China: China’s New Anti-Corruption Policies in the Health Care Industry

Last Updated: 9 January 2014
Article by Lester Ross and Kenneth Zhou

On December 26 and 25, 2013, respectively, China's National Health and Family Planning Commission (NHFPC) promulgated two circulars, Circular [2013] No. 49 (Circular 49) and Circular [2013] No. 50 (Circular 50). Circular 49, issued by NHFPC's Chinese Medicine Management Bureau, provides comprehensive anti-corruption compliance requirements to be observed by hospitals and physicians, and Circular 50 establishes a "blacklist" system on pharmaceutical and medical device providers.
Circular 49 re-emphasizes the importance of compliance with anti-corruption rules and specifies "nine prohibitions" applicable to all hospitals, medical institutions and their employees in China. The fact that it was issued by the Chinese Medicine Management Bureau, rather than NHFPC as a whole, ought not necessarily be construed to limit its application to practitioners of Traditional Chinese Medicine (TCM) as Circular 49 is expressly tied to Central Party policy.  
The "nine prohibitions" are:

  • linking physicians' individual income with income generated from the sale of drugs or the provision of clinical services. Medical institutions are prohibited from assigning revenue targets to their departments and determining salaries or bonuses of individual physicians based on income generated from the sale of drugs or provision of medical examination services.
  • giving commissions to individual physicians based on the value of drugs prescribed or clinical services provided. Physicians are also prohibited from receiving commissions for referring patients for diagnostic tests, treatment, physical examinations or the purchase of drugs.
  • illegal fees. Medical institutions are prohibited from charging additional fees or raising fee standards beyond what is permissible under State drugs or clinical services policies.
  • accepting improper donations. Individuals in medical institutions are prohibited from accepting donations from companies. Medical institutions are prohibited from accepting donations under conditions that impede fair competition or otherwise affect procurement decisions.
  • participating in promotional activities or illegal health care advertisements. Medical institutions and their personnel are prohibited from participating in marketing and promotional activities related to pharmaceutical products, food or health care products. They are also barred from illegally disclosing the identities or private information of patients.
  • compiling statistical data for commercial purposes. Medical institutions are prohibited from compiling statistics on the quantities of drugs or medical devices purchased by individual physicians for non-medical purposes. Medical institutions are prohibited from providing conveniences to marketing personnel of pharmaceutical or medical device companies in calculating value-based commissions.
  • private procurement of medical products. Personnel of medical institutions are prohibited from procuring, selling or using medical products through private channels.
  • accepting commissions. Personnel of medical institutions are prohibited from accepting commissions or kickbacks in any form or otherwise participating in entertainment activities organized by their business counterparties.
  • accepting "red envelopes" from patients or their families and friends. 

Any violation of the above "nine prohibitions" is subject to disciplinary measures, including warning, demotion, reduction in compensation, suspension or cancellation of licenses. If a violation constitutes a crime, criminal liability will be pursued.
Circular 49 regulates the conduct of hospitals and their personnel. Compared to other rules and regulations, Circular 49 sets out more detailed guidelines on compliance conduct and requires that hospitals and medical institutions abolish certain existing practices which induce or constitute corruption. 
By contrast, Circular 50 regulates the conduct of pharmaceutical/medical device companies and their respective personnel by establishing a "blacklist" system that supersedes an earlier 2007 regulation which had proven ineffective.  
Circular 50 provides that relevant health departments at the provincial level shall establish a blacklist system to record companies and their personnel who are found to have engaged in bribery. 
A company and/or its individuals shall be put on the blacklist under any of the following circumstances:

  • conviction by a court for a crime of bribery, or conviction without criminal liability for minor bribery violations;
  • engaging in a crime of bribery for which the procuratorate decides not to pursue criminal charges;
  • investigation and penalization by Party disciplinary authorities based on the charge of bribery;
  • penalization by a local finance bureau, administration for industry and commerce (AIC) or food and drug administration (FDA) based on the charge of bribery; or
  • catch-all other circumstances provided under laws and regulations.

Simply put, if a drug or medical device company has engaged in commercial bribery which amounts to a crime, the company (and/or its relevant personnel) faces blacklisting even if criminal liability is not pursued. Even if conduct does not constitute the crime of bribery, a violation of administrative regulations for which the enforcement agency decides to pursue administrative liability will still subject to the company to the blacklist. Instances in which criminal prosecution is not pursued, the Party rather than a government body imposes penalties, or the vague catch-all provision is applied can result in imposition of the blacklist.     
The consequences of being blacklisted is serious under Circular 50. The blacklist is administered by relevant health departments at the provincial level. Once a company is blacklisted, public hospitals and other hospitals receiving State funding in the province concerned will be barred from purchasing from the company for two years thereafter. If a company is blacklisted two or more times in a five-year period, all public hospitals and other hospitals receiving State funding throughout the country will be barred from purchasing from the company.    
Under Circular 50, a hearing is to be held before a company is blacklisted. Different enforcement agencies, including the Party's disciplinary agencies, local finance bureaus, AICs, commerce bureaus, FDAs and other agencies, are required to coordinate with each other in the investigation of commercial bribery cases. 

Responsible officials of medical institutions, drug procurement personnel and physicians who accept gifts or other benefits from vendors or their representatives also face sanctions.

Circular 50 takes effect on March 1, 2014. However, it is unclear whether the circular will apply retroactively if the sanctions are meted out for conduct occurring before such date.
The promulgation of the two circulars during the New Year holiday period indicates that China is determined to intensify its efforts to crack down on corruption activities in the health care industry. The two circulars constitute renewed government efforts to systematically regulate the conduct of all players in the health care industry after the central government's launch of a nationwide campaign against commercial bribery in the health care industry in August 2013 following the GSK bribery case. 
For multinationals engaged in the health care business in China, Circular 50 is expected to play a critical role in the future. While the concept of a blacklist system was embodied in some earlier regulations, such system was not strictly implemented in the past. 
With more detailed implementing procedures and conditions under Circular 50 expected, it is apparent that the Chinese government will enforce the system seriously in the future. 
Compared to bribery investigations and charges which constitute a crime, local AIC administrative investigations of commercial bribery which does not rise to the level of a crime are much more common in practice. Many multinationals have been subject to such administrative investigations since the launch of the nationwide campaign to crack down on bribery following the GSK case. 
If such investigation results in administrative penalties, companies upon being penalized are at risk of being blacklisted under Circular 50, which will result in serious disruption to their businesses because of the ban on future procurement by public hospitals, which account for the majority of hospitals in China. 
Unlike the United States and some other foreign jurisdictions where a settlement with the law enforcement agencies to avoid formal charges is possible, China at present does not have a formal "settlement" process which further narrows the options for multinationals being investigated. It is therefore vitally important to tighten internal compliance policies and to craft appropriate strategies when facing such investigations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions