New People's Republic of China (PRC) Regulations for Centralized Procurement of Medical Consumables Contain Significant Penalties for Commercial Bribery

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On December 17 2012, China’s Ministry of Health, in conjunction with five other government agencies, issued the Trial Regulations on Centralized Procurement of High-Value Consumable Medical Supplies. These regulations, which took effect immediately upon issuance, set forth procedures for the centralized purchasing of medical devices ranging from cardiac catheters to intraocular lenses, to dental fillings and intracranial implants. This is the latest development in China’s ongoing efforts to refine the process of bidding for and purchasing medical products.

Under the new regulations, all government agencies at the county level and above, as well as all state-owned enterprises will be required to conduct centralized purchasing of High-Value Consumable Medical Supplies. Private institutions are encouraged to participate in the centralized purchasing process as well. Centralized purchasing will be conducted by the local agencies that currently handle the purchasing of pharmaceuticals. Purchasing of products will be conducted through a combination of public and invited bidding, as well as other methods permitted by Chinese law.

Two provisions of particular note are:

Article 42, which provides that the agencies which operate centralized purchasing must establish a hotline and email address for accepting complaints and reports of misconduct from the public; and

Article 45 of the regulation, which notes that a dynamic recordkeeping system will be established for all manufacturers and distributors of consumable medical supplies. If any manufacturer or distributor is found to engage in misconduct – including commercial bribery – they can be barred from participating in the centralized purchasing process for two years. Given the dominance of government agencies and state-owned enterprises in the Chinese health care sector, penalties under these regulations could be potentially very significant.

Please click here for a translation and summary of selected passages of the rule which we believe will be most valuable to medical device companies. The original Chinese version of the rule, in its complete form, is the authoritative source. Kindly contact your Reed Smith lawyer if you would like a copy.