As the coronavirus pandemic threatened to overwhelm Chinese hospitals last year, Chinese retailers appear to have rallied to inflate the prices of ventilators and other essential medical equipment from multinational companies such as Siemens, GE and Philips, according to a review of recent public records on the sale of medical equipment in China.
Hospitals have purchased high-value MRIs, CT scanners, ultrasound machines and other equipment – all vital for diagnostics and research of the new coronavirus – in some cases paying millions of dollars above fair market prices. Such inflated prices typically include a cushion for 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 is selling for $ 3.24 million at a Chinese hospital, while the first-line Siemens model carries a market price of $ 1.95 million.
Tender documents, which generally include prices, often contain such detailed technical specifications that it would be difficult for anyone not employed by the manufacturers to process them, suggesting that companies such as Siemens, GE and Philips may sometimes tacitly assist. dealers engaged in business that risk violating the Foreign Corruption Practices Act.
In 2008, Siemens paid one of the largest corporate fines in history, $ 1.6 billion, for foreign corruption charges and made reform promises, admitting that it had violated its holding provisions. records and internal control of the Foreign Corruption Practices Act. Subsequent reports from the Süddeutsche Zeitung and The New York Times following Chinese corruption trials documented the involvement of corrupt Western business employees in Chinese healthcare.
The new revelations, based on more recent acquisitions from hospitals, suggest the return of a “family cycle,” according to Peter Humphrey, who has been investigating corruption in China for several years, at one point in a lawsuit against him. to the pharmaceutical giant GlaxoSmithKline. Following the case, Humphrey, a former Reuters correspondent, served at the end of two years in a Chinese prison to buy personal data.
“In my experience, companies neglect due diligence, keeping an eye on corruption, until the bomb goes off,” he said. “Then the bomb goes off, I’m in trouble.” Part of the answer is to launch a stronger compliance function, but after several years, they get back to training. ”
“The jungle is growing again,” he said.
Public offerings from all over China are collected on the site chinabidding.com, a search of which reveals numerous suspicious cases: For example, in May 2020 the Fifth People’s Hospital of Jingzhou, in Hubei province near Wuhan, paid 2.4 million renminbi, or $ 340,000, for a GE Logiq S8 ultrasound.
The machine typically sells again for $ 70,000 to $ 150,000, depending on options, depending on medical equipment suppliers.
GE did not comment specifically on this matter or any of the others in this article, but in a statement, a GE spokesman insisted that the third-party dealers involved in such matters were not representatives or agents of the company, but GE customers. The company has no control over the prices retailers charge for hospitals, it maintains, adding that it is not even allowed to know the prices under the antitrust law.
Antitrust lawyers dispute GE’s interpretation, noting that antitrust laws do not prevent a manufacturer from knowing only the price set by a reseller, or prevent producer employees from providing support to resellers who submit bids. publicity of their equipment.
In another bid, as of November 2019, a Chinese retailer has sold Newport ventilators manufactured by the US-Irish company Medtronic for 295,000 renminbi, or $ 42,000, to the hospital of the Southern Medical University of Traditional Chinese Medicine and Western Integrated.
The same machine, known as the Covidien e360 ventilator, sells for less than half the price on medical technology sales websites in the United States. In a statement, Medtronic said it did not control distribution prices, and that several factors can influence the price of a product. “The price of retailers may also vary in China based on the nature of the services associated with product delivery, education and training, and product service and support among other factors,” he said. the statement.
But initiators of the Chinese healthcare market say none of these factors explain price disparities. “If you look at the supply documentation and world prices, you can always see a big gap between them,” said Meng-Lin Liu, former Siemens compliance officer in China, who analyzed dozens of such transactions. Hospitals pay the high offer price to retailers, but retailers only pay the normal global price to multinationals, Liu explains.
