Medical devices – another front for a more transparent market in Brazil

January 2016 | EXPERT BRIEFING | RISK MANAGEMENT

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Brazil has captured the attention of the international compliance community due to the major investigation conducted by national and international public authorities into the operations of Brazilian state-owned oil company Petrobras – the so-called ‘operation carwash’. However, there are other initiatives in Brazil that should be followed by those who want to understand the changes that the country is going through. This article aims to shed some light on the recent developments that have been taking place in the medical devices market and which should radically change the compliance environment of this sector in Brazil and will therefore be of interest to medical devices companies with operations or plans to operate in Brazil in the future.

In Brazil, both the medical devices and drugs markets are regulated by the Brazilian National Agency for Sanitary Surveillance (ANVISA), a Federal agency related to the Ministry of Health. ANVISA has authority to issue the sanitary norms governing the sectors related to products and services which may affect the health of Brazilians. Aside from ANVISA, industry class associations and professional councils indirectly govern those markets by means of regulations applicable to their respective associates and professionals.

Although both are regulated by ANVISA, the regulatory environment applicable to the pharmaceutical industry is much stricter than the one applicable to the medical devices industry. In relation to the pharmaceutical industry, there is a well developed set of state norms regulating the promotion, advertisement and pricing of pharmaceutical products, as well as industry codes establishing the ethical rules applicable in the interaction between the industry, health care professionals (HCP) and patient associations. These norms create a fairly transparent and predictable market to work in.

The same reality is not found in the medical devices sector. ANVISA’s regulations on medical devices are mainly related to the quality of the products requiring, for example, that the medical devices are registered with ANVISA, and that manufacturers and distributors are licensed by ANVISA and by the local sanitary authorities. However, there are no state norms regulating the pricing, advertising or promotion of medical devices in Brazil. Additionally, until recently there was no class association ethical code self-regulating the interaction between the medical devices industry and the HCPs.

The Federal Council of Medicine (FCM) was, until very recently, the only entity ruling the interaction between physicians and the manufacturers and distributors of medical devices. Among other provisions, the FCM establishes that: (i) medical prescriptions cannot be linked to the receipt of material advantages offered by economic agents interested in the production and marketing of pharmaceutical or medical devices products; and (ii) physicians working as speakers or writing papers promoting products for the medical device industry must expressly identify the financial agents sponsoring their research or presentations.

However, the medical device market has been put through an intense period of scrutiny from public authorities, which is leading to significant changes in the regulatory environment.

Since 2009, governmental bodies and class associations have been taking measures to detect and confront questionable market practices in the Brazilian medical devices market. For instance, in 2009 the Federal Senate Commission for Social Matters held a public hearing called ‘the Orthotics and Prosthesis Supply Scenario in Brazil’ which included the participation of representatives from the government, health issuance and medical devices industries.

In 2013, the Ministry of Health issued a number of ordinances including: (i) implementing task forces to verify the acquisition and use of orthotics and prosthesis and special materials by the health units which directly or indirectly act with the Brazilian Public Health System (SUS); and (ii) creating work groups to verify orthotics and prosthesis and special materials on orthopaedics and traumatology, and cardiovascular in SUS. Also in 2013, the Commission of Consumer Defence of the House of Representatives held a public hearing on ‘SUS Current Expenditure with Orthotics and Prosthetics’. Additionally, the Brazilian Federal police have launched a major investigation focusing on physicians, healthcare professionals and representatives of the industry of cardiac prosthesis, which allegedly diverted SUS funds in Minas Gerais state (the so-called ‘operation desiderato’).

Finally, in 2015 both the Senate and the Chamber of Deputies concluded Parliamentary Commissions of Investigations aimed at investigating the formation of cartels and price fixing for the distribution of orthotics and prosthetics, and for creating artificial demand in the market.

These initiatives have been followed by legal and regulatory changes that directly affect the medical devices market. The major change was the enactment of the Brazilian Clean Companies Act (BCCA) in August 2013, which came into force in 2014 and which imposes administrative liability on legal entities for acts committed against local and foreign public administration, such as the offer of undue advantages for public officials and defrauding public tenders, among others. Applicable penalties include monetary fines up to 20 percent of the legal entity’s gross revenues for the last fiscal year, the publication of the sentence and prohibition from receiving public incentive subsidies, donations or loans for up to five years. The changes brought by the BCCA, and its enforcement in a market in which a considerable number of physicians are public servants, represents a major step toward a more compliant market.

Until June 2015, the FCM was the only body governing ethical matters between physicians and the medical devices industry. However, as a transparent environment is beneficial to all, both the medical devices industry and the government are now taking their own steps toward a more regulated and compliant environment.

On 10 June 2015, the Brazilian Association of Importers and Distributors of Implants (ABRAIDI) and the Ethos Institute (a non-profit organisation helping businesses work in a sociably responsible manner) implemented an agreement which has been signed by more than 200 pharmaceutical and market related companies. The document establishes behaviour criteria and practices to be followed in the relationship between companies, HCPs and hospitals. Furthermore, ABRAIDI is now seeking to consolidate partnerships with public authorities so that the agreement of the wider sector is recognised as a tool for ethical control.

As a result of the work of the Senate Parliamentary Commission of Investigations, the government is now discussing the following legislative proposals: (i) creating a chamber to regulate the medicines and implantable medical devices market, including the pricing of medical devices in the county; (ii) creating a system for permanent education in new technologies and medical devices, to avoid the medical devices industry training physicians; (iii) criminalising conduct such as HCPs accepting economic advantages from manufacturers and distributors of medical devices, so that such conduct would be considered a crime even if it only involves private agents.

It is still questionable whether or not such legislative initiatives will be approved, or how would they be approved by the National Congress, and what the impact of such changes would be to the medical devices market. However, both government authorities and the industry are concerned about the creation of a more transparent market and are taking steps in this direction. International companies interested in a promising market with a potential 200 million consumers should closely follow the evolution of the regulatory agenda and be prepared to follow a very compliant approach for their operations in Brazil.

Tiago Cortez is a partner, and Tatiana Kascher and Ricardo Reis are senior associates, at KLA Advogados. Mr Cortez can be contacted on +55 11 3799 8208 or by email: tcortez@klalaw.com.br. Ms Kascher can be contacted on +55 11 3799 8256 or by email: tkascher@klalaw.com.br. Mr Reis can be contacted on +55 11 3799 8199 or by email: rreis@klalaw.com.br.

Tiago Cortez, Tatiana Kascher and Ricardo Reis

KLA Advogados