State Procurement of Medical Devices in Russia: Legal Regulations

 

February 5, 2022

BRACE Law Firm ©

 

The acquisition of medical devices through state and municipal procurement represents a significant expense item for practically any state and municipal medical organization. At the same time, the legal regulation of state procurement of medical devices has its own specifics compared to the procurement of other goods. The procurement process is complicated, on the one hand, by the quantity and complexity of regulations governing this sphere, as well as their regular amendment, and on the other hand, by the presence of regulatory gaps and ambiguous practice regarding a number of significant issues. In this article, we will attempt to analyze the main features that both Customers and suppliers of medical devices (the "MDs", "medical devices") need to consider within the framework of state orders.

Under medical devices, by virtue of Part 1 of Article 38 of Federal Law No. 323-FZ dated November 21, 2011, On the Fundamentals of Health Protection of Citizens in the Russian Federation (the "Law on Health Protection"), are understood any instruments, apparatus, appliances, equipment, materials, and other products used for medical purposes, alone or in combination, as well as together with other accessories necessary for the application of said products for their intended use, including special software, and intended by the manufacturer for prevention, diagnosis, treatment, and medical rehabilitation of diseases, monitoring of the human body condition, conducting medical research, restoration, replacement, or modification of anatomical structure or physiological functions of the body, prevention or termination of pregnancy.

Methods of Procurement of Medical Devices

Since January 1, 2022, the list of procurement methods has been significantly reduced. Currently, Federal Law No. 44-FZ dated April 5, 2013, On the Contract System in the Sphere of Procurement of Goods, Works, and Services for Provision of State and Municipal Needs (the "Law No. 44-FZ", the "Contract System Law") allows the following methods of procurement of medical devices:

• electronic auction, closed electronic auction;
• electronic contest, closed electronic contest;
• request for quotations (RFQ) in electronic form;
• single-source procurement.

According to Part 6 of Article 24 of Law No. 44-FZ, the Customer is obliged to carry out procurement of goods included in the List of goods, works, and services, in the case of procurement of which the Customer is obliged to conduct an auction in electronic form (electronic auction), approved by Order of the Government of the Russian Federation No. 471-r dated March 21, 2016, by conducting an auction in electronic form. The majority of medical devices, with the exception of a number of orthopedic devices, are included in this list. Thus, the priority method for procuring MDs is the auction; the scope of use of the contest is significantly limited.

At the same time, the inclusion of medical devices in the auction list does not prohibit the Customer from using such procedures as the request for quotations and single-source procurement.

In accordance with Part 10 of Article 24 of Law No. 44-FZ, the Customer has the right to carry out procurement by conducting a request for quotations provided that:

• the initial maximum contract price (IMCP) does not exceed 3 million rubles;
• the volume of the Customer's procurement carried out by conducting a request for quotations does not exceed 20% of the aggregate annual volume of procurement of the Customer or 100 million rubles regarding a Customer whose aggregate annual volume of procurement in the past calendar year amounted to less than 500 million rubles.

In certain cases listed in the aforementioned norm, the requirements for the contract IMCP and aggregate annual volume of procurement may not apply. For example, upon the Customer's unilateral refusal to perform a previously concluded contract.

The exhaustive list of grounds for single-source procurement is set forth in Part 1 of Article 93 of Law No. 44-FZ. Procurement of medical devices from a single source is possible in the following cases:

• for an amount not exceeding 600,000 rubles, or for an amount not exceeding 3 million rubles if such procurement is carried out in electronic form. In this case, the annual volume of procurement that the Customer is entitled to carry out must not exceed 2 million rubles or 10% (ten percent) of the aggregate annual volume of procurement of the Customer and not more than 50 million rubles (Clause 4, Part 1, Art. 93);
• when necessary to provide medical assistance in urgent or emergency form or to prevent and liquidate emergency situations (upon the introduction of a high alert regime for the functioning of management bodies and forces of the unified state system). Procurement is permitted only in the volume necessary to provide such medical assistance, with subsequent notification of the control body (Clause 9, Part 1, Art. 93);
• from institutions and (or) enterprises of the Penal Correction System in accordance with the List of goods approved by the Government of the Russian Federation (Clause 11, Part 1, Art. 93).

