Health Care Compliance Check-up: Czech Republic

The Ropes & Gray Global Health Care Compliance Initiative’s virtual trip around the world podcast series highlights our collaboration with our local counsel contacts, in particular the Local Law Comparison Guide. The Local Law Comparison Guide (the “Guide”) is a resource tool providing country-specific surveys that analyze legal, regulatory and industry requirements governing industry interactions with health care professionals. As part of this series, Ropes & Gray attorneys interview our local counsel partners, who are based around the world and helped develop the Guide. These discussions highlight notable health care regulations and developments impacting compliance in our local counsel partners’ respective countries.

In this first episode, we are joined by our partner in the Czech Republic, Tomáš Čihula. Tomáš is a partner and Central and Eastern Europe sector leader for life sciences and health care at Kinstellar. Tina Yu, an associate at Ropes & Gray, discusses with Tomáš new regulatory requirements on medical device advertisements. They also discuss how COVID-19 is presenting new compliance challenges as pharmaceutical companies become increasingly reliant on outsourcing in-house sales activities to third-party agencies, creating further compliance exposure.

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Transcript:

Tina Yu: Hi everyone, and welcome to Ropes & Gray's virtual trip around the world podcast. My name is Tina Yu, and I am an associate in the London office. I have with me Tomáš Čihula from our friends at Kinstellar, and today he is going to be talking about some interesting developments in health care compliance from the Czech Republic. Tomáš, would you mind giving a brief introduction about yourself?

Tomáš Čihula: Sure. I'm happy to do that. Hello, everyone. My name is Tomáš Čihula. As Tina said, I'm a partner at Kinstellar. Kinstellar is a regional law firm that focuses on the markets in Central and Eastern Europe. I am based in Prague in the Czech Republic, and I specialize in life sciences and health care. In fact, I am the sector leader for the life sciences and health care sector, and I'm coordinating our efforts across the whole region of Central and Eastern Europe.

Tina Yu: Thank you, Tomáš. We're very excited to have you with us today as we're launching the Global Health Care Compliance Initiative. Just for our listeners, the Ropes & Gray Global Health Care Compliance Initiative showcases our leading health care compliance practice around the globe, and we work with many of our regional partners who are also specialists in health care compliance in different regions. So Tomáš, let's dive in and discuss the key regulatory and compliance considerations in the Czech Republic, which we're focusing on today. So I think to start off, it will be interesting to hear from you the top risks that you see in your jurisdiction. If you could give us, for example, three hot topics that would be great.

Tomáš Čihula: Obviously, the Czech Republic, as other countries, has been heavily hit by the COVID-19 crisis, by the pandemic, and that also had an impact on how health care companies and life sciences companies conduct their business in the Czech Republic and in the broader region. Obviously, we could see that the activities of enforcement authorities that also monitor the situation in the health care sector, they focused more on the pandemic. But still, they follow their agenda as regards to life sciences and health care compliance, and compliance of the businesses with the respective regulations.

But what we could see very recently was that some of the authorities, including criminal authorities, have started to focus on procurement of products and services related to the pandemic. The respective authority in the Czech Republic, which is the Chamber of Auditors, they issued a report where they criticized how health care companies, publicly owned companies, how hospitals were buying health care products and pharmaceuticals in the past and what type of contracts they were using. Obviously, all of these health care companies and health care providers, they were under big pressure to buy products quickly, but that they kind of circumvented public procurement rules and the other regulations, and this is now being reviewed by the respective authorities, so we may expect further action in that regard in the next month. So that's, I think, one of the risks that we can identify.

Then obviously, there is an ongoing enforcement regarding advertising, especially advertising related to health care professionals. In the Czech Republic, like in other EU countries, we have quite stringent rules regarding advertising related to health care professionals, and there is an ongoing debate, especially how health care professionals should be targeted, what type of contracts should be used, and how to advertise pharmaceuticals appropriately. There have been recently some cases regarding, for example, the use of post-clinical or post-registration clinical studies and how health care professionals are being remunerated in that regard. Also, there is a question of when you use third-party agencies. So just someone coordinating the communication and advertising targeted at health care professionals, if they want to use third-party agencies, you have limited possibilities how to control what the agencies are doing; and also, the respective authority in the Czech Republic, which is the State Institute for Drug Control, is currently monitoring how pharmaceutical companies are enforcing certain requirements in relation to these third-party agencies. So, that's another potential risk that needs to be addressed by pharmaceutical companies in the Czech Republic.

Then I think that the final topic that I would like to mention is a new set of rules that governs the advertising of medical devices in the Czech Republic. We have a new regulation that will enter into force at the end of May this year—this new regulation will bring a completely new set of rules of how advertising can be done in the area of medical devices. It is going to be very similar to what we have currently in the area of pharmaceuticals, and it should fill the loophole in this regard because the area of medical devices was enjoying much more lighter rules so far compared to the area of pharmaceuticals, and that will change going forward. So from my perspective, this is probably the most significant development in the area of health care compliance in the Czech Republic this year, and that's very important, especially for medical devices companies that have activities in the Czech Republic because they will have to comply with this new set of rules.

