On June 7, 2016, the China Food and Drug Administration (“CFDA”) released the Notice on Regulating Distribution Activities in Medical Device Circulation (“Notice”). The Notice requires that distributors of Class II and III devices assess their compliance with Medical Device Good Supply Practices (“GSPs”) and other medical device regulations over the course of the last two years and submit a self-assessment to their municipal food and drug regulator by July 15, 2016.

These device distributors will have to report on their violations of certain prohibited acts and submit plans for remediating any such violations. Bad records may result in heightened scrutiny by municipal authorities and possibly additional inspections.  The failure to report or fabrication or omission of information from reports may result in much more significant penalties, including loss of licensure and even criminal sanctions.

CFDA used this “self-inspection” approach in 2015 with drugs, when it required drug manufacturers to assess their compliance with Good Clinical Practices. That effort resulted in reports of noncompliance and withdrawal of clinical trial applications by some manufacturers, as well as rejection of many manufacturers’ marketing applications by CFDA.  The agency commenced an investigation of drug distributors in May 2016.  This latest self-inspection of device distributors appears to be a similar effort.  Both distributors and manufacturers of devices should pay careful attention to how this investigation could affect their operations in China and continue to monitor closely for developments.

The Notice requires that medical device distribution companies assess their compliance record since June 1, 2014. Their investigation should focus on eight categories of violations: (1) relationships with unqualified suppliers  and downstream distributors and healthcare institutions, (2) failure to comply with device Good Supply Practice requirements, (3) fabrication of application documents, (4) failure to obtain or renew distribution licenses for Class III devices, (5) distribution of unlicensed products (particularly by domestic agents for imported devices), (6) distribution of products that fail to meet mandatory standards, technical requirements, or are obsolete or expired, (7) failure to transport and store medical devices in accordance with their labels and package inserts, and (8) failure to establish and implement the appropriate testing and record keeping system for incoming and outgoing products.

Once they have completed the self-inspection, distributors must compile a report of their violations and plans for remediation. The companies’ legal representatives must sign and stamp the report and represent that it is authentic and complete, under penalty of law.  The report must be submitted to the local municipal FDAs, which are one level below the provincial governments, by July 15, 2016.

Companies that voluntarily identify issues and correct areas of noncompliance prior to July 15, 2016 may receive a lighter penalty if CFDA initiates an enforcement action against them.  Those that fail to report by the deadline will receive higher scrutiny by regulators going forward.  Those who refuse to report, falsify or omit information, or fail to conduct a careful self-inspection or implement effective remedial measures will face higher penalties, including revocation of their Distribution Licenses.  If the behavior may constitute a crime, food and drug regulatory authorities may refer it to the police, the Public Security authorities, for investigation under the criminal laws.

Once the reports are in, the provincial FDAs will conduct targeted inspections of: (1) distributors that are considered to be bad records, (2) distributors of medical devices requiring low temperature and cold storage, and (3) domestic agents for imported medical devices. The provincial FDAs will submit reports to CFDA by September 30, 2016.  CFDA will use the results of these reports to conduct its own inspections and as a basis for revisions to medical device regulations.  The Notice also encourages members of the public to report companies’ illegal activities and promises rewards for confirmed violations.