India Compliance Update Life science space

Transcription

India Compliance Update
Life science space
September 12, 2012
Shanghai, China
Life
science space
Presenter:
Mr. Sandeep
Baldava
September
12,
2012
Partner – Fraud Investigation & Dispute Services
Ernst & Young, India
Shanghai, China
Contents
►
Life science space in India
►
Setting up Life science shop in India –
Compliance update
►
►
►
Page 2
Compliance requirements
Compliance – regulation effectiveness
Compliance violation
►
Doing business in India
Challenges: Bribery and corruption
►
Fraud risk susceptibility in Life science
space
►
Way forward
India Compliance Update: Life science space
Background
Indian Pharmaceutical Industry ranks 3rd in terms of volume and is 14th in terms of value globally.
In the last 10 years, Government of India has aggressively adopted prudent strategies to boost the country’s life science
sector. From granting 100% Foreign Direct Investment (‘FDI’) in the drugs and pharmaceuticals segment, to establishing
various pharmaceutical Special Economic Zones (‘SEZs’) across the country, a range of initiatives have further
strengthened the Indian pharmaceutical industry. Manufacturers are free to produce any drug duly approved by the drug
control authority.
Yet, effective regulatory enforcement is still in progress. The sub-continent is grappling with challenges of regulatory non
compliance, counterfeit drugs, poor infrastructure, topped with bribery and corruption.
Five broad segments of Life science space in India
“Pharmacy
of the
Developing
World”
Page 4
Setting up Life science shop in India
Compliance update
Compliance requirements
Statutory
requirements
•Shop and establishment license
•Factory License
•Environmental clearance
•Labour license
•Local municipal corporation clearance
Health care compliance
Health care
compliance
Regulatory
requirements
•Main regulatory body in India is the
Central Drugs Standard Control
Organization (CDSCO), in charge of
approval of licenses for drugs
Other compliance
requirements
•US Foreign Corrupt Practices Act
•UK Anti Bribery Act
Public servants in India can be Penalized
for corruption under •Indian Penal Code, 1860
•Prevention of Money Laundering Act, 2002
•The Prevention of Corruption Act, 1988,
Amendment 2008
•Code of Criminal Procedure, 1973
•The Central Vigilance Commission Act, 2003
•National Pharmaceutical Pricing
Authority (NPPA) is responsible for fixing
and controlling prices of bulk drugs as per
Essential Commodities Act
•The Drugs & Cosmetics Act,
1940 regulates the import, manufacture,
distribution and sale of drugs in India
•The Pharmacy Act, 1948 is meant to
regulate the profession of Pharmacy in
India
Page 6
•The Medical Council of India (MCI) is a
statutory body with the responsibility of
establishing and maintaining high standards
of medical education and recognition of
medical qualifications in India.
•Department of Pharmaceuticals, to ensure
abundant availability of high quality essential
drugs at reasonable prices in India.
And several others …….
Ethical conduct of heath care professionals (“HCP”) is vital for maintaining
professional autonomy, integrity and independence in their interactions with the
pharmaceutical and allied healthcare organizations. Implementation of good
marketing practices by pharmaceutical companies demonstrates their adoption
of ethical practices and transparency in their operations.
EY conducted a survey * in September 2011 in an attempt to
provide insight into how the current regulations are affecting
health care professionals and the pharmaceutical industry.
The survey was administered in two parts:
Part one was conducted among marketing professionals in the pharmaceutical
sector on the draft uniform code of marketing practices for the Indian
pharmaceutical industry (UCPMP) issued by the Department of Pharmaceutical
(DoP).
Part two was conducted among health care professionals on the guidelines
issued by the Medical Council of India (MCI), regarding its code of conduct for
HCPs in their relationship with pharmaceutical and allied health care companies.
