China has increased its scrutiny of corruption in the pharmaceutical field over the past year, in part by launching a new national registration system for medical representatives of pharmaceutical companies. This China Law Alert evaluates the draft Shanghai Trial Measures for Medical Representative Registration Management—the first localized proposal for administering the medical representative registration system—and provides next steps for affected companies.
Corruption in China’s pharmaceutical field has been common in recent years, despite repeated attempts by China’s health administrative departments to stamp it out. Drug kickbacks and “gold sales” are unspoken rules. A December 24, 2016, CCTV “News in 30 Minutes” investigation into this topic raised widespread public concern and opened doors for increased supervision of medical representatives. In response, China formulated a new national policy requiring registration of medical representatives. The registration policy is rooted in medical and health reform, national anti-corruption enforcement and industry standardization, and is part of the growing trend of regulating the circulation of medical products. Pharmaceutical enterprises should take steps as soon as possible to ensure compliance with the new registration system and avoid potential impacts on their business development.
Medical representatives were introduced into China in 1989 by XIAN-JANSSEN Pharmaceutical Ltd., but it was not until 2015 that the State officially recognized medical representatives in writing in the PRC Occupational Classification Book. According to that classification, medical representatives are individuals who represent pharmaceutical manufacturers and are engaged in drug information transmission, communication and feedback. Their main work is to promote and transmit drug information, assist doctors in using drugs and collect feedback on drugs’ clinical use.
In practice, however, the work of medical representatives can vary widely from the above description. There are almost three million medical representatives in China, and long-term lack of supervision has led to irregular behavior, which to some degree has contributed to corruption in the pharmaceutical industry and impeded reform efforts. This is the context in which the PRC put forward a standardized system of management for medical representatives, via registration.
Recent Legislative Activity
In February 2017, the General Office of the State Council released “Several Opinions on Further Reform and Improvement of Drug Production, Circulation and Use Policies” (Opinions). The Opinions put forward three proposals for the first time:
Registering medical representatives
Diverting pharmaceutical academic promotion from drug distribution
Linking medical representatives’ illegal promotion with their personal credit records
The Opinions set the fundamental direction for the registration and filing of medical representatives.
In April 2017, the General Office of the State Council issued another document that listed registration of medical representatives as one of its key annual projects. Then, the State Food and Drug Administration released “Relevant Policies on Encouraging the Innovation of Drugs and Medical Devices and Implementing Full Lifecycle Administration of Drugs and Medical Devices (Draft for Public Comment),” seeking comments from the public on medical representatives’ behavior and on the filing and registration procedure. On October 13, 2017, the State Council released the “Opinion on Deepening the Reform of the Evaluation and Approval System and Inspiring Innovation of Drugs and Medical Devices,” reiterating its intent to require registration of medical representatives.
In August 2017, Shanghai Municipality released the “Shanghai Trial Measures for Medical Representative Registration Management (Draft for Public Comment)” (Trial Measures), marking the first local medical representative registration system in China. After the release of the Opinions, other provinces issued documents indicating that they will promulgate similar local provisions once the State finishes its national-level provisions. Although the Shanghai Trial Measures are only a draft for public comment, they represent the first localized proposal for the administration of a medical representative registration system, and are extremely detailed in their content. Therefore, the Trial Measures are of great significance to pharmaceutical and other medical entities as they prepare to comply with China’s new registration system.
The Medical Representative Registration System
The medical representative registration system refers to the registration of, and management and filing of records on, medical representatives. According to the Trial Measures, the registration system’s main focuses are (1) registering medical representatives’ information and (2) establishing legal liability, in particular the legal liability of pharmaceutical enterprises.
Registering Medical Representatives’ Information
According to the Trial Measures, all medical representatives working in Shanghai medical institutions must register. The company to which a medical representative belongs is the subject of registration and is thus responsible for the review, entering and authentication of information. The required information includes the medical representative’s academic records, years of employment, contact telephone number and prior pharmaceutical employers. Once a company enters the relevant information, it takes effect immediately and is publicly accessible on the Shanghai Medical Representative Registration Platform.
While the policy is aimed at registering individuals, it also requires information on the pharmaceutical company itself. The registration system closely associates the medical representative with the pharmaceutical company, and if there is any problem with a medical representative, the relevant pharmaceutical company also will be involved and will bear legal liability.
Pharmaceutical Companies’ Legal Liability
One purpose of the Trial Measures is to implement liability at the enterprise level, and the registration system accordingly reflects the responsibilities and legal liability of pharmaceutical companies.
First, companies must ensure the authenticity of the information on the platform and must update it in a timely matter. Any willful misinformation or failure to timely update the information will be deemed a dishonest act and may negatively affect the entity’s credit record. If a company has five or more bad credit records within a year, then all of its medical representatives’ information will be cancelled, and such information cannot be registered again for two years.
Second, companies should conduct legal and professional ethics education and business standardization training for medical representatives. Companies should punish illegal and dishonest conduct by medical representatives, and must transfer individual bad credit records to the registration platform.
Third, companies should avoid commercial behavior that may violate medical organization reception rules and/or commercial bribery regulations. Under the Trial Measures, violations will be entered into a bad credit record if a medical representative and its enterprise are found guilty of commercial bribery and are subject to criminal and administrative penalties, or are found to be in violation of the “Shanghai Regulation on Management of Commercial Bribery Bad Credit Records in the Health Care Purchasing and Selling Field” and are subject to administrative penalties. If the actions of a medical representative and its enterprise violate the “Shanghai Regulations on the Reception of Health Industry Production Company Representatives by Medical and Health Organizations” or other laws and regulations that may impose administrative penalties, then such acts also will be included in bad credit records. As mentioned previously, if an enterprise has five or more bad credit records in a year, then all of its medical representatives’ information will be cancelled and will not be re-registered for two years from the date of cancellation.
