China Toughens Medical Device Sector Regulation, Fines

China has increased fines and toughened oversight of the country’s fast-growing medical device sector as it overhauls decade-old laws to stamp out corporate malpractice.

The new rules, which took effect in June, raise the top fine for illegal manufacturing or selling of medical equipment to 20 times the value of the goods, according to a document published on the website of the State Council, or cabinet. The original law, established in 2000, set a cap at five times the value.

China’s medical device market may double to more than $50 billion by 2020, according to research firm Global Data, and is a magnet for international firms looking to target the country’s population of nearly 1.4 billion.

Medical device makers in China have drawn the glare of regulators before, hit by allegations of corruption and bribery. Some firms also were targeted last year for overpricing.

U.S. authorities have fined AGA Medical Corp and Biomet Inc. millions of dollars for corporate malpractice in China, while Germany’s Siemens AG had faced a lawsuit in the United States over its China operations, a case which was dismissed in 2013.

“The new rules increase the range of possible punishments, and the level of fines for the most serious violations,” government officials said in a Q&A published on the State Council’s website. Violations include operating without relevant licences or misleading regulators.

Under the new regulations, authorities will categorise medical devices into three segments, depending on the level of potential risk to consumers, with the highest risk products being put under the greatest scrutiny. Systems to monitor the industry and recall products will be reinforced.

“In recent years we’ve seen some issues of illegal behaviour, and the legal foundation for striking back has not been clear enough. To resolve the problem, we needed a complete revision of the existing legislation,” the officials added.

In cases where the illegal equipment is valued at less than 10,000 yuan ($1,600), the fine can be up to 100,000 yuan. If the value of the devices is above 10,000 yuan, the fine can be between 10 and 20 times the value the goods involved.

In the most serious cases, firms which sell products illegally could be banned from applying for an operating license for up to five years.