* Source: Pharmaceutical Marketing: ethical and responsible conduct, A survey on effectiveness of guidelines
Page 7
Ineffectiveness of regulations
Lack of significant enforcement by the MCI
More than 50% of the respondents felt that the MCI’s guidelines
for medical practitioners and the DoP’s code of the marketing
practices for pharma companies will not suffice to ensure ethical
marketing of drugs in India
According to 72% of the respondents, there has not been
significant enforcement of the MCI’s guidelines
Sample : 50
Base: All
Sample : 50
Base: All
Is the two-tier approach of MCIs regulating HCPs and the DoP in the
Ministry of Chemicals and Fertilizers to regulate the pharma industry
the best way of deterring the practice of pharma companies luring
HCPs through gifts and free hospitality offers?
Page 8
Has there been significant enforcement of these guidelines by the
MCI?
Manipulation in record-keeping of samples
Need for more robust controls
More than 40% of the respondents felt that enforcement of
UCPMP may lead to manipulation in recording actual sampling
activity
90% of the respondents felt that pharma companies need more
robust internal controls to ensure their compliance with
regulations
Sample : 50
Base: All
In light of UCPMP regulations relating to distribution of free
medicinal samples, would field formations indulge in manipulation
of records to conceal non-compliance with the code?
Page 9
Sample : 50
Base: All
With the implementation of the UCPMP in the country, do you feel that
pharma companies should focus on building a robust internal control
system that relates to compliance with the DoP’s guidelines?
Compliance violations
Statutory
requirements
•Shop and establishment license
•Environmental clearance
•Labour license
•Local municipal corporation clearance
Source: http://pharmabiz.com/NewsDetails.aspx?aid=67239&sid=1
http://pharmabiz.com/NewsDetails.aspx?aid=67385&sid=1
Page 11
Regulatory
requirements
•Main regulatory body in India is the
Central Drugs Standard Control
Organization (CDSCO), in charge of
approval of licenses for drugs
•National Pharmaceutical Pricing Authority
(NPPA) is responsible for fixing and
controlling prices of bulk drugs as per
Essential Commodities Act
•The Drugs & Cosmetics Act,
1940 regulates the import, manufacture,
distribution and sale of drugs in India
•The Pharmacy Act, 1948 is meant to
regulate the profession of Pharmacy in
India
Source: http://pharmabiz.com/NewsDetails.aspx?aid=70027&sid=2
http://businesstoday.intoday.in/story/drug-approval-india/1/24757.html
Page 12
Health care compliance
•The Medical Council of India (MCI) is a
statutory body with the responsibility of
establishing and maintaining high standards
of medical education and recognition of
medical qualifications in India.
•Department of Pharmaceuticals, to ensure
abundant availability of high quality essential
drugs at reasonable prices in India.
Source: http://www.downtoearth.org.in/content/15-doctors-went-foreign-jaunt-sponsored-pharma-company-says-lok-sabha-member
http://articles.timesofindia.indiatimes.com/2010-07-01/india/28285348_1_indian-doctors-new-panel-nite
Page 13
Other compliance
requirements
•US Foreign Corrupt Practices Act
•UK Anti Bribery Act
Public servants in India can be
Penalized for corruption under •Indian Penal Code, 1860
•Prevention of Money Laundering Act,
2002
•The Prevention of Corruption Act,
1988, Amendment 2008
•Delhi Special Police Establishment Act,
1946
•Code of Criminal Procedure, 1973
•The Central Vigilance Commission Act,
2003
Source: http://www.financialexpress.com/news/cbi-arrests-mci-president-ketan-desai-in-bribe-case/610549/
http://articles.timesofindia.indiatimes.com/2012-07-31/jaipur/32960592_1_bribe-anti-corruption-bureau-acb
http://ibnlive.in.com/news/lilavati-hospital-caught-in-black-money-mess/143601-3.html
Page 14
Perception on bribery and corruption per Ernst & Young’s 12th Global Fraud Survey*, 2012
% Applies to
% Does not apply to
% Applies to
North Latin Western
Amer. Amer. Europe
Central &
Far East
Eastern Middle
Europe
East India Africa & Asia Japan Australia
14
68
22
51
44
70
67
36
14
14
5
21
5
17
14
20
17
20
-
4
9
25
16
29
38
32
50
31
6
14
*Source: 12th Global Fraud Survey, Growing Beyond: a place for integrity (May 2012)
Between November 2011 and February 2012, our independent researchers conducted a total of 1,758 interviews with employees in 43 countries covering
North America, Latin America, Europe, Africa, Middle East, Far East Asia, Japan and Australia. The survey achieved a broad industry sector coverage.
