China Investigating Device Overuse for Profits

The Chinese government is looking at the overuse of medical devices in Beijing after determining that overutilization is taking place to increase profits.

John Tan, a lawyer with Reed Smith’s Global Regulatory Enforcement Group based in Shanghai, wrote on August 15, 2013 that the local Beijing office of the Ministry of Health (MOH) of the People’s Republic of China announced that it has started a three-month review of the use of high-value medical consumables and large-scale medical equipment in Beijing.

He continued that the Beijing MOH noted that prior inspections of hospitals had found continuing problems with the misuse and overuse of medical devices to increase profits. The investigation is intended to strengthen hospitals’ management of the use of medical devices and to regulate the use of those high value medical consumables.

New Emphasis on Prosecution

This follows a declaration at the end of 2012 by China’s Supreme People’s Court, in conjunction with the Supreme People’s Procuratorate, of a new judicial interpretation of China’s criminal law prohibiting bribery. “This interpretation was widely viewed as signaling a new emphasis by Chinese authorities on prosecuting not just officials who accept bribes, but those who pay bribes as well, ” wrote Tan.

New Utilization Database

In addition to the new investigation, the MOH will also develop a database that will track the price and model of devices implanted in each patient, require hospitals to improve their purchasing management systems, and conduct periodic inspections of hospitals’ purchasing and management of medical consumables.

Tan writes that this latest investigation follows on increased regulatory enforcement actions throughout China’s life sciences industry.

In the last two months, there have been criminal and administrative enforcement actions targeting the pharmaceutical sector and a pricing investigation by the National Development and Reform Commission (NDRC) into the infant formula sector that culminated in the largest fine in the history of China’s enforcement of its anti-monopoly law.

Targeting Bribery, Fraud and Anti-Competitive Practices

The NDRC is also conducting an ongoing investigation of pharmaceutical industry pricing practices and considering systemic revisions to China’s drug pricing system. Additionally, on August 14, 2013 the State Administration for Industry and Commerce (SAIC) announced a new three-month-long investigation into the pharmaceutical and medical services sectors, targeting bribery, fraud and anti-competitive practices.

Chinese authorities have also recently issued a number of administrative regulations targeting the life sciences industry, including a new code of conduct for health care providers, and new guidance on strengthening anti-bribery controls in public medical institutions.

Authorities also issued regulations on the centralized purchasing of medical consumables and large scale medical equipment containing provisions that would exclude companies found to have engaged in commercial bribery from participation in centralized purchasing. In the U.S., this is the “death penalty” when someone is excluded from government payment programs.

China doesn’t kid around with Deferred Prosecution Agreements, settlements and exclusions. When one of the previous top regulators was convicted of corruption, he was executed. Now that’s a death penalty.