Be Careful When Dealing with Doctors at State-Owned Foreign Hospitals

CONFERENCE NEWS: MDMA ANNUAL MEETING

Medical device firms that offer gifts to doctors (or any other employees) at state-owned hospitals abroad will run afoul of the Foreign Corrupt Practices Act, attendees at the MDMA annual meeting learned in May.

A number of medical device companies—including Siemens and Diagnostic Products Corp.—have already been investigated or penalized for this. And, said Donald Zarin, more are likely to come to light. Zarin is a partner at the law firm Holland & Knight LLP (Washington, DC). “Enforcement of this [act] in the past three years has been a complete sea change from before,” when it was largely ignored, he said. “Now 36 countries have these types of laws, and a number have investigations and prosecutions going on.”

Violators are subject to criminal penalties. All companies must ensure they don't run afoul of the act's provisions on bribery, Zarin said. But, he added, public companies carry an additional burden under the act. They must have an accounting system in place that keeps records showing that there have been no improper gifts.

Significantly, firms are liable if the impropriety has been committed by a foreign subsidiary without knowledge of the U.S. office, Zarin said. And firms are liable if they have knowledge that a third party—whether a consultant, an agent, or a distributor—made an improper gift on their behalf.

“The third-party provision is troublesome,” Zarin said. “Knowledge does not just mean actual knowledge. It also means deliberate ignorance or willful blindness. If you have the information, you have the knowledge.”

The key to preventing violations, he said, is to perform due diligence on everyone being considered to act on the company's behalf toward foreign state-owned hospitals. This should weed out those with questionable behavior in their past. “If you have done due diligence, you [can show that you] have no knowledge that they were doing these things, and you are not liable,” he said. “Of course, when you find out that they did something improper, you must terminate them.”

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