I-1: Regulations on Transfer of Value (ToV)

This article summarizes the contents of 1️⃣ Regulations on Transfer of Value (ToV), "Chapter 1: Basic Structures of Regulations on Transfer of Value and Bribery to Healthcare Professionals".

For the Japanese version, please refer to the following.

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（1） Regulations by law

1）Premiums and Representations Act

　Article 4 of the Act against Unjustifiable Premiums and Misleading Representations （“Premiums and Representations Act”） states that “When the Prime Minister finds it necessary in order to prevent unjust inducement of customers and secure general consumersʼ voluntary and rational choice-making, the Prime Minister may limit the maximum value of a Premium or the total amount of Premiums, the kind of Premiums or means
of offering of a Premium, or any other matter relating thereto, or may prohibit the offering of a Premium”. 　Premiums and Representations Act was enacted in 1962 as a special act to the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade （“Antimonopoly Act”） and the Premiums and Representations Act had been operated by the Fair Trade Commission （“FTC”） until 2009, when the Consumer Affairs Agency （“CAA”） was established and thereby CAA assumed the operation of the Act.
　After CAA has assumed the operation of the Act, the words that “ensuring fair competition” have been deleted from the objective of the Act and the authorization of the Fair Competition Code in Ethical Pharmaceutical Drugs Marketing Industry （“FCC”） has been switched from the FTCʼs unilateral authorization to the joint
authorization by CAA and FTC. However, conducts made in accordance with the FCC remains exempted from the application of the Antimonopoly Act （see below）.

2）Administrative Notice

　In accordance with the said Article 4, the administrative notice of the Restrictions on Premium Offers in the Ethical Pharmaceutical Drugs Industry, the Medical Devices Industry and the hygienic Inspection Laboratory Industry （the “Notice”） prohibits pharmaceutical companies from providing premiums to healthcare professionals/organizations （“HCPs”） beyond the scope deemed appropriate in light of normal business practices as means of unjustly inducing transactions on prescription drugs.
　Although non-member companies of the Japan Fair Trade Council of the Ethical Pharmaceutical Drugs Marketing Industry （“JFTC”） are not subject to the FCC and thereby directly subject to the Notice, the regulations under the FCC are still regarded as normal business practices in the pharmaceutical industry and serve as standards by CAA for interpretation of the Notice.
　In practice, the membership of JFTC is required for the certification of MRs at the MR Education & Accreditation Center of Japan, and since almost all pharmaceutical companies are members of JFTC, there are virtually no cases where the Notice is directly applied to the pharmaceutical companies.

（2） Self-regulations

1） About the FCC

　Article 3 of the FCC prohibits pharmaceutical companies from providing premiums to HCPs as means of unjustly inducing transactions on prescription drugs. While the FCC is a self-regulation in the pharmaceutical industry, it is also legally supported by Article 31 of the Premiums and Representations Act and has the legal effect that the acts made in accordance with the FCC are exempted from the application of the Antimonopoly Act. The FCC was originally issued in 1983 and the lastly revised in 2016.
　The rationales of the FCC are explained as follows.

（ⅰ）Unfair premiums may distort HCPs appropriate selection of prescription drugs and thereby may lead to excessive or inappropriate use of the drugs.
（ⅱ）The premiums will ultimately be the improper distribution costs under the unilateral health insurance and public drug price systems in Japan. While the cost of medicines borne by consumers （patients and insurers） and the medical services they receive are predetermined, unfair premiums to HCPs are not reflected in the cost of medicines/services.
（ⅲ）Provision of money and goods as premiums to HCPs may impede the fair determination of the national drug prices since the premiums are not reflected in the end price;
（ⅳ）Allowing unfair premiums will be advantageous to major companies and be disadvantageous to foreign companies, new companies, or small companies;
（ⅴ）Social criticisms are strong against providing money and goods to HCPs as means of inducing the transaction of the prescription drugs.
（ⅵ）In major countries in Europe and the United States, regulations on provision of money, goods, or services from pharmaceutical companies to HCPs have been strengthened to prevent the increase of healthcare costs, inappropriate use or distorted prescription by physicians.
（ⅶ）Even if the healthcare systems in Japan will be reformed in the future, the harmful effects of providing premiums will not decrease.