Tina Yu: Thank you, Tomáš. That's really timely information, and I think it would make sense to transition to a discussion on the regulatory framework within the Czech Republic. I think we're particularly interested in the extent that compliance matters are regulated by the government compared to regulations by industry groups or other third parties, so it would be great to hear your thoughts on that.

Tomáš Čihula: As I said, the Czech Republic is a member state of the European Union. That means that we follow EU rules in this regard. So, the basic framework is set actually by the EU. At the EU level, there are certain directives in place that have to be implemented also in the Czech Republic. So we have certain statutory regulations that implement these EU rules, and that's, I would say, the basic set of rules.

Also, we have a regulatory authority that is in charge of the enforcement of the rules, so that's in principle the State Institute for Drug Control in the Czech Republic, which is a part of the Ministry of Health in the Czech Republic. But then also we've got industry associations in the Czech Republic that issue their own guidelines or codes of conduct that they then try to enforce. The most important one in the Czech Republic is the Association of Innovative Pharmaceutical Producers, which is abbreviated as AIFP, and this association is a member association of EFPIA. So they, again, try to follow the code of conduct that has been created at the EU level by the EFPIA and the code of conduct that has been enforced by the association.

I have to say also that the member companies of the Association of Innovative Pharmaceutical Producers are the ones that seem to be the most compliant with all the regulations because of the code of conduct, I would say the additional layer which tends to be more stringent than the statutory regulation. We've got also some other local associations in the pharma sector, but also in the medical devices sector. These associations, they have their own codes of conduct, but they tend to be more general, much broader I would say, and then obviously the enforcement in this regard is not so stringent. So that's a basic overview of the regulatory framework in the Czech Republic from my side.

Tina Yu: Now, going on to enforcement actions, have there been any recent settlements or enforcement cases in the Czech Republic that you think is notable for our listeners?

Tomáš Čihula: Well, interestingly, when I looked at the recent enforcement of the authorities in the Czech Republic, as regards to the enforcement concerning the advertising in the Czech Republic, the State Institute for Drug Control conducts regularly inspections at pharmaceutical companies. And in most of the cases, they didn't find any infringement, which seems to be a bit strange to me actually because we've got some cases where we have doubts about whether the activity of a particular pharmaceutical company is in compliance with the regulations. But according to the State Institute for Drug Control, they seem to be quite compliant over the last years, which is I think a good sign. On the other hand, we shouldn't also forget about the enforcement activities of criminal authorities in the Czech Republic. The criminal authorities, they also look at how the advertising activity is being conducted by pharmaceutical companies in the Czech Republic. Especially, they look at the transfer of value; and then obviously, they don't apply the rules regarding the advertising because they are not competent to do so, but they approach the issue from a criminal law perspective, especially whether the crime of bribery has been committed or not.

We are aware of certain cases in this regard where pharmaceutical companies have been caught bribing health care professionals in the Czech Republic because health care professionals also can be deemed as public servants or officials if they work for a publicly-owned hospital, for example. And in these cases, there have also been some settlements with criminal authorities. Usually, these settlements, they concern the health care professionals themselves or the sales representatives as individuals, not so much the companies themselves. They can be also held criminally liable in the Czech Republic for bribery, but so far there have been very, very limited cases. Also, the publicity around these cases has been limited in the Czech Republic because the information regarding the settlement is not usually published, and it's very difficult to track the developments in this regard. We usually have to rely on either our own experience and practice or public sources like press releases and similar, and the information is quite scarce. But from what we know, based on our market knowledge, there have been so far limited cases regarding settlements or also enforcement activities that are targeting the pharmaceutical companies or health care companies in the Czech Republic. Also the cases, as I said, have been related to bribery and to a limited extent also compliance with public procurement rules.

Tina Yu: Got it—thank you for that. Very helpful overview. Then turning back to COVID, which is on the top of everyone's minds lately, I know we covered this briefly when we discussed the top risks earlier before, but just curious to see if you have any additional thoughts on COVID-19-related regulatory issues and other risks that you might want to raise with our listeners?

Tomáš Čihula: As I said, COVID-19 has been a major disrupter for any business, I would say, including the legal business actually, how lawyers conduct their business. As it regards to health care companies or pharmaceutical companies, what we could see in the Czech Republic is that many pharmaceutical companies, and also medical devices companies, were trying to reshape their teams of sales representatives because obviously the sales representatives are very dependent on physical contact with the health care professionals. So what many pharmaceutical companies or medical devices companies were considering as a result of the current pandemic, was that they could potentially scale down, decrease the number of their in-house sales representatives and that they would make contracts with third-party agencies to take over this capacity.

Obviously, this is a good cost-saving measure to some extent. It provides more flexibility to pharmaceutical companies or medical device companies. On the other hand, sometimes it's difficult to control how the advertising activity in this regard is being conducted. So, it's very important to include very good provisions in the respective agreement with a third-party agency in order to avoid potential legal risks associated to this, I would say, outsourcing activity. So that's, I think, one of the major challenges for the pharmaceutical companies currently.

