By Marcel Kaufmann and Michael Ramb
How financial investors can effectively protect investments against healthcare compliance risks
The healthcare market continues to be an attractive area for financial investors, with a total value of healthcare buyouts at more than $16bn in 2013. At the same time, the global healthcare sector is facing a significant shake-up in relation to compliance and anti-bribery requirements, exposing both the portfolio company as well as financial investors and their management to very significant risks that can have a detrimental effect on the value and marketability of the investment – investigation costs, unlimited fines, possible debarment, confiscation of revenue and reputational damage.
Making compliance risks a top priority in any healthcare due diligence, and implementing proper compliance systems at portfolio level post-close, is key to avoiding liability. When considering healthcare deals, financial investors should take a particularly close look at the following arrangements in order to identify potential ‘red flags’ at an early stage in the due diligence process:
- consulting arrangements;
- agreements with distributors and intermediaries;
- sponsoring of training and hospitality;
- clinical studies; and
- provision of products/equipment free of charge.
Investigators are targeting healthcare companies all across the globe
Criminal investigators all across the globe target pharmaceutical and medical device companies, as well as healthcare service providers, for alleged bribery of healthcare professionals. US authorities have taken an aggressive approach to anti-bribery and corruption enforcement under the US Foreign Corrupt Practices Act 1977 (FCPA) and have investigated and prosecuted companies even with very little connection to the US.
The rest of the world is rapidly catching up with the US in cracking down on bribery. This is particularly true of emerging markets. The recent wave of bribery investigations against international healthcare companies in China and elsewhere shows that the risk profile for businesses operating in these countries has significantly increased. This increased local scrutiny is mirrored by current US enforcement trends: three out of four pending FCPA investigations relate to emerging markets.