Customers must strictly comply with the requirements established by law, as the choice of a procurement placement method in violation of the legislation on the contract system entails administrative liability under Part 1 of Art. 7.29 of the CAO RF. The fine on the official who approved the documentation amounts to 30,000 rubles. Adoption of a decision to conduct a different method of procurement in cases where conducting an auction or contest is mandatory will entail liability under Part 2 of Art. 7.29 of the CAO RF with the imposition of a fine in the amount of 50,000 rubles.

Rules for Describing the Object of Procurement

The general rules for describing the object of procurement of medical devices are set forth in Article 33 of the Contract System Law. Based on the provisions of this norm, when forming the Terms of Reference, the Customer is obliged to be guided by the following rules:

First, when describing the object of procurement, the functional, technical, and qualitative characteristics, and operational characteristics of the object of procurement are indicated.

Unlike medicinal products, specific features of the description of the object of procurement are not regulated for medical devices. Their absence entails a significant number of disputes between Customers and suppliers, as well as a lack of uniformity in the law enforcement practice of antimonopoly authorities.

According to the position of the Ministry of Finance of Russia [1], supported by judicial bodies [2], the Customer independently forms the object of procurement, including establishing requirements for the object of procurement, provided that such requirements do not entail a limitation of the number of procurement participants.

Thus, the description of the object of procurement must not include:

• requirements or references regarding trademarks, service marks, trade names, patents, utility models, industrial designs, the name of the country of origin of the goods;
• requirements for goods or information, provided that such requirements or references entail a limitation of the number of procurement participants.

It is permitted to use a reference to a trademark in the description of the object of procurement in the following cases:

• accompanying such reference with the words "or equivalent";
• in case of incompatibility of goods on which other trademarks are placed, and the necessity to ensure the interaction of such goods with goods used by the Customer;
• during procurement of spare parts and consumables for machines and equipment used by the Customer, in accordance with the technical documentation for said machines and equipment.

Furthermore, one should bear in mind the position of controlling bodies regarding the absence of the Customer's right to establish requirements for the manufacturing date of the goods. This ban does not always take into account the Customer's needs, as it allows for the possibility of supplying technically obsolete models or models discontinued from production [3].

Second, in the event that the Catalog of Goods, Works, and Services (KTRU) posted in the EIS contains information about the necessary medical device, the Customer is obliged to use its name, description, and units of measurement contained in the KTRU position. Such an obligation is established by Clause 4 of the Rules for the Use of the Catalog of Goods, Works, and Services [4].

Any additional characteristics are allowed to be included in the description only provided that their necessity is justified in the procurement documents. In cases where the procurement notice establishes a ban on the admission of goods from foreign states in accordance with Decree of the Government of the Russian Federation No. 878 dated July 10, 2019 [5], the imposition of additional requirements is completely prohibited.

Third, the Customer is obliged to use standard indicators, requirements, conventional designations, and terminology established in accordance with the legislation of the Russian Federation on technical regulation and the legislation of the Russian Federation on standardization (GOSTs, Technical Regulations, etc.).

If the Customer does not use established standardized indicators, requirements, conventional designations, and terminology, the description of the object of procurement must contain a justification for the necessity of using other indicators; in the absence of such justification, it is recognized by the FAS as an improper description of the object of procurement.

Additionally, for a number of complex medical equipment, GOSTs have been developed regulating the requirements for the content of the Terms of Reference for procurement. The opinion of antimonopoly authorities on the mandatory nature of their application varies. Thus, one antimonopoly authority [6] imposed a fine on the chief physician of a hospital for not including a number of characteristics from GOST R 56327-2014 "Medical electrical equipment. Ultrasound equipment of expert class" in the description.

