Shanghai Regulator: Speaking Fees to Physicians Constitute Bribery

Morgan Lewis
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Morgan Lewis

A local regulator in Shanghai has recently fined a domestic medical device company for commercial bribery after determining that the company had unduly influenced a group of seven physicians when it paid them speaking fees to give presentations at an industry conference featuring materials prepared by the company, including specific endorsements of the company’s products.

Shanghai-based medical device manufacturer Lepu Medical Technology (Shanghai) Co., Ltd. (Lepu Medical) was a sponsor of the 19th South China International Congress of Cardiology, held in the city of Guangzhou from April 6–9, 2017.

During the conference, Lepu Medical arranged for seven medical experts to give presentations at a satellite meeting convened by the company. In preparation for the presentations, Lepu Medical assisted the experts by preparing handouts and presentation materials, which included basic information and statistics on a pacemaker sold by the company. The company paid speaking fees to the participating physicians, which it then recorded as sales expenses and conference fees.

The Market Supervision and Administration Bureau of Shanghai’s Qingpu District (the Qingpu MSAB) ruled that Lepu Medical’s conduct had unduly influenced the experts with the goal of gaining an unfair competitive advantage, and that the speaking fees constituted commercial bribery in violation of Article 7, Section 1(iii) of the Anti-Unfair Competition Law of the People’s Republic of China (the AUCL).

The Decision

The regulator cited several types of evidence it considered, including the following:

  • Admissions by company personnel during investigative interviews
  • The meeting agenda, on-site photos, materials, and other documents associated with the physicians’ presentations
  • Documentation relating to the payments made to the physicians, including service agreements, vouchers, invoices, ledgers of sales expenses and conference fees, the customer list, balance sheets, and income statements
  • Basic corporate documents, such as the company’s business license

The regulator also listed three actions by Lepu Medical that led to the decision:

  • Preparing PowerPoints and handouts on behalf of the speakers, including information about the company’s products
  • Paying speaking fees and recording them as sales expenses
  • Recording additional payments made to the physicians as “conference fees”

Penalty

The Qingpu MSAB ordered Lepu Medical to pay a fine of RMB 150,000 (approximately $22,000).

In the decision, the regulator stated that the relatively low fine was due to the relatively small size of the speaking fees at issue, and the difficulty in determining the amount of illegal income the company may have gained as a result.

Practical Guidance

In the past, regulatory risks associated with speaking fees to physicians and other healthcare providers (HCPs) are typically mitigated through the use of written contracts for speaking engagements, proof of the actual delivery of presentations, and moderate remuneration, this decision makes the effectiveness of these traditional measures uncertain. If this decision is a sign of future trends, companies must now take more proactive measures to ensure that speakers are not unduly influenced by sales personnel in the content of their presentations. Companies should also ensure that the speaking fees are recorded truthfully and accurately in the books and records with appropriate descriptions, and that they are not recorded as sales expenses.

This decision’s binding effect is currently limited to one district (Shanghai), and is not legally binding on future decisions of authorities in other municipalities or provinces. However, it is still a possible indication of future trends in the enforcement of the AUCL.

HCPs in China are often employed by public hospitals and hence qualify as “foreign officials” under the US Foreign Corrupt Practices Act (FCPA). Therefore, for those multinational companies subject to the jurisdiction of the FCPA, being penalized by the Chinese regulators for paying bribes to HCPs in China often trigger the FCPA compliance risks, which is another reason multinational life science companies operating China need to closely watch their conference speaking arrangements with local HCPs.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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