China’s pharma blacklist could be weakened by inconsistent enforcement

Though Chinese regulators are pushing ahead with a blacklisting system to combat bribery in pharmaceutical procurement, enforcement problems have undermined similar initiatives in the past, according to Policy and Regulatory Report (PaRR).

The National Health and Family Planning Commission of China (NHFPC) recently announced plans to bring new guidelines into force by March 1, which would blacklist pharmaceutical companies, agents and distributors found to have bribed staff at medical and health institutions. But simply putting a drug company or distributor on a blacklist is not a magic bullet to solve corruption, it claims.

An official from the Shanghai Food and Drug Administration (SFDA) told PaRR that in the past, similar blacklists were usually enforced differently at a local level, adding that some provinces in China did not faithfully comply with such blacklists. An NHFPC official also confirmed to PaRR that in the past, enforcement has varied across China. “It is true [that] for the same regulation different provinces follow it differently in practice. Some follow it strictly, but some of [the] local provinces have their own considerations,” the NHFPC official said.

Multinationals

When it comes to blacklisting a large multinational drug maker – UK pharma major GlaxoSmithKline (LSE: GSK) is currently facing an extensive bribery probe – there is no guarantee that all hospitals in China would hold fast to a blanket ban. “One or two regions” might adhere to a blacklist but some hospitals could still buy a drug regardless of a government directive, especially if access to an important drug still under patent without an obvious generic replacement was cut off, Andrew Henderson, a vice president with the compliance advisory firm the Red Flag Group, told PaRR.

However, pharma companies should not overestimate the importance of one particular drug, the SFDA official said. “When we say some medicine is irreplaceable we are actually talking about the ‘best treatment effect’ it will bring about. If a certain company is put in the blacklist, the message is clear that their medicine is not deemed as irreplaceable,” the official said.

Blacklist may not work

According to a US industry source, while the soon-to-be-introduced blacklist poses “a very serious threat” to companies, it is not clear how such a system would work. “They still need drugs, and the Chinese are going to figure out a way to get them if they need them,” the source said. “If you’re the only one providing a certain medicine, they are not going to cut you out completely.” Also, the industry source argued that a blacklisting program would not address the most serious question, which is how providers and healthcare facilities would continue to operate amid a shortfall in cash. “Hospitals are often taking kickbacks from companies simply in order to provide services, the source said. "If the government cracks down on companies for providing kickbacks, what are they going to do to fill the shortfall?”

The SFDA official agreed that there were structural areas with China’s health care sector that needed to be addressed, saying: “We do need to address fundamental issues related with medical and health system reform, such as how to increase [the] salary of doctors and fund the development of medical institutions.”

Unanswered questions

Harry Liu, a partner with King & Wood Mallesons, told PaRR that there are numerous unanswered questions regarding local enforcement of the blacklisting rule. “How local provinces will implement this still remains to be seen,” he said, raising questions about how the NHFPC will get the information and whether local governments will report cases in a timely fashion to central authorities. “Local protectionism is still a problem,” Mr Liu added. “Some local government department might fine a company but not to report it to central level.”

Given that the NHFPC lacks the enforcement powers of other agencies such as the State Administration for Industry and Commerce (SAIC) and the China Food and Drug Administration, bringing other government departments on board will be key to the initiative’s success. “If this blacklisting regulation is issued jointly by NHFPC and other enforcement bodies or issued by the State Council, the legal effect will be higher then,” Mr Liu said.