To avoid contestation, it is desirable to take these standards into account when forming the Terms of Reference, as well as to use them as justification for additional characteristics.

Fourth, in the case of procurement of new equipment, the Customer is obliged to establish requirements for the provision of a warranty by the manufacturer and (or) supplier of said goods and for the validity period of such warranty. In other cases, this is the right of the Customer.

Only if these rules are observed can the description of the object of procurement be considered proper. It can be said with confidence that the competent preparation of the description of the object of procurement is one of the most complex and important components of the entire procurement activity of the Customer, on which obtaining a medical device that fully satisfies the Customer's needs depends.

Nevertheless, complaints about improper drafting of the Terms of Reference constitute a significant part of all complaints received by antimonopoly authorities. In case of violation of the rules for describing the object of procurement, the Customer will be held administratively liable under Part 4.2 of Art. 7.30 of the CAO RF. The fine under this norm is only 3,000 rubles. However, the adverse consequences for the Customer do not lie in this. Upon detection of such violations, the antimonopoly authority will oblige the Customer to make amendments and extend the deadlines for submitting bids, and if the procurement procedure has already begun, to cancel the compiled protocols and review the results of the tenders.

Requirements for the Availability of a Registration Certificate for Medical Devices

According to Part 4 of Article 38 of the Law on Health Protection, the circulation of medical devices registered in the manner established by the Government of the Russian Federation by the federal executive body authorized by it is permitted on the territory of the Russian Federation. Exceptions to this rule are provided for in Part 5 of the said norm. By virtue of Clauses 3 and 36 of the Rules for State Registration of Medical Devices, the document confirming the fact of state registration of a medical device is the Registration Certificate, and information on registration is entered into the State Register of Medical Devices posted on the Roszdravnadzor website.

Thus, as a general rule, the Registration Certificate is the document confirming the possibility of circulation of a medical device on the territory of the Russian Federation.

In accordance with Sub-clause "v" of Clause 2 of Part 1 of Article 43 of Law No. 44-FZ, a bid for participation in a competitive procedure must contain documents confirming the compliance of the goods with the requirements established in accordance with Russian legislation. Based on the foregoing, the requirement for a copy of the Registration Certificate for the medical device in the bid is an obligation of the Customer, and its absence is regarded as a violation of the requirements for the Customer's procurement documents.

At the same time, one should bear in mind the position of the FAS Russia, expressed in Letter No. AD/43043/14 dated November 23, 2014, according to which the rejection by the Customer of a bid if it contains only information on the details of the Registration Certificate is unlawful, since the Customer is not deprived of the opportunity to check the information in the State Register of Medical Devices.

Principles of Lot Formation

Requirements for the procedure for lot formation for the procurement of medical devices are established in Decree of the Government of the Russian Federation No. 620 dated April 19, 2021. It determines that medical devices of different types cannot be the subject of one contract (one lot) if the IMCP exceeds:

• 600,000 rubles – for Customers whose volume of funds allocated for the procurement of medical devices in the preceding year amounted to less than 50 million rubles;
• 1 million rubles – for Customers whose volume of such funds amounted to between 50 million rubles and 100 million rubles;
• 5 million rubles – for Customers whose volume of such funds amounted to more than 100 million rubles.

The type of medical device is determined in accordance with the Nomenclature Classification of Medical Devices approved by the Ministry of Health of the Russian Federation [7] and posted on the Roszdravnadzor website.

An exception to this rule is made only for life cycle contracts and the procurement of medical devices together with consumables for them provided by the manufacturer.

Furthermore, when forming a lot, it is also necessary to take into account restrictions established by regulatory documents regarding the national regime. Almost all of them contain a ban on mixing goods included and not included in them in one lot.

