Comprehensively Interpret Due Diligence on Healthcare Organizations Receiving Sponsorships, Donations and Grants and Response

I. General Changes Introduction of New RDPAC and Key Added Rules, as well as Scope and Definitions

On 17 November 2022, R&D-based Pharmaceutical Association Committee of China Association of Enterprises with Foreign Investment ("RDPAC") officially unveiled the 2022 Revision of the RDPAC Code of Practice ("RDPAC Code of Practice 2022", hereinafter abbreviated as "New RDPAC) in Beijing, which will come into effect on April 1, 2023. Under the China Association of Enterprises with Foreign Investment (CAEFI), the R&D-based Pharmaceutical Association Committee (RDPAC) is a non-profit organization made up of 45 member companies with pharmaceutical R&D capability. RDPAC requires member companies to make adherence to the rules, irregularly develops various strategies in order to update and stay relevant regarding the compliance management rules and requirements of the pharmaceutical industry.

The New RDPAC expands the scope of the Code of Practice, including member companies' interactions with patient organizations and patients, strengthened control requirements in supporting healthcare professionals, intensified control to attendees in Speaker Programs, refined review requirement of speakers' presentation materials, enhancement in due diligence on healthcare organizations and added content of interactions with patient organizations¹. One of the key changes in the New RDPAC is the newly-added chapter on "10.3 Due Diligence on Healthcare Organizations" (see "II. New RDPAC Interpretation"), which sets out requirements for third-party risk management and evaluation to healthcare organizations.

The New RDPAC emphasizes that before providing any sponsorship, donation or grant to a healthcare organization, member companies should perform proper due diligence on the healthcare organization, so as to determine whether the healthcare organization is an appropriate recipient for such sponsorship, donation or grant. The New RDPAC raises more stringent interaction requirements between member companies and healthcare organizations.

When New RDPAC is officially in effect, in the event that a breach is established pursuant to the proceedings hereunder, the Panel may impose one or more of the following sanctions on the offending company, depending on the severity of the breach of the Code as well as the offending company's willingness to correct/remedy its breaching conduct.

Scope of Application and Definition for the Content Mentioned above:

• Set out definitions of Sponsorship, Donations and Grants:

• Set out definition of healthcare organizations:

"healthcare organization" means an organization that performs any professional activities in the healthcare area, including without limitation: (i) medical institutions; (ii) medical associations, physician societies, and hospital associations; (iii) industry associations; and (iv) charitable foundations.

II. NEW RDPAC Interpretation

Normally companies offered healthcare organizations sponsorships, donations and grants in a relatively large amount. Relevant organizations might encounter risks below and therefore it is likely to ultimately impact the effective carry-out of corresponding projects, which is expected by companies, and more importantly, impact company image and goodwill.

• Organizers qualification risk: Sponsored or granted activities are held by healthcare organizations such as foundations and medical associations. Certain healthcare organizations are unable to hold certain activities because of its nature.
• Inadequate organizing capabilities: Certain healthcare organizations do not have clear understanding to pharmaceutical industrial basic compliance requirement due to insufficient organizing experience and out-sourcing.
• Reputational risk: Relevant healthcare organizations might suffer adverse publicity or sanctions, thus making it possible to bear potential reputational risk when cooperating.

Only part of the cases are mentioned above.

In order to assist pharmaceutical industry companies to have a better understanding and execution of NEW RDPAC, and to avoid associated risks, Deloitte China Risk Advisory LSHC service team relied on years of experience regarding third-party risk management and due diligence on healthcare organizations and interpreted the newly-added chapter of "Due Diligence on Healthcare Organizations" as follows:

III. Summary of Implementation Difficulties and Key Points

1. The procedure is not thorough.  

• There may be cases where the due diligence procedure is not adequately designed or not updated in a timely manner;  
• The criteria for risk judgment are not uniform and rely too much on the subjective judgment of examiners. 

2. Inadequate implementation

• May miss the optimal due diligence time, such as failure to complete the required due diligence before signing/renewing the contract, or not fully implementing all procedures;  
• Cookie-cutter methodology, but the types and risks of actual healthcare organizations vary from case to case;  
• May not have fully obtained the required information to ensure the accuracy of the risk assessment of the due diligence subjects;  
• Large numbers of collaborators to be assessed may result in delays in the work of examiners and may also lead to companies contracting inappropriate third parties without obtaining a complete due diligence report. 

3. The content of the report is of no value.

• Due diligence content is lengthy and cumbersome, causing confusion to report-users;  
• Due diligence report contains no conclusions or recommendations. 

4. Post-control is not followed up.

• Failure to properly follow up the risks identified;  
• The actual cooperation business is inconsistent with the due diligence approval business. 

IV. How Deloitte China Risk Advisory Life Sciences & Health Care Industry Team can assist RDPAC member companies, or other pharmaceutical companies in the industry, to better and faster implement due diligence related to third-party risk management:

1. How to develop a thorough formal due diligence procedure?

Deloitte China provides full life cycle risk management services for third-party partners, strict and unified standards, is committed to helping enterprises deal with internal and external risks in third-party management, and assists enterprises to manage the full life cycle risks of third parties, including: defining third-party risks, assessing and introducing third parties, continuously supervising third-party behaviors, and re-evaluating identified risks.

2. How to ensure that due diligence is carried out in accordance with relevant procedures, update due diligence as required and retain relevant due diligence records?

Deloitte China launches a one-stop service for life cycle risk management outcomes in healthcare organizations that complements artificiality and intelligence to improve efficiency while delivering high-value services.

3. How can due diligence labeling be prescribed with a reasonable level of detail?

Deloitte China has extensive experience in industry services, and can provide fully flexible and customized solutions based on different types of healthcare organizations and selected risk perspectives. The report will not only identify risks in key internal indicators and external indicators (including non-financial indicators and financial indicators, such as operational and development capabilities) of the healthcare organization, but also provide quantitative and qualitative comprehensive assessment and analysis, as well as risk mitigation recommendations, and even further help enterprises monitor the implementation of relevant risk mitigation plan and recommendations execution.

¹ R&D-based Pharmaceutical Association Committee of China Association of Enterprises with Foreign Investment （RDPAC），RDPAC Code of Practice[EB/OL]，2022-11-17 [2023-03-07]，http://www.rdpac.org/index.php?r=site%2Fnews&id=259