Legal issues, risk prevention in medical aesthetics institution purchases

In recent years, the demand of China’s populace for medical aesthetics has been increasing, with large quantities of finance capital pouring into the medical aesthetics industry, and the capital markets will help spur the development of well-governed and compliant enterprises, and accelerate the evolution of the industry. As the degree of internal compliance of medical aesthetics institutions varies substantially, attention should be paid to the typical legal issues seen in institution acquisition cases.

Diagnostic and treatment activities exceeding the registered scope. Pursuant to the Administrative Measures for Medical Aesthetics Services, an institution must be registered with the health and family planning authority, and have secured a medical institution practice permit before it can engage in practice activities, and is also required to engage in its medical services in strict accordance with the registered scope on its permit.

Pursuant to the Catalogue for the Administration of Medical Cosmetology, cosmetic surgeries are divided into four tiers depending on the difficulty and complexity of the operations, the medical accidents that could occur, the degree of risk involved, and the tier of medical aesthetic surgeries that different types of institutions may carry out also varies.

In practice, there are instances where institutions illegally engage in medical services that exceed their registered scope. Particular attention needs to be paid to institutions that engage in tier four aesthetic surgeries, as few institutions have secured permission to carry these out.

Employment of unqualified physicians and nurses. The physicians, assistant physicians and nurses employed by an institution are required to satisfy the Practising Physicians Law and the Nursing Regulations, etc., on the practice qualifications of medical personnel, and are additionally required to satisfy further conditions in the above-mentioned measures that apply to attending physicians responsible for carrying out medical aesthetics operations, and personnel engaged in medical aesthetics nursing work.

If an institution engages foreign physicians, it is required to satisfy the Interim Administrative Measures for Short-term Medical Practice in China by Foreign Physicians, and apply to the local health and family planning authority at the level of municipality divided into districts or above, for registration of their medical practice qualifications.

In practice, there are instances of an institution’s physicians or nurses practising at its different subsidiaries without having carried out recordal for practising in multiple locations, or of its physicians or nurses not having the qualifications or not satisfying the measures.

Preoperative examination qualifications. If an institution needs to give patients a preoperative complete blood count, acquired immunodeficiency syndrome (AIDS) or other such examinations in hospital, its permit is required to have a “medical examination department” as one of its medical departments, and clearly specify its specialties. Additionally, the institution is required to ensure that its clinical laboratory has the specialised technical personnel, premises, facilities and equipment required for its work.

Furthermore, a laboratory that conducts AIDS testing is required to have undergone acceptance of its technologies and conditions. If an institution opts to submit patients’ serum samples to a third-party medical testing institution to test for the presence of human immunodeficiency virus (HIV), it is required to apply for a Certificate of Permission to Transport Highly Pathogenic Micro-organisms That Can Infect Humans or Samples Thereof.

In practice, there may be instances where the medical departments indicated on an institution’s permit do not include a medical examination department, or the corresponding specialty, but nonetheless carries out blood testing, where testing is conducted by persons without testing and hygiene technical qualifications, or where AIDS testing or transport is carried out without its laboratory having undergone acceptance, or its having secured the relevant transport certificate.

Qualifications of consumables suppliers. The day-to-day operations of an institution will usually involve consumables such as medical devices, biopharmaceuticals, etc., and suppliers are required to have the corresponding licences. Pursuant to the Law on the Administration of Pharmaceuticals, pharmaceutical registration certificates need to be secured for marketed pharmaceuticals, pharmaceutical producers are required to have a pharmaceutical production permit, and enterprises that deal in pharmaceuticals are required to have a pharmaceutical operation permit.

Pursuant to the Regulations for the Regulation of Medical Devices, Class 1 medical devices are subject to administration via product recordal, and Class 2 and Class 3 medical devices are subject to administration via product registration. An institution that procures consumables from abroad is required to verify whether they have been registered in China, and is additionally required to carry out declaration procedures with customs in accordance with the Administrative Measures for the Assessment by Customs of Duties and Taxes on Imports and Exports.

Common disputes. Portrait right disputes and medical injury liability disputes are two types of disputes commonly arising in institution operations. Portrait right disputes mainly arise due to an institution’s use of the image of a patient or celebrity without, or in excess of the scope of, their authorisation. Medical injury liability disputes mainly arise due to patient dissatisfaction with the results of plastic surgery, with another smaller portion due to the fault of the institution itself. In China, the principle of limited fault presumption applies in determining whether there is medical injury liability.

Regardless of whether an institution is required to bear liability for portrait right infringement or medical injury, either will have a serious impact on its brand. Accordingly, during due diligence, it is imperative that the real circumstances of a dispute be ascertained in detail, and through multiple channels, to gain an in-depth understanding of the cause of the dispute, the internal control mechanisms and the handling plan, and to propose sound internal control systems in light of the actual circumstances.

Due diligence

During due diligence, attention needs to be paid to whether any typical above-mentioned legal issues apply to the institution. If so, communications need to be promptly established with the local competent authority to learn of any potential risk of penalties. Relevant irregularities also need to be rectified in a timely manner, and attention needs to be paid to making the enterprise’s future internal systems compliant. With respect to potential risks existing prior to the transaction, the authors recommend that it be expressly specified in the transaction documents that the counterparty will bear all legal consequences, such as losses or administrative penalties, arising from potential risks existing prior to the transaction.

Mo Xinying is a senior associate and Chen Chongfa is an associate at ETR Law Firm. Legal assistant Wu Zhenyu also contributed to this article.