In practice, this often leads to an absurd situation where medical devices that are functionally interconnected and used in carrying out one type of medical activity are procured in separate lots. The current situation obviously violates the principle of procurement efficiency.

Bans and Restrictions on Admission in Procurement of Medical Devices

Article 14 of the Contract System Law empowers the Government of the Russian Federation to establish bans and restrictions on the admission of goods of Russian origin. A ban is understood as a refusal to admit bids with goods of foreign origin to participate in tenders, except for EAEU countries; a restriction is understood as the rejection of bids with goods of foreign origin provided there are at least 2 compliant bids with goods whose country of origin is the Russian Federation or EAEU countries.

Procurement of MDs may fall under the following bans:

• ban on the admission of industrial goods (regarding medical masks) in accordance with Decree of the Government of the Russian Federation No. 616 dated April 30, 2020;
• restriction on the admission of separate medical devices in accordance with Decree of the Government of the Russian Federation No. 102 dated February 5, 2015;
• restriction on the admission of industrial goods in accordance with Decree of the Government of the Russian Federation No. 617 dated April 30, 2020;
• restriction on the admission of radio-electronic industry goods in accordance with Decree of the Government of the Russian Federation No. 878 dated July 10, 2019.

In addition to the indicated bans, admission conditions may be established for the procurement of a number of medical devices according to Order of the Ministry of Finance of Russia No. 126n dated June 4, 2018. The mechanism of its application consists in the fact that if a participant with goods of foreign origin becomes the winner of the auction in the presence of offers with goods from the RF and the EAEU, the contract is concluded with such participant at a price reduced by 15% (by 20% for procurement under national projects) from the price proposed by them. For procurement via contest or request for quotations, the Customer, when evaluating bids, deducts 15% (20% for procurement under national projects) from the price proposed by the participant with goods from the RF and the EAEU and compares all bids. If such a participant is recognized as the winner, the contract is concluded at the price proposed by them without reduction.

It is worth noting that the conditions for granting the indicated preferences are not uniform. Each of the indicated regulatory acts prescribes its own specifics for granting and the list of documents confirming the origin of goods. The absence of unified "rules of the game" creates unnecessary problems for both Customers and procurement participants and requires unification.

Procedure for Determining the IMCP for Procurement of Medical Devices

In May 2020, Order of the Ministry of Health of Russia No. 450n dated May 15, 2020, approved the Procedure for determining the IMCP for the procurement of medical devices (the "IMCP Determination Procedure") [8].

Calculation of the IMCP according to the indicated IMCP Determination Procedure is performed for the procurement of any medical devices, except:

• disposable medical devices included in List No. 2 of Decree of the Government of the Russian Federation No. 102 dated February 5, 2015;
• medical devices included in the Register of Russian Radio-Electronic Industry, in the event the Customer establishes restrictions on the admission of foreign goods in accordance with Decree of the Government of the Russian Federation No. 878 dated July 10, 2019;
• medical devices procured under the State Defense Order.

It should be noted that the IMCP Determination Procedure does not contain exceptions for single-source procurement. It follows from this that when concluding direct contracts for the supply of medical devices, it is also necessary to perform the calculation and justification of the contract price according to the IMCP Determination Procedure.

As a general rule, the initial unit price of a medical device (IUP) must include:

• the price of the medical device itself excluding VAT (PMD);
• the cost of consumables for it (CC);
• the cost of technical maintenance services (CMS) for the warranty operation period (IUP=PMD+CC+CMS).

Consumables are understood as products and (or) components consumed during the operation of the medical device and ensuring the application of the medical device in accordance with its functional purpose, information on which is contained in the operational documentation for the medical device.

The need for consumables and technical maintenance is determined based on the planned intensity of MD operation based on the provided/planned volume of medical care. The calculation is guided by clinical recommendations, procedures, and standards of medical care.

The cost of consumables and technical maintenance services is calculated for the period of the warranty term, but not less than 12 months. If such information is unavailable, for 24 months from the moment of transfer of the device.

