As the coronavirus pandemic threatened to overwhelm Chinese hospitals last year, Chinese dealers appear to have colluded to inflate the prices of ventilators and other essential medical equipment from multinational companies such as Siemens, GE and Philips, according to a review recent public records on the sale of medical equipment in China.
Hospitals have bought MRI scans, CT scanners, ultrasound machines and other high-value equipment – all vital for diagnosing and testing for the novel coronavirus – in some cases paying millions of dollars above prices. market. These inflated prices typically include a cushion for the corruption of hospital officials and others along the purchasing chain, according to court cases and corruption experts.
One Chinese hospital paid a dealer $ 5.16 million for a GE Signa Pioneer MRI scanner, while another Chinese hospital paid only $ 2.56 million for the same machine. A Siemens CT scanner sold for $ 3.24 million in a Chinese hospital, while the high-end Siemens model has a market price of $ 1.95 million.
Bidding documents, which usually include prices, often contain technical specifications so detailed that it would be difficult for anyone other than employees of the manufacturers to write them up, suggesting that companies like Siemens, GE and Philips can sometimes tacitly help resellers. engaged in transactions that may violate the law on corrupt practices abroad.
In 2008, Siemens paid one of the biggest corporate fines in history, $ 1.6 billion, on foreign bribery charges and pledged to reform, admitting to violating record keeping and internal control of the law on corrupt practices abroad. Subsequent reporting by Süddeutsche Zeitung and The New York Times following corruption trials in China documented the involvement of Western company employees in corruption in Chinese healthcare.
The new revelations, based on more recent hospital purchases, suggest the return of a “familiar cycle,” according to Peter Humphrey, who has investigated corruption in China for several years, at one point taking legal action. justice against the pharmaceutical giant GlaxoSmithKline. In the aftermath of the case, Humphrey, a former Reuters correspondent, finally served two years in a Chinese prison for purchasing personal data.
“In my experience, companies neglect due diligence, turn a blind eye to corruption, until the bomb goes off,” he said. “Then the bomb goes off, they’re in trouble. Part of the answer is to kickstart a stronger compliance function, but after a number of years they come back to shape. “
“The jungle grows back,” he said.
Public tenders from all over China are collected on the chinabidding.com website, a search of which reveals many suspicious transactions: for example, in May 2020, the fifth people’s hospital in Jingzhou, in nearby Hubei province from Wuhan, paid 2.4 million renminbi, or $ 340,000, for a GE Logiq S8 ultrasound.
The machine typically sells for between $ 70,000 and $ 150,000 new, depending on the options, depending on the medical equipment suppliers.
GE declined to comment specifically on this deal or any of the others in this article, but in a statement, a GE spokesperson insisted that the third-party resellers involved in such deals were not company representatives or agents, but GE customers. The company has no control over the prices that resellers charge hospitals, it argues, adding that it is not even allowed to know the prices under antitrust law.
Antitrust lawyers challenge GE’s interpretation, noting that antitrust laws do not prevent a manufacturer from simply knowing the price set by a reseller, or prevent employees of manufacturers from providing assistance to resellers submitting public bids for their equipment .
In another offer, from November 2019, a Chinese dealer sold Newport ventilators made by the Irish-American company Medtronic for 295,000 renminbi, or $ 42,000, to the Southern Medical University Hospital of Integrated Traditional Chinese and Western Medicine.
The same machine, known as the Covidien e360 ventilator, sells for less than half that price on medical tech retail websites in the United States. In a statement, Medtronic said it does not control distribution prices and that there are many factors that can influence the price of a product. “Reseller prices may still vary in China depending on the nature of the services associated with product delivery, education and training, and product service and support, among other factors,” said the press release.
But Chinese healthcare market insiders say none of these factors explain the price disparities. “If you look at the tender documentation and the global prices, you can still see a huge gap between the two,” said Meng-Lin Liu, a former Siemens China compliance manager, who analyzed dozens of these transactions. Hospitals pay the highest auction price to resellers, but resellers only pay the normal aggregate price to multinationals, Liu said.
