laws and regulations which are typically:
- The Criminal Law which including the accusations regarding drugs, medical devices, crimes of corruption and bribery.
- The new Anti-Unfair Competition Law which expands the definition of commercial bribery to commercial bribery and strengthened its punishment.
- The Pharmaceutical Administration Law strengthens the medical institutions drugs supervision.
- The Implementation Opinions on the Implementation of the ‘Two-Ticket System’ in Drug Purchase of Public Medical Institutions (Trial)” which regulates the behavior of tax avoidance in the pharmaceutical industry.
- The Notice on the Main Points of Correcting the Work of Unhealthy Winds in the Field of Medicine Purchase and Sale and Medical Services in 2019", requiring the investigation and correction of corruption in the field of medicine purchase and sale in the hospital.
- In addition, Chinese government drew on the Foreign Corrupt Practices Act (FCPA), developed stricter industry approval standards, new GMP Quality Certification System Standard and provided a series of punishment regulations toward the pharmaceutical industry.
In addition, from a perspective of regulatory:
- In April 2018, the Industry and Commerce Administration, the Food and Drug Administration, and the Quality Supervision Bureau were integrated to turn into the National Market Supervision Administration, thereby strengthening the efficiency of law enforcement and enhancing the crackdown on commercial bribery.
- In June 2019, the Finance Ministry conducted Quality Verification of Accounting Information for 77 pharmaceutical companies that included 27 listed pharmaceutical companies. The focus of the inspections emphasized the requirements for the compliance of the pharmaceutical companies.
The compulsory laws and regulations in Asian countries play a dominant role in the compliance of the pharmaceutical sector.
Inner Control System
In the pharmaceutical sector, the survey shows that when it comes to internal policies and processes, most of the pharmaceutical companies have established codes of conduct, training and anti-bribery, anti-corruption policies, as well as internal reporting hotline, to ensure corporate compliance. In addition, such as in China, companies are suggested to establish a complete compliance system according to guidelines and standards issued by the governments or the related organizations. Meanwhile, in the process of building a compliance system, the pharmaceutical companies are suggested to employ compliances managers and adopt the third-party professional services. These will significantly support the compliance in the pharmaceutical sector.
Correspondingly, with the improvement of the punishment measures, the consequences of violation of these pharmaceutical compliance programs tend to be more serious. In general, in China, the violation of non-compliance behavior of the company in the pharmaceutical sector will be subject to the administrative penalty. The Administrative penalty usually contains warning, the confiscation of illegal gains, penalty, revocation of the business license or other related license toward the companies, and demerit, dismissal toward the person in charge. In some cases, the amount of the penalty will be determined in multiples of the amount of the illegal funds, so that the maximum amount of the penalty may be unlimited. What’s more, once the non-compliance behavior violate the Criminal Law in China, it will be regarded as a crime and be punished severely. For example, producing or selling the fake medicine or inferior medicines, the people in charged can be sentenced to life imprisonment or even the death penalty.
In general, in China, the violation of non-compliance behavior of the company in the pharmaceutical sector will be subject to the administrative penalty
In recent years, several pharmaceutical companies have been penalized in the Asian which illustrate the punishment in the pharmaceutical sector is extremely stringent, such as:
In conclusion, the combination of laws and regulations and internal control measures of the companies constitute the compliance program of the pharmaceutical sector in Asian. According to the current policy evolution, the regulatory compliance of the pharmaceutical industry in Asia will be increasing strictly in the future. In addition, with the development of the technology, the compliance risks assessment and monitoring in the pharmaceutical sector or even other industries may be combined with big data analysis and become more effective and sustainable. In the future, regulations in this area will tend to be more regional and uniform. As stated in the <GIR-Global Investigations Review>, while companies have rightly put a lot of effort into building ethics and compliance programmed in their global operations. Companies worldwide will need to re-evaluate the overall effectiveness of their programmed considering the changing conditions in Asian.
Contrary to certain people’s belief, the pharmaceutical sector is one of the most – if not the most – concerned with ethical standards, and is of the pioneers in that respect.
We have seen that the different regions analysed in this article Europe, North America and Latin America, compliance for pharmaceutical companies is not only a recommendation, but rather a “must”. Companies must effectively implement Compliance Programs aimed at covering deontological, regulatory, criminal, tax, antitrust and data protection risks. From the legal angle, consequences of not having an effective compliance program can be of deontological, regulatory and even criminal nature. Additionally, the market and stakeholders are very likely to swiftly punish companies tagged as non-compliant.
On the other hand, although compliance can be seen as a global requirement worldwide, specific local requirements must be addressed when implementing a compliance program to be applicable in different countries. Thus, multinational pharmaceutical companies with affiliates in different countries around the world, can apply a common compliance program to all affiliates, but would certainly have to adapt to the national requirements of the local countries where the affiliates are located.
Given the strict and the ever-growing regulation of the pharmaceutical industry, compliance in the pharmaceutical industry is not only here to stay but is even likely to be refined and reinforced in the coming years, with heavier budgets and more sophisticated structures. Our prediction is that the pharmaceutical industry will continue to be at the forefront of compliance, and set the standards for other sectors to follow.
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