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Home > Anti-Bribery & Fraud
Fees to speakers: academic exchange or commercial bribery
By Henry Chen | 2020/11/5 21:32:43

Giving doctors kickbacks in the form of speaker fees is literally an everyday practice of pharmaceutical and medical devices companies.  For the giving of the speakers’ fees, many well-known pharmaceutical companies have been implicated for paying bribes.  Although many implicated entities were heavily fined – some were even criminally prosecuted – the “high returns” generated via speaker fees still lure pharmaceutical or medical device companies into continuing giving kickbacks through “speaker fees”.


The trend on law enforcement


Where there is a will, there is a way.  At least in China, this year has seen many state regulatory agencies (either local or central) to combat this phenomenon.  In June 5 this year, about nine state agencies – including China’s Health Commission and Ministry of Public Security – issued a normative document titled “Key Points for Rectifying Abnormal Practices in Pharmaceutical and Medical Services Market”.   This document made strong emphasis on investigating and punishing acts of giving kickbacks in medical field.  According to its simultaneously released task allocation table, the State Health Commission – with coordination efforts from other participating agencies – shall take the lead in regulating the way hospitals and businesses interact with each other “academically”.  


Enforcement actions regarding speaker fees


Meanwhile, many China’s local agencies have started specific enforcement efforts.  In September 10, 2020, Hebei Province’s National Health Commission issued a normative document titled “Hebei Province’s Measures of Scoring System for Bad Practice by Medical Institutions”.  Such a scoring system was specifically designed for medical professions’ improper conducts.


In September of 2020,  a news feed of a private media reported that a military hospital began to check its doctors’ accounts with particular focus on their speaker fees.  Each doctor's account would be looked at, first on a voluntary basis, then checked by investigators.  This private media revealed that one doctor, among others, received more than 3,000 payments of speaker fees.


The same month, a high-level hospital in Wuhan abruptly started a review process to verify all doctors’ clinical speaker fees in 2019.  According to the source, every doctor’s account would be carefully examined by investigators.  The fees that were received would be double-checked with the fees that were paid by pharmaceutical or medical device companies.  Then, the hospital’s discipline inspection committee would send a letter of assistance to the corresponding pharmaceutical or medical device company, and request the company to provide detailed documents to verify the truthfulness and lawfulness of the payments.  These documents include invitation letters, teaching courseware, on-site photos, labor agreements, transfer card numbers, associated amounts, conference schedule and other relevant evidentiary materials.  Similarly, another hospital in Nanjing was also examining doctors’ speaker fees, and requiring doctors to voluntarily report the fees they received.


Case studies


Case 1:


In September 22, 2020, Guangzhou’s State Administration for Market Regulation announced 12 typical cases during Anti-unfair Competition Law Enforcement Lecture Hall.  One of the cases was about Guangzhou Hongkang Pharmaceutical Co., Ltd. receiving a 190,000 yuan’s fine with 680,000 yuan of illegal gains confiscated for giving doctors kickbacks through speaker fees. 


The investigation revealed that the Deputy General Manager of a pharmaceutical company conveyed a message to the doctors that the doctors would receive “speaker fees” if the doctors would prescribe the pharmaceuticals of the hospital in priority.  In order to make the “speaker fees” appear legitimate, the company fabricated conference materials on inviting doctors to give lectures and as a result, the concerned doctors obtained the funds from the company.


Between July 2015 and July 2017, the company paid 74 doctors in 19 hospitals a total of 181,000 yuan for “lectures”.  The sales, as a result of the “speaker fees”, amounted to something like 1,885,171.95 RMB, and after deducting costs and taxes, the illegal gain reached 688,686.47 RMB.