Column: Historical Background of the FCC

   From the mid-1960s to 1980s, fierce competition such as giving cashbacks in the form of samples or re­ numeration for clinical reports were conducted in the Japanese pharmaceutical industry. In October 1982, the Ministry of Health and Welfare(“MHLW”)issued a request the Japan Pharmaceutical Manufactur­ ers Association(“JPMA”)for the improvement of the distribution practices, in particular for the creation of the FCC and the improvement of transactional terms. In response, in November 1982, JPMA an­ announced the creation of the FCC but June 1983, FTC rendered a decision against JPMA on cartel case in­ involving pharmaceutical companies and wholesalers to eliminate the violation and gave a warning to the Federation of Japan Pharmaceutical Wholesalers Association(“JPWA”).
   Furthermore, in June 1983, MHLW and FTC jointly issued a notice named“For Improving Distribution Practices of Prescription Drugs” and announced a specific policy. In response, the FCC was drafted and authorized by the FTC. JFTC has been established since July 1984 and the FCC has been enforced at the same time.
　Because of such historical backgrounds, operations of JFTC has been detached from JPMA. Also, because the Premiums and Representations Act was governed by FTC, Japanese regulations on ToV had been operated as a part of competition laws （see Chapter III below）.
　However, the core of regulations on ToV is integrity to maintain the “trust” in society, which is that prescriptions by HCPs are made for the benefit of patients and the selection is not distorted by inappropriate payment from pharmaceutical companies. Interpretations of the FCC should be made in the full understanding of such underlying idea and by maintaining such perspective, the fundamental meaning of the ToV regulations can be better understood. By doing so, people may understand “why these acts are prohibited” and may avoid taking extreme actions such as “doing whatever is not prohibited by law”. This will ultimately lead to the creation of sustainable social value centered on the contribution of patients, which in turn increases the viability of each pharmaceutical company and the whole pharmaceutical industry.

2）Composition of the FCC

　The main body of the FCC has 12 articles. The FCC also has its Enforcement Rules （having 6 articles）, and 4 main Operation Standards, which further divided into 10 items. The Enforcement Rules stipulates matters related to the implementation of the FCC, and the Operation Standards stipulate matters related to the further details of its implementation.
　CAA and FTC confirm that the FCC conforms to the requirements set forth in Article 31 of the Premiums and Representations Act through the authorization of the FCC, the approval of the Enforcement Rules, and the notification of the Operation Standards from JFTC to the Director-General of CAA respectively. 　In practice, the commentaries of the Operation Standards are also important, but the commentaries are not published （only available at the membersʼ website）. On the other hand, the member companies are notified by JFTC in advance when the commentaries are revised.

3）Definition of premiums

　Article 3 of the FCC states that pharmaceutical companies shall not offer premiums to HCPs as means of unjustly inducing transaction of prescription drugs. The term “premiums” refers to goods, money, or other kinds of economic benefits that pharmaceutical companies may offer to the other party, to induce customers, in connection with transactions of prescription drugs supplied by the pharmaceutical company, irrespective of the method employed （Article 2, Paragraph （5） of the FCC）. The followings are listed as “economic benefits”.

（ⅰ）Goods, land, buildings and other constructed structures 　　
（ⅱ）Money, money certificates, bank deposit certificates, lottery certificates, bond or share certificates, exchange coupons and other securities;
（ⅲ）Entertainment （including invitations to movies, shows, sports, tours, and other events that is free of charge or with favorable fees）; 　
（ⅳ）Benefits, labor and other services.

