The National Medical Insurance Administration has taken action to crack down on kickbacks for medical supplies nationwide.

On November 23, the medical network reported the nth document this year regarding the governance of medical material kickbacks.

1. Nationwide crackdown on medical material kickbacks

On November 20, the National Medical Insurance Administration released the "Operational Specifications for Medical Price and Procurement Credit Evaluation (2020 Edition)" (hereinafter referred to as "Operational Specifications"), indicating the establishment of a credit evaluation system for medical prices and procurement.

The medical price and procurement credit evaluation system operates based on the buyer-seller contract relationship within the centralized procurement market, guiding or requiring medical institutions to purchase medical products from honest enterprises, and reducing or halting purchases from dishonest enterprises. It should be distinguished from public credit supervision based on administrative management relationships.

The aforementioned evaluation system applies to centralized procurement of drugs and medical consumables, platform listing, as well as procurement conducted by public medical institutions and non-public medical institutions designated by medical insurance. Medical enterprises and products operating outside the centralized procurement market are not included in the evaluation scope.

According to the "Operational Specifications", a credit evaluation directory list will be established under the aforementioned evaluation system, covering behaviors that violate laws and regulations, are contrary to integrity and fair competition, and seek improper benefits during the pricing, marketing, bidding, and performance processes of medical enterprises, such as providing kickbacks or other improper benefits in medical sales, engaging in monopolistic behavior, price and tax violations, maliciously breaching contract agreements, and disrupting centralized procurement order.

The list specifically includes seven items:

1. "In medical sales, providing kickbacks or other improper benefits to various levels of medical institutions, centralized procurement institutions, and their staff."

2. "Obtaining falsely issued VAT invoices (excluding those obtained in good faith)."

3. "Being legally punished for implementing monopolistic agreements or abusing market dominance, and failing to proactively correct unfair high prices of involved products."

4. "Fabricating and spreading price increase information, driving up prices, and other behaviors that violate the Price Law."

5. "Medical enterprises being inquired, investigated, interviewed, warned, or inspected by the price regulatory authority due to improper pricing behaviors, and evading, refusing, or failing to adequately explain reasons or making false promises."

6. "Bidding below cost, engaging in fraud, collusion, or abusing market dominance to disrupt centralized procurement order."

7. "Refusing to fulfill commitments or refusing to perform purchase or delivery contracts without justifiable reasons."

2. These medical device companies will have all products removed from the listing.

The "Operational Specifications" also indicate that dishonest enterprises will be subject to graded penalties, with dishonest registrations categorized as "general", "moderate", "serious", and "particularly serious".

For medical enterprises rated as "serious" in dishonesty, in addition to warnings and risk alerts, their qualifications for listing, bidding, or delivery of involved drugs or medical consumables should be restricted or suspended, with the duration of restrictions or suspensions adjusted in a timely manner based on the credit repair actions and results of the medical enterprises.

For medical enterprises rated as "particularly serious" in dishonesty, in addition to warnings and risk alerts, all their qualifications for listing, bidding, or delivery of drugs and medical consumables should be restricted or suspended, with the duration of restrictions or suspensions adjusted in a timely manner based on the credit repair actions and results of the medical enterprises.

On November 20, the National Medical Insurance Administration also released the "Discretionary Standards for Medical Price and Procurement Credit Rating (2020 Edition)", clearly stating that if the pricing or marketing behavior of medical enterprises meets any of the following conditions, the dishonesty rating will be classified as "particularly serious":

1. In the past three years, within the province, engaging in bribery behaviors such as providing kickbacks to various levels of medical institutions, with a cumulative or single bribery amount exceeding 2 million yuan in the same case.

2. In cases of falsely issued VAT invoices investigated by local tax authorities, being the party that obtained the falsely issued VAT invoices, with the total amount of price and tax involved exceeding 10 million yuan.

3. Being legally punished for implementing monopolistic agreements or abusing market dominance, and failing to proactively correct unfair high prices, continuing to supply at high prices for more than 6 months from the effective date of the punishment.

4. Being legally punished for violating Article 14 of the Price Law, failing to proactively correct high prices, and not applying to lower the listing, winning bid, or selected prices, continuing to supply at high prices for more than 6 months from the effective date of the punishment.

5. Having committed serious dishonest acts more than three times within the province in the past three years.

3. Are administrative measures restricting market behavior?

Regarding the medical price and procurement credit evaluation system, some enterprises may worry that credit evaluation and dishonesty constraints indicate a shift away from the reform direction where market mechanisms play a leading role in the field of drugs and consumables, and whether administrative means will be used to restrict enterprises' rights to operate and set prices independently.

According to information from the National Medical Insurance Administration's official website, on September 16, a relevant person in charge of the Price and Procurement Department stated that as long as any entity in the medical production and operation chain is found to have engaged in commercial bribery and similar behaviors, exposing the issue of inflated prices for medical products, it reveals the essence of illegal and dishonest pricing behavior by medical enterprises.

Secondly, the credit evaluation system is based on buyer-seller contract relationships, based on equal rights and responsibilities, and based on the freedom of medical enterprises to enter and exit the centralized procurement market. Taking "eliminating the inflated price space" as an example, this is a way for dishonest enterprises to repair their credit, which can be chosen or not chosen, rather than an administrative coercive measure taken by the medical insurance department against dishonest enterprises.

Furthermore, engaging in illegal behaviors such as providing kickbacks cannot be equated with a market economy. The functioning of market mechanisms does not mean there is no supervision and constraints; rather, there are red lines and bottom lines.

It is understood that issues such as providing kickbacks and monopolistic price increases in the pharmaceutical and medical device fields have long existed and are significant reasons for inflated prices.

Taking the issue of drug kickbacks as an example, according to publicly available court judgment documents, more than half of the top 100 pharmaceutical companies in the country were found to have engaged in providing or indirectly providing kickbacks between 2016 and 2019.

Among them, the companies with the highest frequency were involved in more than 20 cases over three years, with a single case kickback amount exceeding 20 million yuan. The average sales expense ratio of listed pharmaceutical companies exceeds 30%.

The purpose of establishing a credit evaluation system is to leverage the guiding and normative role of the centralized procurement market for medical products, taking appropriate measures against dishonest medical enterprises with prominent issues such as providing kickbacks and monopolistic price increases, promoting medical enterprises to set prices according to the principles of "fairness, reasonableness, honesty, and quality-price matching", facilitating a reasonable return of medical product prices, and safeguarding the vital interests of the people.