Case 2:


In July 9, 2018, Lepu Healthcare was fined 150,000 yuan by the Shanghai Qingpu District State Administration for Market Regulation for paying experts for lectures, which was deemed as commercial bribery.  It is worth noting that it did not pay doctors directly for lectures.  Instead, it commissioned the medical association to pay for the sessions.  This then brought forth a problem – the correct way recommended by RDPAC for inviting experts to give lectures and paying for them is through a professional association/academy.  But in this case, paying for lectures through a professional body is not all that's fine – law enforcement agencies tend to see things not from what they look like, but what they are indeed.  So what is the hard-core of the case?  As it turned out, before the meeting, the company “helped” the experts make lecture notes and PPT, and implant its product (pacemaker) introduction and data into the materials.  As a result, lectures are no longer about teaching but about business promotion.


Case 3:


In August 2020, China Industrial and Commercial Publishing House disclosed a commercial bribery case of a pharmaceutical company investigated and prosecuted by the State Administration for Market Regulation of Wuqing District, Tianjin.  The case was also about paying bribes in the form of speaker fees.


In June of 2018, a pharmaceutical company in Tianjin was reported to have committed the commercial bribery by a former employee in his real name, and the employee provided electronic evidence to substantiate the allegation.  After verification, the Tianjin Wuqing District’s State Administration for Market Regulation confirmed that from January 2016 to the revelation, the company paid 15 doctors in the name of “speaker fees” in four hospitals in Tianjin every month.  The payment process was as follows: by signing a design contract with an advertising company, the pharmaceutical transferred the cost to the account of the advertising company in the name of the design fee.  The advertising company then transferred the money to the account designated by the doctor through the advertising company’s employee's personal bank card every month according to the statistical table of the payment provided by the pharmaceutical company – such an operation is the farthest thing from “speaker fees” as we can image.  In the end, the company’s profit 250,000 yuan was confiscated.  In addition, the company received a fine of 2 million yuan for making commercial bribes.


Law enforcement trend


In face of the law enforcement, what should a pharmaceutical or medical device company do?  The speaker fee should be really nothing but for making a speech.  In other words, the lecture must be real with the cost being reasonable and bona fide.  The prima facie evidence to prove that the lecture is true includes: invitation letter, lecture courseware, on-site photos, labor agreement, transfer card number, amount involved, conference schedule, etc. 


As to how much is a reasonable price to pay for a lecture, there is market rate for reference. What is important, the lecture fees must not be linked to doctors' prescription of drugs or medical devices.


In this regard, we suggest that “Lecture Compliance Operation Manual” be made.  The regulatory process and points include:

·      -Planning academic meetings;

·      -Preparing relevant plans and budgets;

·      -Signing labor contracts with doctors;

·      -Formulating the invitation letter and meeting agenda;

·      -Requiring the person who organizes the meeting to submit the sign-in form and video or audio materials of the doctors to the compliance department of the company;

·      -Preparation for payment application and approval;

·      -Making payments on permitted conditions;

·      -Making Bank transfer to the teaching doctor and preventing cash transactions.


In addition, the company can also pay personal income tax for doctors.  Finally, it should be noted that relevant academic conferences should avoid sensitive timings.  Therefore, inviting doctors when their hospitals are making drug purchases is precisely what we have to avoid. Even such invitations are genuine, the appearance of impropriety is there for all to see.


The fees may also fall foul of the Foreign Corrupt Practices Act, if U.S. or U.S.-listed companies are involved.  Regarding compliance issues under both Chinese and U.S. law, please contact henry.chen@dentons.cn.

_________

The author, Henry Chen, licensed to practice law in China and New York, is a senior partner at the Dentons office in Shanghai. Before joining Dentons, Henry was AP Compliance Director of Ford. 

Henry's practice areas include cyber security and data governance, FCPA, anti-bribery and fraud investigations, economic sanctions and trade controls, compliance management systems, corporate matters and dispute resolution. You can reach Henry by sending an email to henry.chen@dentons.cn. Henry is the author of the book Risk Management on Commercial Bribery in China and the book Compliance Risks of Enterprises in Globalization: Outbreak and Control.


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