　Premiums shall not include economic benefits that are deemed to be attached to the prescription drugs in light of normal business practices nor economic benefits that are deemed to be discounts or after-sales services in light of the normal business practices （Article 2, Paragraph （5） of the FCC）.
　Specific examples of the premiums or economic benefits that pharmaceutical companies may provide are listed as follows.

（ⅰ）Goods or services necessary or useful for the use of the pharmaceutical companyʼs in-house drugs, or those that enhance the utility and benefits of such goods or services;
（ⅱ）Medical or pharmaceutical information on prescription drugs, or documents or explanatory materials related to pharmaceutical companyʼs in-house prescription drugs;
（ⅲ）Drug samples;
（ⅳ）Remuneration and expenses for post-marketing surveillance and studies, clinical trials, and other medical or pharmaceutical studies and research;
（ⅴ）Not lavish nor excessive goods or services provided in connection with a lecture meeting of pharmaceutical companyʼs in-house drugs or payment of costs in connection with the attendance of such meetings;
（ⅵ）Not lavish, nor excessive goods or services provided in connection with a memorial event of the medical institution as a whole;
（ⅶ）Goods of small amount not exceeding the scope deemed appropriate in light of normal business practices.

4)  Operation and execution of the FCC

　JFTC is a voluntary industry association that operates the FCC. JFTC engages in the following activities.

（ⅰ）Ensuring the compliance of the FCC by awareness-raising of member companies;
（ⅱ）Providing member companies consultation and guidance on the FCC;
（ⅲ）Investigating suspected violations by member companies and taking measures against such violations;
（ⅳ）Disseminating information on regulations of Premiums and Representations Act and fair trades.

　As of January 1, 2021, JFTC has 224 member companies. The Board of Directors is established at the general meeting of member companies. In principle, the chairperson of the Federation of Pharmaceutical Manufac turersʼ Associations of JAPAN serves as the chairperson of JFTC, and the representatives from 5 industry associations JPMA, Japan Generic Medicines Association （“JGA”）, Japan Direct Selling Pharmaceutical
Manufacturers Association （“JDSPA”）, the Home Medicine Association of Japan （“HMAJ”）, Japan Kampo Medicines Manufacturers Association （“JKMA”） ） are appointed as the vice chairpersons. The Board of Directors consists of 29 members. The JFTCʼs headquarters has the Steering Committee comprised from 56 companies, including 26 companies appointed as the permanent member, under which the Working Committee has been established, and an Operation Standards Groups have been formed to conduct research on the rules on fair competitions.
　JFTC also has 8 branches throughout Japan. Each branch conducts activities such as supervision of the FCC compliance such as providing member companies consultations for the prevention of the violation or conducts investigations on suspected violations.
　In order to prevent other member companies from implementing the same conducts as those determined by the Prior Consultation Committee as impossible under the FCC, to the extent not violating confidentiality, JFTC may notify the member companies “answers” to the past consultations as well as explain them in the JFTC News or the Consultation Case List, or report them at training meetings in each branch.

 (3) Sanctions against violation

   Investigation Committees at the headquarters or branches conduct investigations on suspected violations by member companies and take measures to remove such violations as well as prevent recurrence if violations are found. In principle, branches make dispute resolutions on the cases; however, the cases that may or should not be handled locally will be passed to the Investigation Committee at headquarters.
　After the investigation, the measures shall be taken in accordance with the following criteria.

（ⅰ）No violation: When no violation is found;
（ⅱ）Caution: For a single violation or minor violation;
（ⅲ）Guidance: Organizational or intentional violations are found but the relevant acts are suspended during the investigation and there is no risk of recurrence, etc.;
（ⅳ）Warning: Organizational or intentional and repetitive or continuing violations, and the violation is severe in nature and extent;
（ⅴ）Severe Warning: When the company ignores the warning above;
（ⅵ）Penalty （¥1 million or less）: When the company receiving the severe warning does not comply with such warning;
（ⅶ）Expulsion: In the event the member company fails to comply with the penalty or commits a similar violation again despite the penalty;
（ⅷ）Request for Measures: Request the Director-General of CAA to take necessary measures as violations of the Premiums and Representations Act.