The researchers interviewed senior decision makers from a sample of the largest companies (by turnover) in each country. Principle respondents, who
were chosen for their responsibility for tackling fraud, included CFOs, heads of internal audit, heads of legal and chief compliance officers.
Page 16
Unethical behavior is widespread, with an increased willingness to pay bribes to survive economic downturn, as
per Ernst & Young’s 12th Global Fraud Survey, 2012
28% of India respondents believe it is acceptable to
use cash payments to win or retain business. By
contrast, in North America and Africa only 3% and 7% of
respondents respectively stated it was acceptable.
34% in India as against 9% in North America and 10%
in Africa think that personal gifts to win or retain
business can be justified.
54% in India as against 13% in Latin America and 26%
in Western Europe think that entertainment to win or
retain business can be justified.
In order to survive an economic downturn, respondents are increasingly willing to mis-state financial statements (overall 5% versus 3% in last
survey).
16% respondents in India as against 1% in Africa and 2% in North America, Australia and Central and Eastern Europe consider mis-stating financial
statements justifiable.
Page 17
Fraud risk susceptibility in Life science space
Five broad segments of Life science space in India
Page 19
Pharmaceutical
Nexus between Drug manufacturers, Regulator and Medical experts* illustration basis newspaper article
Medical Experts
Irregularities in the practice of
taking expert opinion on
deciding about new drugs.
The so-called expert opinion
is actually guided and written
by “invisible hands of drug
manufacturer”.
HCPs are lured by promise of
costly gifts and foreign trips to
exotic locales in the guise of
seminars and conferences in
return for prescribing
company’s products.
Expert Opinion Forged: Whenever drug controller
sought expert opinion on drugs, they appeared forged
as experts sitting in different parts of India gave
identical opinion and in many cases, committed the
same typographical mistakes.
Medical Representatives
Drug
Manufacturer
Drug Controller
While many drugs of foreign firms have
been approved without proper trials,
rules are not adhered to even when
they are conducted.
Clinical Trials on Patients
Drug Approving Authority
According to the health ministry, 31 new drugs
were approved between January 2008 and
October 2010 without clinical trials on Indian
patients.
Trials have to be conducted at different sites so as to include various ethnic groups. But firms were permitted to conduct trials at convenient sites/ locations which do not
represent diverse populations.
Source:
http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETD/2012/05/11&PageLabel=3&EntityId=Ar00300&ViewMode=HTML
Page 20
Medical equipments
Use of Dealers to make inappropriate payments at tax* checkpoints
Scheduled surgery
requires certain medical
equipments not
available locally
Octroi/Entry tax
collected from
Company but not
deposited with
authorities. Vehicles
passed by offering
speed payments
While bringing the medical equipment in
city, dealers are pressurized by sales staff
to make unofficial payments to tax officials
to evade duty.
*Local tax collected on various articles brought into a district for consumption.
Page 21
The dealer is then compensated for
such unofficial payments by way of
increased remuneration or free trade
schemes.
Contract Research Organization
Tripartite agreement requirement over-ruled to pass payments to favored party
Company owned
by Doctor
Doctor
Payments
made to
unrelated
party
Hospital
Sponsor
Page 22
Research and Development
Third party consultants could be used to liaise with multi-level state, district and federal licensing bodies like CDSCO
to expedite approvals by making inappropriate payments/ rendering favours
Client pressurizes Consultant to obtain license urgently
Agreement has consultant fee component designed to provide
access to excess funds. These could be used for inappropriate
payments to Government authorities for license approval and
facilitation. In such cases, consultant fee is exponentially higher
than Government license application fee.
For example, manufacturing license application fee for testing and
analysis (for developmental purposes) is approximately USD 3 while
corresponding consultant fee approximately USD 100.