Formally, the Order permits not including the cost of consumables and the cost of technical maintenance in the IMCP only in cases where their use is not provided for by the manufacturer's operational documentation. At the same time, according to clarifications of the Ministry of Health, the CC or CMS may be indicated as equal to zero, provided that relevant clarifications from the manufacturer (supplier) are submitted [9].

Next, the average initial unit price of the medical device (or not more than the average) is determined from all prices collected by the Customer excluding VAT, the VAT rate is applied (if applicable), and the IMCP calculation is performed based on the quantity of MDs required for delivery.

To collect price information, the Customer may use one or both of the following methods:

1. Comparable Market Prices Method. Carried out by sending requests to suppliers, publishing requests in the EIS, and studying publicly available sources of information.

2. Obtaining Information from the Register of Contracts in the EIS. A search is performed for contracts with identical goods and similar commercial and financial delivery terms. For the calculation, prices of at least 3 contracts concluded and executed within 3 years prior to the bid submission date, without the application of penalties, must be used. Priority is given to contracts concluded and executed in the territory of the Customer's constituent entity or within one federal district. If there are none – regardless of the place of execution. Given the labor-intensiveness of searching for similar contracts in the Register of Contracts, this method is not often used by Customers.

Furthermore, for certain MDs, Order No. 450n defines separate calculation methods:

• for medical devices for which state price regulation is established, the tariff method (registered maximum ex-works manufacturer price + wholesale markup approved in the constituent entity of the RF + VAT) or the comparable market prices method, but not higher than the price determined by the tariff method, is applied;
• for technical rehabilitation means – the comparable market prices method. In this case, sources of price information are determined in accordance with Order of the Government of the Russian Federation No. 1995-r dated September 18, 2017;
• for single-source procurement under Clauses 3, 6, 9, 11, 12, 35, 40, 41, 46 of Part 1 of Article 93 of Law No. 44-FZ – the comparable market prices method.

At the same time, despite the apparent logicality of this calculation procedure, where essentially the Customer must assess the full cost of the equipment, including expenses for its further operation, its application in practice causes difficulties, such as:

• complexity of assessing the need for consumables for 1 year ahead;
• manufacturer's refusal to personally engage in technical maintenance;
• allocation of funding for the acquisition of equipment without consumables, etc.

Despite the indicated problems, it is important for Customers to observe the established procedure for justifying the IMCP as strictly as possible. For violation of the procedure and form of justification, the risk of being held liable under Part 2 of Art. 7.29.3 of the CAO RF with the imposition of a fine on the contract service official in the amount of 10,000 rubles is high, and in the event of financial abuses by the Customer – the initiation of a criminal case.

Standard Contract for Procurement of Medical Devices

Until 2022, the Contract System Law empowered federal executive bodies with the right to develop standard contracts in their spheres of regulation. Their application became mandatory for Customers after 30 days from the day of publication in the Library of Standard Contracts in the EIS.

The procedure for developing standard contracts was approved by Decree of the Government of Russia No. 606 dated July 2, 2014, according to which standard contracts consist of a constant part (conditions not subject to change) and a variable part (which implies variability of conditions depending on the specific procurement).

Order of the Ministry of Health of the Russian Federation No. 724n dated October 15, 2015, approved the standard contract for the supply of medical devices [10]. Its application causes difficulties for Customers. The name and subject of the state contract provide not only for the supply of the medical device but also services for assembly, installation, commissioning, and training in operation rules. At the same time, according to the information card to the contract, it also extends to consumables (test tubes, systems, etc.). In such a case, a situation is created where it is not possible to render services for installation and commissioning due to the specifics of the goods, but it is impossible to exclude them from the standard contract due to the direct ban on changing the constant conditions of the contract.

In our opinion, in such cases, the standard contract is not subject to application due to the discrepancy between the full name of the procurement and the name of the standard contract. Despite the obvious absurdity of the situation, in law enforcement practice, there have been cases of holding Customers liable both for failure to apply standard contracts and for making changes to them.