The inclusion of companies along with their representatives in bad credit records for malpractice has been called “collective punishment” by the industry and has caused much controversy.
The Medical Representative Registration System’s Impact on the Pharmaceutical and Medical Device Industries
In order to deepen medical and pharmaceutical enterprises’ understanding of the medical representative registration system, this section will answer several frequently asked questions on the topic.
Q: Will medical representatives of drug sales companies and other agencies lose their qualification as medical representatives?
A: It is uncertain, but unlikely for a variety of reasons. The Shanghai Trial Measures explicitly stipulate that the main subjects for registration are pharmaceutical manufacturers, pharmaceutical import general agents and listing permit holders, but they do not rule out pharmaceutical companies and other agents. The purpose of registration is to enforce tighter controls rather than outlawing otherwise legal actions of other pharmaceutical enterprises. Additionally, there are more than three million medical representatives in China, and most are employed by pharmaceutical sales companies. If these medical representatives don’t have the proper qualification to be medical representatives, then it can be inferred that they will lose their jobs. The Trial Measures do not indicate that medical representatives and other licensing company agents working in name of pharmaceutical sales companies and other business agents should not register. Therefore, it can be speculated that the Shanghai Trial Measures do not prohibit medical representatives from obtaining proper qualifications.
Q: How will the medical representative registration system affect pharmaceutical sales?
A: There will be a significant impact on sales from enterprises with non-patented and big-name drugs. Although Shanghai’s Trial Measures do not expressly prohibit medical representatives from engaging in drug sales, the relevant policies promulgated by the central government clearly prohibit this activity. In practice, medical representatives routinely undertake sales tasks, and this activity is an important avenue for many pharmaceutical companies to sell prescription drugs. Prohibiting medical representatives from selling pharmaceuticals will have a huge impact on companies, particularly those that sell non-patented or big-name drugs.
Q: How does the medical representative registration system affect academic promotion of pharmaceuticals?
A: The medical representative registration system clearly stipulates that it is the responsibility of medical representatives to engage in the academic promotion of drugs. Although academic promotion and sales activities are essentially different, the two can easily be confused, and there is a possibility that academic promotion behavior can be identified as sales. The emergence of the medical representative registration system has drawn attention to academic promotion and increased its supervision. In addition, medical representatives and their companies may study, formulate and implement more varied academic promotional activities in order to promote their drugs. These emerging academic promotional activities have greater risks due to lack of experience.
Q: Is it true that only registered medical representatives can enter medical institutions for academic promotional activities?
A: Yes. According to the Shanghai Municipal Health and Family Planning Commission’s “Regulations on the Reception of Health Industry Production Company Representatives by Medical and Health Organizations,” unregistered personnel or agents from pharmaceutical production and operation enterprises are strictly prohibited from entering medical institutions to engage in relevant activities. Although other provinces and municipalities within China have not yet promulgated similar legal provisions, future provisions are more likely to stipulate that only registered medical representatives can enter medical institutions to engage in academic promotional activities, in line with the legislative purpose behind the medical representative registration system.
Q: How will the medical representative registration system affect development of future medical representative talent within the pharmaceutical industry?
A: Enterprises must formulate qualification requirements for their medical representatives, according to the Shanghai Trial Measures. Based on the trend towards professionalization of medical representatives, however, the qualification requirements of such representatives in the future are bound to be more stringent.
Q: Do medical device representatives need to conduct registration and filing pursuant to the medical representative registration system?
A: No. The Trial Measures’ definition of “pharmaceutical representatives” is geared towards medical representatives in pharmaceutical enterprises rather than medical device representatives, and documents issued by the central government are also aimed at medical representatives of pharmaceutical companies. Therefore, the implementation of the registration system is mainly aimed at the medical representatives of pharmaceutical companies and does not necessarily affect medical device representatives.
Q: What impact does the medical representative registration system have on medical device companies?
A: Although the medical representative registration system is aimed at medical representatives of pharmaceutical enterprises, this does not mean that medical device enterprises can neglect the construction of their own systems. Because medical device sales and drug sales are similar, corruption is still a serious problem in the medical device industry. In addition, according to the previous “two-invoice system” and other arrangements, the principle of “medicine first, equipment second” can help predict that registration management for medical device representatives will follow once the medical representative registration system is finalized.
Suggestions for the Medical, Pharmaceutical and Medical Device Industries Going Forward
Pharmaceutical, medical and medical device enterprises should give careful attention to the medical representative registration system. This system and the two-invoice system are management structures that standardize circulation of pharmaceutical products. Since the registration system was first proposed in January 2017, the process of taking the system from concept to framework was achieved in less than a year. The government’s determination to reform the medical and health industry is clear, irrespective of the practicability and effect of the medical representative registration system.
Pharmaceutical, medical and medical device enterprises should take action as early as possible by establishing compliance management systems and regulating business practices to avoid negative effects on corporate development. The purpose of compliance is to reduce business risks. Establishing a corporate compliance system is not only necessary for coping with the current two-invoice system and the medical representative registration system, but also for corporate standardization and long-term development. A sound compliance system includes developing employee compliance awareness, cultivating a culture of compliance and formulating a variety of compliance regulations. Because of the enormity and complexity of compliance systems, the establishment of such systems should begin as soon as possible, in consultation with lawyers and other professionals. Companies that have already established a compliance system should timely adjust that system in accordance with existing and proposed laws and regulations.