Legal Governance of Relationships between Pharmaceutical Institutions and Government Supervisory Bodies

By Dmitry Aleshko
Legal Alliance Company

The independent status of Ukraine gave an impetus to private initiative, which developed rapidly across the new state. But as private enterprises built up in various spheres of activity so did the pool of government watchdogs, whose number, according to the International Finance Corporation (IFC), today exceeds 30 in Ukraine.

Each supervisory function was backed by a regulatory act of a relevant legislative or executive authority.

Seeking to counterbalance dozens of such regulations, whose task was to determine the scope of authority of different oversight agencies, the State Committee of Ukraine for Entrepreneurship and Regulatory Policy made repeated attempts to trigger adoption of laws protecting the rights of the business community. Back in 1998 the Presidential Decree On Certain Measures towards Deregulation of Private Enterprise No.817/98 of 23 July 1998 outlined a list of circumstances in which scheduled and ad hoc inspections by supervisory agencies were permitted and specified the grounds for such inspections. However, abuses of the rights of entrepreneurs persisted. The On Fundamental Principles of Government Supervision (Control) over Business Activity Act of Ukraine was enacted by Parliament on 5 April 2007.

This new statute governs relationships arising out of public oversight/control over business activity, except for areas like currency control, customs control at border crossing points, control of compliance with budget laws and of state and communal property appropriation, banking and insurance supervision and other types of specia lised government oversight of the financial services market, government control of compliance with economic competition protection laws, as well as criminal investigation, legal inquest, procuracy supervision, prejudicial inquiry, and justice. As regards vendors of pharmaceutical products, an additional quality control procedure set by the On Medicinal Agents Act of Ukraine applies.

The functions of government control over the quality of pharmaceutical products are assigned to a specialpurpose agency called the State Medicinal Agents Quality Control Inspectorate under the Ukrainian Health Ministry, as well as to its subordinate inspectorates in every region of Ukraine, in the Autonomous Republic of Crimea, and in the cities of Kiev and Sevastopol.

Article 15 of the On Medicinal Agents Act of Ukraine outlines specific powers available to officers of these public authorities. The following ones deserve particular attention:

• right to control compliance of business operators with statutory requirements as to the quality of pharmaceutical products during their production, storage, transportation, and sale;

• right of unimpeded access for inspection of any production, storage or retail premises of business operators during their regular business hours provided that a formal inspection order is in place;

• right to request business operators to provide information regarding their compliance with applicable standards, terms of reference, pharmacopoeia articles, process regulations, as well as regarding quality assurance of medicinal agents during their production, transportation, storage, and sale;

• right to collect samples of medicines for quality tests in laboratories;

• right to issue compulsory injunctions to put an end to abuse of standards, terms of reference, pharmacopoeia articles, process regulations and irregularities in production, storage, transportation and sale of medicinal agents;

• right to impose penalties on business operators irrespective of their form of ownership for violation of standards, terms of reference, pharmacopoeia articles or process regulations during production, storage, transportation, or sale of medicines;

• right to issue formal protocols of administrative offence and impose administrative fines;

• right to move before public offices entitled to grant licenses for production, wholesale and retail sale of pharmaceuticals on cancellation of any issued licenses in the event that a licensee has abused license terms or any standards, terms of reference, pharmacopoeia articles, or process regulations;

• right to prohibit storage, sale or use of medicines whose quality is not in line with applicable requirements. Furthermore, since the prices of medicinal agents are subject to government administration, the activity of their sellers can also be inspected by the State Price Control Inspectorate, which is also vested with a wide circle of powers, namely:

• to audit the accounting records, books, reports, calculations and other documents related to the setting and application of prices and tariffs by companies, institutions and organisations of any form of ownership;

• to request companies, institutions and organisations as appropriate to provide any materials and documentation required for the Inspectorate to perform its functions;

• as appropriate, to examine the production, storage, retail and other premises of companies, institutions or organisations used for the production, storage or sale of products and source materials, as well as for organisation and provision of relevant services;

• within the scope of its powers, to request executive personnel and other officers of companies, institutions or organisations being inspected to deal with any violations revealed in the setting and application of prices and tariffs;

• to adopt decisions to withhold for the benefit of the

state any illegitimate revenues collected by companies, institutions or organisations as the result of abuse of government price discipline, to impose penalties equal to double the amount of such revenues, and to seek recovery of such monies at relevant courts in the event that the said decisions of state price inspectorates have not implemented.

Inspection and oversight activities of the State Medicinal Agents Quality Control Inspectorate and the State Price Control Inspectorate are also subject to the On Fundamental Principles of Government Supervision (Control) over Business Activity Act of Ukraine.

This Act contains the concept of state oversight/control routine understood as a scheduled or ad hoc activity such as inspection, audit, examination or any similar practice. The Act also provides an exhaustive list of grounds for any such routine, which in no event may be exceeded.

Any such inspection routine must be performed during regular working hours specified in corporate regulations of the inspected company and in all events in the presence of its chief executive, his/her deputy, or designated representative.

A business operator to be inspected must be given notice of at least 10 days prior to any scheduled inspection. Furthermore, the timetable of scheduled inspections and their criteria should be posted on the official Internet site of the relevant supervisory agency.

No scheduled routine may take more than 15 business days in general events and more than 5 business days if a small enterprise is inspected, unless applicable laws provide otherwise.

In the event of an ad hoc inspection the target company must be presented with a formal written statement of grounds for the inspection and provided a copy of such a statement.

Before going ahead with any inspection routine, watchdog officers must present the company’s chief executive or designated representative an inspection warrant/assignment together with their identification papers; a copy of such warrant/assignment is to be kept by the company.

In the absence of any of these documents, or if a set frequency of inspections is not being observed, a business operator to be inspected has the right not to permit public inspectors to carry out the audit.

The On Fundamental Principles of Government Supervision (Control) over Business Activity Act of Ukraine raises the hopes of private entrepreneurs that the functions of public watchdogs will finally be normalised. Another system-level problem of national magnitude still remains to be resolved: how to make the new statutes apply to all Ukrainian subjects without exception.