From January 1, 2022, standard contracts will no longer be developed. They will be replaced by "standard terms," i.e., mandatory conditions subject to inclusion in the state contract. This will give Customers greater variability in preparing contracts. At the same time, the standard contract approved by Order of the Ministry of Health of the Russian Federation No. 724n dated October 15, 2015, continues to apply in the part not contradicting Law No. 44-FZ, until the approval by the Government of the Russian Federation of standard terms for the supply of medical devices [11].

Thus, as a result of considering certain practical issues related to state procurement of medical devices, a general conclusion can be drawn that, despite the active work of authorities to optimize procurement procedures, questions remain requiring unification and simplification, primarily among subordinate regulatory acts. Such activity will contribute to reducing violations, often unintentional, among Customers, as well as developing a competitive environment. This will undoubtedly contribute to achieving such principles of the contract system as transparency and efficiency of procurement.

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References

[1] Letter of the Ministry of Finance of Russia No. 24-02-06/96872 dated November 6, 2020, On the Establishment by the Customer of Requirements for Characteristics of Goods when Describing the Object of Procurement.

[2] Review of judicial practice in the application of legislation of the Russian Federation on the contract system in the sphere of procurement of goods, works, and services for provision of state and municipal needs, approved by the Presidium of the Supreme Court of the RF on June 28, 2017.

[3] Letter of the Ministry of Economic Development of the RF No. OG-D28-3661 dated June 10, 2016, On Clarification of Provisions of Federal Law No. 44-FZ dated April 5, 2013 'On the Contract System in the Sphere of Procurement of Goods, Works, and Services for Provision of State and Municipal Needs'; Decision of the OFAS for Moscow No. 077/06/106-19657/2021 dated November 11, 2021.

[4] Decree of the Government of the Russian Federation No. 145 dated February 8, 2017, On Approval of the Rules for Formation and Maintenance in the Unified Information System in the Sphere of Procurement of the Catalog of Goods, Works, and Services for Provision of State and Municipal Needs and Rules for the Use of the Catalog of Goods, Works, and Services for Provision of State and Municipal Needs.

[5] Decree of the Government of the Russian Federation No. 878 dated July 10, 2019, On Measures to Stimulate the Production of Radio-Electronic Products on the Territory of the Russian Federation when Carrying Out Procurement of Goods, Works, and Services for Provision of State and Municipal Needs, on Amendments to Decree of the Government of the Russian Federation No. 925 dated September 16, 2016, and on Invalidating Certain Acts of the Government of the Russian Federation.

[6] Resolution of the OFAS for the Novgorod Region dated February 18, 2020.

[7] Order of the Ministry of Health of the Russian Federation No. 4n dated June 6, 2012, On Approval of the Nomenclature Classification of Medical Devices.

[8] Order of the Ministry of Health of the RF No. 450n dated May 15, 2020, On Approval of the Procedure for Determining the Initial (Maximum) Contract Price, the Price of a Contract Concluded with a Single Supplier (Contractor, Executor), and the Initial Unit Price of a Good, Work, Service When Carrying Out Procurement of Medical Devices," entered into force on August 31, 2020.

[9] Letter of the Ministry of Health of the RF No. 25-3/I/2-16610 dated November 2, 2020, On the Application of Norms of Order of the Ministry of Health of Russia No. 450n dated May 15, 2020.

[10] Order of the Ministry of Health of the RF No. 724n dated October 15, 2015, On Approval of the Standard Contract for the Supply of Medical Devices, Commissioning of Medical Devices, Training in Operation Rules of Specialists Operating Medical Devices, and Specialists Carrying Out Technical Maintenance of Medical Devices.

[11] Letter of the Ministry of Finance of Russia No. 24-06-06/82500 dated October 12, 2021, On Consideration of an Appeal.