Healthcare’s Prognosis in China Should Raise Optimism for its Lawyers

China's economic slowdown and the global slump in oil prices has not spared the in-house legal job market in China; however, foreign healthcare companies in China retain optimism for continued growth in the maturing healthcare sector as investment from domestic companies and government entities maintain the pace of ongoing reform.

The current state of the industry

Despite anticipated growth, the healthcare sector does face some obstacles. In a report conducted jointly by the World Bank, the World Health Organization and various Chinese government bodies published in July this year, China's ageing population and the increase in non-communicable diseases such as cancer—among other factors—have led to rising healthcare costs and without further reform, would require health spending to increase in real terms from Rmb3.5 trillion in 2014 to Rmb15.8 trillion in 2035. According to a report published by the Population Reference Bureau in 2010, China's population aged 65 and older was almost 90 million in 2000 and the elderly could number well over 300 million by 2050. At the same time, rising personal incomes mean that Chinese citizens are expecting better and more efficient healthcare.

While laws and regulations are regularly updated and amended to ease the burdens faced by both multinational and domestic healthcare companies, the ambiguity of Chinese laws present further challenges to lawyers when advising their clients. For instance, in response to the fast-growing medical devices and pharmaceutical sector, the State Council recently issued its plans to reform the regulatory approval process ("Opinions on Reforming the Review and Approval Process for Drugs and Medical Devices"), which means certain innovative drugs and products will have access to a new fast-track approval process. However, there are still questions over what the fast-track process will mean in practice and how the changes will be implemented.

Defining the meaning of promotional and non-promotional activities is another long-term issue. According to a leading lawyer with a top pharmaceutical company in China, differentiating promotional and non-promotional activities, along with the pricing of drugs and the confusion over the interpretation and enforcement of Chinese anti-bribery regulations, will see the continued importance of employing experienced Chinese legal counsel, as well as developing a strong compliance function, within foreign pharmaceutical and medical devices companies in China. This was highlighted in July 2015 when US baby formula producer Mead Johnson Nutrition (Mead Johnson) agreed to pay $12 million to settle charges with the US Securities and Exchange Commission (SEC). The SEC found that Mead Johnson violated the Foreign Corrupt Practices Act as it failed to reflect in its books and records over $2 million in improper payments made between 2008 and 2013 through its third-party distributors, which in turn, paid Chinese healthcare professionals to recommend Mead Johnson products and share patients' contact information.

Lawyers working for multinational pharmaceutical and medical devices industries in China will continue to be faced with the twin pressures of ensuring compliance with extraterritorial and domestic laws and balancing the demands of the business to take more risks and drive growth. The investigation by the Chinese authorities into GlaxoSmithKline's China business, which culminated in a record Rmb3 billion ($488 million) fine in September 2014, was a watershed for legal and compliance functions within foreign healthcare companies to tighten their compliance procedures.

The need for skilled lawyers

As these cases set new precedents in the healthcare industry and refine contemporary regulations and laws, foreign companies will need lawyers who can handle the pressure of working in a highly regulated and evolving environment. So what skills will a lawyer need to succeed in a multinational healthcare company in China?

  • To be more responsive and adapt quickly. A senior in-house lawyer who is a recent newcomer to the healthcare industry shared with me that the biggest challenges for in-house was that healthcare companies are much closer to the consumers and due to the ongoing risks that can lead to consumer complaints or litigation, there is a sharper focus on responsiveness to changes and difficulties. In turn, this requires greater flexibility and speed of thought on the part of the in-house lawyer in China, given the demands to meet not only the expectations of the business but also those of the regulators and foreign governments.
  • To know how to implement and maintain the compliance function within an organisation. One general counsel for a leading medical devices manufacturer said that most foreign medical devices companies had lean legal and compliance teams in Asia, but with the expansion of the healthcare market, there has been a strong demand for lawyers who can handle not only the routine legal and compliance issues but also have the skill to sit with senior management to function as a true business partner. Also as competition in the pharmaceutical sector increases, sales departments are prepared to consider greater risks in achieving sales targets, and consequently, lawyers must therefore be more aware of new legal and compliance problems, according to a senior lawyer working at one of the big pharmaceutical companies in Shanghai.

The outlook for lawyers in the healthcare industry

The combination of continuing structural concerns in China's healthcare system with the ever-changing challenges from a compliance and regulatory perspective for multinational healthcare companies may concern some lawyers considering a career move to such organizations, but in-house counsel in the healthcare sector do see more opportunities to develop their skills, and some lawyers have benefitted from a significant rise in remuneration.

Lawyers applying for roles in healthcare must carefully consider the skills and knowledge they have to offer a new employer and how they can develop their abilities and legal competencies to better enhance their longer term career prospects. For those aspiring to become in-house counsel—or those who wish to develop their corporate legal careers—in pharmaceuticals or medical devices, a move into the healthcare industry is an opportunity to test themselves in a challenging but ultimately rewarding environment.

This article was featured on IFLR1000.com, 20 October, 2016.

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Jack McDouallJack McDouall is a legal search Consultant at Allegis B-N, an affiliated company of global legal search firm Major, Lindsey & Africa. A former practicing lawyer, Jack has developed expertise of the China legal markets to aid multinationals expand or establish their legal departments in key China legal markets.

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