Bribery of foreign public officials, such as hospital officials in a public health care system, is illegal under the US Foreign Corrupt Practices Act (FCPA). Hence the need for intermediaries, who offer a form of legal isolation. But as Tom Fox, a veteran FCPA lawyer and independent consultant, noted, “Under the FCPA, there is no consequence in selling the equipment; the manufacturer is responsible. No matter what you call it: whether it is a reseller, distributor or agent, if I sell Siemens equipment, Siemens is always 100% responsible for the corruption.
The SEC is conducting a massive, long-term bid-rigging investigation in various regions involving Siemens, GE and Philips, according to a source familiar with the investigation. The SEC will not comment on the existence of any pending investigations, but in a filing filed with the SEC in February 2021, Philips admitted to cooperating with an SEC and DOJ investigation into ” offerings in the medical device industry in certain other jurisdictions. These interactions are ongoing and primarily focus on a number of compliance findings the company is dealing with in China and Bulgaria. “
Philips declined to comment further, but a spokesperson said: “(E) everyone at Philips and its business partners must always act with integrity. Philips rigorously applies its general business principles in all of its operations. Like GE, Siemens and Medtronic, Philips declined to answer specific questions about the agreements mentioned in this article.
CORRUPTION DURING A PANDEMIC
A call for tenders, published on April 7, 2020, shows that the fourth affiliated hospital of Harbin Medical University is soliciting bids for a Siemens CT scanner to treat Covid-related pneumonia. If the government documents do not name the chosen model, they give the price paid: 22.98 million renminbi, or 3.24 million dollars. This is more than a million dollars more than the typical cost of the most expensive Siemens machines, the SOMATOM Force or SOMATOM Drive, in the United States and elsewhere in China.
In the United States, SOMATOM Force currently sells for around $ 1.95 million, while SOMATOM Drive sells for $ 1.68 million, according to the New York State Office of General Procurement Services, which publishes prices. of medical devices that he purchases for state agencies.
In a statement, Siemens said resellers were “completely free” in their prices. “The distributor calculates a price that includes all of its costs,” a spokesperson said, adding that the price disparities could reflect ancillary costs and conditions.
However, not all Chinese hospitals pay significantly inflated prices for the equipment. An offer from May 2019 shows that the affiliated hospital of Chengde Medical College directly purchased a GE Signa Pioneer for just 17.6 million renminbi, or $ 2.56 million, including warranty and freight charges. That’s more than $ 2 million less than another hospital in Yangchun paid for the same machine in January 2020.
Chinese hospitals and companies involved in the tenders mentioned in this article did not respond to detailed questions.
A senior executive from the Shenzhen Gaokaiyue Trading Co. spoke, requesting anonymity due to the “sensitive” nature of the information. He said the final price of the equipment might differ in China based on “features and configurations,” but “should not be 80% or even double the net price in the United States.”
Contrary to claims by GE and Siemens, the director said manufacturers’ representatives were regularly involved in a reseller’s offer. He said that “every vendor of manufacturer will represent the company” at meetings to explain medical devices to customers during the tendering process. Occasionally, their managers also joined them.
Witnesses in Chinese court cases published last year also said that GE and Siemens employees were directly involved in the bid-rigging schemes. In a recently released verdict, a hospital president who accepted bribes from 2004 to 2017 said a Siemens business manager offered him $ 2 million ($ 300,000) in 2011 for his ensure that Siemens products win the bids. In another case against a corrupt hospital president, a third-party dealer said that a GE regional manager was not only complicit in a bid-rigging scheme in 2011, but that he “would be responsible for take the authorization letter from GE and make the submission.
Siemens has often boasted and celebrated for strengthening its compliance system in the wake of the 2008 corruption scandal. As part of this landmark settlement, Siemens was ordered to appoint a controller who produced annual reports. , which the SEC and the Department of Justice have completely hidden from the public until now. (See Part II of this series.)
The involvement of international companies in corruption in China is not new, said Matt Kelly, editor of the Radical Compliance newsletter. “Every transaction with a government-owned company is high risk. Period, ”he said.
This story was provided to The Associated Press by 100Reporters, a nonprofit news organization based in Washington, DC.