　When penalty or an expulsion is posed to a company as a result of the investigation, a proposed measure shall be sent to the company. If the company would like to make an objection to the proposed measure, a written complaint may be filed with JFTC within 10 days after the deposition. If there is no objection to the proposed measure, the measure will be fixed.
　JFTC shall provide the member companies with the opportunity to make additional rebuttal in the complaint and JFTC shall review the complaint to consider the measures taken.
　Under the FCC, the objection procedures are limited to cases of penalty or expulsion. However, in actual practice, the objection procedures are granted to cases of warning or severe warning.

 (4) Actual example of violation： MSD K.K. （“MSD”）

　In practice, there have been no past cases of penalty, expulsion, or the request for measures. However, the reputation risk is serious when the violation is recognized and measures are taken by JFTC.

Example: MSD K.K. （“MSD”）

　In 2011, JFTC issued the severe warning to MSD regarding the following 4 cases, acknowledging that the MSD violated the FCC due to the acts from 2009 to 2011 for providing money to physicians as means of inducing transactions of prescription drugs.
（ⅰ）In November 2010, MSD implemented a program to collect 160 cases reports of treatment effects when switching to the MSDʼs antihypertensive combination drug, and physicians provided coupon equivalent to ¥10,000 each case.
　　　Being pointed out by JFTC, the program were suspended in December 2010 and the coupons were not given to the physician. However, JFTC acknowledged that implementation of such program was deemed to be an unreasonable monetary provision.
　　　JFTC acknowledged that conducting simple case surveys through the Internet and paying remunerations to physician is not, in principle, deemed to be a reasonable commission of work that payment of money is justified under the FCC because such provision of coupon is usually connected to prescription of MSDʼs prescription drugs.
（ⅱ）For 1 year from October 2009, MSD dispatched a total of 48 young diabetic specialist physicians to the Australian Baker IDI, where MSDʼs diabetic product had been widely used, and MSD paid approximately ¥650,000 per person for remunerations, travel expenses, etc. In the meetings, speaking time by participants was a minimum of about 5 minutes and 30 seconds, and a maximum of about 14 minutes. After returning to Japan, MDS made no requests of writing articles in academic journals or of giving lectures on the theme, and the even the minute of the meetings were not made.
　　　JFTC acknowledged that the payment of the remuneration and travel expenses, etc. was not remuneration and expenses justified under the FCC when dispatching the physicians to overseas meetings on research and study related to in-house products, and therefore the payments were an unreasonable monetary provision and invitation to tours for physicians.
（ⅲ）From September to November 2010, MSD invited a total of 88 physicians to pay a remuneration of ¥70,000 or ¥30,000 per person for the meetings to obtain advice on the method of dissemination of MSDʼs HPV vaccines, practice of medical treatment and public funding related to the vaccines. How ever, speaking time for each physician was around 10 minutes.
　　　JFTC said, “Speaking time is short and therefore it was not a meaningful consultation. Documents are not distributed in advance and some people did not have sufficient expertise so that they were not deemed as a valid remuneration to the request for work.
（ⅳ）From January 2009 to September 2010, MSD invited a total of 3,268 physicians to the meetings to obtain advice on MSDʼs hyperlipidemic drug. MSD paid ¥70,000 for participating physicians working at hospitals and ¥30,000 for participating physicians in the clinics. However, the speaking time per person other than the chairpersons and the lecturers was around 7 minutes.
　　　JFTC stated that, “The speaking time was short. Documents were not distributed in advance. Because the minutes had not been prepared in the meetings before August 25, 2010, payments were not recognized as a valid remuneration to the request for work”.
　　　JFTC requested MSD to drastically improve its internal compliance systems considering above case（ⅰ）to（ⅳ）, especially considering case（ⅲ）and case（ⅳ）were similar to the past cases that the company （Banyu Pharmaceuticals at the time）had received a warning. In response, MSD resigned from a Director of JFTC.

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