Page 23
Consultant offers car hire services to Government officials for
“relationship management”, to benefit all his clients.
These expenses are not separately reimbursed by consultant’s
clients and hence cannot be allocated to any specific client.
Way forward
Way forward
India’s fight
against
corruption
Source: http://articles.timesofindia.indiatimes.com/2011-04-10/india/29402855_1_anna-tum-sangharsh-karo-civil-society-combat-corruption
http://southasiamail.com/blog/will-lokpal-bill-help-to-stop-corruption-in-india
http://newindianexpress.com/editorials/article586296.ece?pageNumber=1&parentId=5358&operation=complaint
Page 25
Way Forward
Freebies to medical practitioners to be taxed - CBDT
CBDT Circular No. 5/2012 [F. No. 225/142/2012-ITA.II], dated 1-8-2012
► It
has been brought to the notice of the Board that some pharmaceutical and allied health sector Industries are providing
freebees (freebies) to medical practitioners and their professional associations in violation of the regulations issued by
Medical Council of India (the ‘Council’) which is a regulatory body constituted under the Medical Council Act, 1956.
► The
council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and
Ethics) Regulations, 2002 (the regulations) on 10-12-2009 imposing a prohibition on the medical practitioner and their
professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical
and allied health sector Industries.
37(1) of Income Tax Act provides for deduction of any revenue expenditure (other than those failing under
sections 30 to 36) from the business Income if such expense is laid out/expended wholly or exclusively for the purpose of
business or profession. However, the explanation appended to this sub-section denies claim of any such expense, if
the same has been incurred for a purpose which is either an offence or prohibited by law.
► Section
► Thus,
the claim of any expense incurred in providing above mentioned or similar freebees in violation of the provisions of
Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under
section 37(1) of the Income Tax Act being an expense prohibited by the law. This disallowance shall be made in the
hands of such pharmaceutical or allied health sector Industries or other assessee which has provided aforesaid freebees
and claimed it as a deductible expense in its accounts against income.
► It
is also clarified that the sum equivalent to value of freebees enjoyed by the aforesaid medical practitioner or
professional associations is also taxable as business income or income from other sources as the case may be
depending on the facts of each case. The Assessing Officers of such medical practitioner or professional associations
should examine the same and take an appropriate action.
Page 26
Way forward
While civil society in India is fighting back corruption, Government of India
is supporting by putting in place regulations to strengthen compliance
implementation and monitoring. Recent initiatives* in this direction are:
►
Move to establish an integrated regulatory system through the
constitution of a National Drug Authority so that quality regulation and
price control is performed by the same agency
►
Establishment of pharmacovigilance centers at national, zonal and
regional levels to monitor adverse drug reactions
►
Move to bring 300+ bulk drugs under price control and regulate trade
margins
►
Capability strengthening to monitor clinical trials, including the setting
up of the Clinical Trials Registry of India (CTRI)
Technologically strong and totally self-reliant, the life science sector in
India has low costs of production, low R&D costs, innovative scientific
manpower and strength of national laboratories. With these strengths,
Indian life science space is undoubtedly the sunshine of global
pharmaceutical industry.
* Source: http://www.nistads.res.in/indiasnt2008/t4industry/t4ind18.htm
Page 27
Understanding the inherent compliance and fraud risks and addressing
them proactively would help life sciences companies in avoiding adverse
financial and reputational impact
Thank you
Mr. Sandeep Baldava
Partner – Fraud Investigation & Dispute Services
Ernst & Young, India
© 2012 Ernst & Young Pvt. Ltd. Published
in India.
All Rights Reserved.
Life
science
space
Publication or reproduction by any means only with written approval by Ernst & Young
September 12, 2012
This publication contains information in summary form and is therefore intended for general guidance only. It is
not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst &
Shanghai,
China
Young Pvt. Ltd. nor any other member
of the global
Ernst & Young organization can accept any responsibility for
loss occasioned to any person acting or refraining from action as a result of any material in this publication. On
any specific matter, reference should be made to the appropriate advisor.

India Compliance Update Life science space

Transcription

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