Corruption of foreign public officials, such as hospital officials in a public health system, is illegal under the United States Law on Foreign Corruption Practices (FCPA). Hence the need for intermediaries, which offer a form of legal isolation. But as Tom Fox, a veteran FCPA lawyer and independent consultant, said, “Under the FCPA, it’s zero consequence that you sell the equipment; the manufacturer is responsible. It doesn’t matter what you call it: Whether it’s a reseller, whether it’s a distributor or an agent – if you sell Siemens equipment, Siemens is still 100% responsible for the corruption. ”
According to a source familiar with the probe, the SEC is conducting a massive long-term probe into bid rigging in various regions involving Siemens, GE and Philips. The SEC will not comment on the existence of ongoing investigations, but in a February 2021 filing with the SEC, Philips acknowledged that it cooperated with an SEC and DOJ investigation into “alleged irregularities in the device industry. physicians in certain other jurisdictions. These interactions are ongoing and focus primarily on a range of compliance findings that society faces in China and Bulgaria. ”
Philips declined to comment further, but a spokesman said: “(E) A lot of Philips and its business partners always act with integrity. Philips strictly enforces compliance with the Company’s General Principles during its operations. ”Like GE, Siemens and Medtronic, Philips declined to answer specific questions about the business mentioned in this article.
CORRUPTION DURING A PANDEMIC
An offer, published on April 7, 2020, shows the Fourth Affiliated Hospital of Harbin Medical University seeking offers for a Siemens CT Scanner to treat pneumonia appropriate to Covid. While government documents do not name the selected model, they give the price paid: 22.98 million renminbi, or 3.24 million dollars. This exceeds the typical cost of the most expensive Siemens machines, the SOMATOM Force or SOMATOM Drive, in the United States and elsewhere in China by more than $ 1 million.
In the United States, the SOMATOM Drive currently sells for about $ 1.95 million, while the SOMATOM Drive sells for $ 1.68 million, according to the New York State Office of Attorney General Services, which publishes the prices of medical devices it buys for state agencies.
In a statement, Siemens claimed that the retailers were “completely free” in their prices. “The distributor calculates a price that includes all its costs,” a spokesman said, adding that price disparities could reflect costs and ancillary terms.
However, not all Chinese hospitals pay very high prices for equipment. An offer from May 2019 shows that the Affiliated Hospital of Chengde Medical College has purchased a GE Signa Pioneer directly for only 17.6 million renminbi, or $ 2.56 million, including warranty and transportation costs. It is more than $ 2 million less than another hospital in Yangchun paid for the same car in January 2020.
The Chinese hospitals and businesses involved in the offerings mentioned in this article have not answered the detailed questions.
A senior manager at Shenzhen Gaokaiyue Trading Co. he spoke, asking for anonymity because of the “sensitive” nature of the information. He said the final price for the equipment could differ in China depending on “features and configurations,” but that “it should not be 80 percent more or even double the net price in the states.”
Contrary to the claims of GE and Siemens, the director said the representatives of the producers were usually involved in a reseller offer. He said, “All the manufacturer’s vendors will represent the company” in meetings to explain the medical devices to customers during the bidding process. Occasionally, its leaders joined as well.
Witnesses from Chinese courts released last year also testified that GE and Siemens employees were directly involved in the bid rigging schemes. In a recently published verdict, a hospital president who took on corruption from 2004 to 2017 said a Siemens business director offered him 2 million ($ 300,000) in 2011 to ensure that the Siemens products have won offers. In another case against a president of the corrupt hospital, a third-party dealer said a GE regional director was not only complicit in a rigging scheme of the 2011 bid but “would be tasked with taking GE’s letter of authorization and to submit the offer. “
Siemens has often boasted, and has been celebrated for, tightening its compliance system following the 2008 corruption scandal. As part of this benchmark, Siemens has been ordered to name a monitor that has produced annual reports, which the SEC and the Department of Justice have kept entirely out of the public eye until now. (See Part II of this series.)
The involvement of international companies in corruption in China is hardly 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 non-profit news organization based in Washington, DC