Otherwise, we haven't seen any impact in terms of enforcement. So the State Institute for Drug Control, the respective enforcement authority, has not issued any guidance in this regard, how pharmaceutical companies should behave or whether they should be careful when outsourcing this particular activity. But from our experience when we dealt with certain compliance cases for our clients, we often realize that one of the biggest risks for the pharmaceutical companies or medical devices companies was in a situation where they were outsourcing the activities of sales representatives to third-party agencies or to individuals, because simply they weren't their employees and it was more difficult for them to control what is going on there.

Otherwise, obviously currently the health care sector as a whole is more under scrutiny of various authorities because it is quite apparent that the health care sector is very important. Also, from the political perspective, it is subject of many discussions at the government level, but also at the level of the Czech Parliament, so we can expect that the government and the Czech Parliament will also act accordingly. There have been discussions in the Czech Republic whether certain pharmaceutical companies should be considered as being part of the so-called “critical infrastructure,” the same case actually for certain health care providers, and that would, again, mean more scrutiny and oversight by the government. But this is just a topic that is currently being discussed, and we will see how the situation will develop—we can leave it maybe for our next podcast.

Tina Yu: Of course, looking forward to see how that develops, and for you to give us your thoughts on that. Again, I wanted to thank you and the Kinstellar team for your tremendous contribution to the Local Law Comparison Guide. You are one of our key contributors, and the information there has been incredibly helpful. As our listeners know, the Guide provides detailed information on the rules applying to company-sponsored and third party-sponsored events attended by health care professionals. We're going to refer our listeners to the Guide for more detail, but while we have you, is there anything that you want to point out for the Czech Republic in the Guide?

Tomáš Čihula: Well, maybe I would like to stress again that health care companies in the Czech Republic are subject to more detailed scrutiny currently, simply because the health care sector is more relevant now for everyone. That's why also the politicians have been under pressure to monitor the situation, and also, the authorities have been under pressure to what is going on in the health care sector. So we can expect, I think, more activity by the authorities in this regard, also in terms of criminal liability as I said. Eventually, there might be actions taken by the respective criminal authorities. Health care companies, especially pharmaceutical companies, should be mindful what is going on in relation to the use of third-party agencies and they should be very careful there.

Otherwise, the health care sector is obviously developing very fast, and we could see, for example, a huge increase in use of telemedicine. That's not just a case of the Czech Republic, but also of many other countries in the region such as, for example, Hungary, which I think has developed very quickly in this regard. Another important topic from my perspective is cybersecurity—we could see some cyberattacks. Again, health care providers in this situation, it's particularly damaging for the companies. So I am aware that, for example, in the Czech Republic the government is trying to address this situation and will be adopting certain measures in this regard, also including certain health care providers into the so-called “critical infrastructure.” But also governments in Hungary, for example, or in Romania, in the broader region, are working on certain measures in this regard.

Also, we will see how the situation regarding COVID will develop further. We have seen in the last year that some of the governments have taken measures, for example, to impose export bans or they confiscated certain products that then they used to address the pandemic. Obviously, any operator in the Czech Republic or in the broader region in Central and Eastern Europe should be aware that they might be affected by these measures. So, these are probably the specific considerations I have at this moment.

Tina Yu: Thank you, Tomáš. Finally, just to wrap up, I know we've touched on this as well with COVID and recent developments in regulations—is there anything in particular that is on your radar for the next 12 months?

Tomáš Čihula: I think we will monitor very closely how the new rules regarding the advertising of medical devices will be applied in practice. That doesn't concern only the Czech Republic, but also some other countries such as Romania, Slovakia, or Turkey that very recently adopted similar measures. So, we will monitor that situation. Obviously, the whole new regulation regarding medical devices will enter into force in May this year. So, that's very important for compliance of medical devices manufacturers that are active in the Czech Republic, but also anywhere in Europe.

Then we might expect also certain antitrust cases that will address price coordination related to the pandemic. We know about a case in Turkey, and there might be some new cases coming also in the other countries. We know that there is also a discussion ongoing in the Czech Republic whether there have been some unlawful antitrust activities between certain distributors or manufacturers in the Czech Republic. So, let's see how those situations will develop. Then obviously, the whole new set of cybersecurity measures. This is something that health care companies, health care providers, or pharmaceutical companies should be ready to address.

Tina Yu: Thank you, Tomáš. Looks like we are living in very exciting times in terms of regulatory developments.

Tomáš Čihula: Absolutely. Yes, I don't know if it's good or bad for the health care providers, but that's the way it is, and we might, it’s fair to say, expect more regulation to come.

Tina Yu: We'll definitely circle back with you to see how things pan out over the coming months. Thank you again; and to close, I want to express our appreciation for your partnership and the Kinstellar team's contributions in developing the Local Law Comparison Guide. In addition to the regions that were discussed today, we will compile entries to the Local Law Comparison Guide across regions within Asia, Europe, and North America. If you are interested in receiving our Local Law Comparison Guide, please reach out to the Ropes team for more information. Thank you for listening, and hope you have a great day.

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