Pandemic, Prosecutions Aside, Bribery Persists in Chinese Hospitals

Amid this backdrop of long-standing corruption, the coronavirus outbreak raised the stakes, fueling rising demand for medical equipment. Invasive ventilators are used for the most severely ill patients, taking over heart and lung functions as their bodies fight the illness. CT machines, MRIs, and ultrasound machines not only diagnose and monitor COVID-19 patients, but are used to research how the disease affects the heart and brain, as well as the lungs.

One tender, published April 7, 2020, shows the Fourth Affiliated Hospital of Harbin Medical University, in northeast China, seeking bids for a Siemens CT Scanner to detect pneumonia caused by coronavirus. While government documents do not name the model selected, they do give the price paid: ¥22.98 million, or $3.24 million. That surpasses the typical cost of the most expensive Siemens machines, the SOMATOM Force or the SOMATOM Drive, in the US and elsewhere in China by more than $1 million.

In the US, the SOMATOM Force currently sells for about $1.95 million, while the SOMATOM Drive can be had for $1.68 million, according to the New York State Office of General Procurement Services, which publishes the prices of medical devices it buys for state agencies.

Former compliance officer Liu said that tracing bribery can be complicated by a lack of communication between company departments. “They are often isolated,” he said. “For example, the contract management may be handled by the legal department, and the bidding process may be handled by the business management department.”

In other words, equipment makers like Siemens often do not check to see how the price quoted in the contract ultimately signed with the hospital compares with the reseller’s price that won the bid, Liu said. “So unless someone, like me, wonders whether the contract matches the bidding record, each department will consider they have fulfilled their responsibility.”

Typically, employees of the multinationals in China must approve bids submitted by middlemen, Liu said, adding that Siemens employees are generally present at the bidding evaluation meeting to answer questions from resellers.

In a statement, a Siemens spokesperson in Germany insisted that resellers were “completely free” in their pricing. “The distributor calculates a price that includes all their costs,” the spokesman said. Like the other companies mentioned, Siemens also refrained from commenting on the specific deals in this article, but said that price disparities could reflect  ancillary costs and terms, such as warranties, room preparation, special training courses for hospital employees, and other equipment. “The actual scopes of delivery often significantly exceed the scope given in the tender books,” the spokesman said.

However, scopes of supply that 100Reporters has seen for CT machines in the US show all such additional costs are included on the invoice – and yet the overall price remains at the standard market value, often $1 million to $2 million lower than the same machines cost in China. Moreover, other public tenders show that room preparation – usually cladding a CT room with radiation shielding – is generally contracted out separately to other companies, and has nothing to do with the sale price of the machine.

By way of comparison, a bid from May 2019 shows a GE Signa Pioneer was purchased directly without using a reseller by the Affiliated Hospital of Chengde Medical College, including warranty and freight expenses, for just ¥17.6 million, or $2.56 million. That’s more than $2 million less than another hospital in Yangchun paid for the same machine in January 2020.

“There are bidding records available which can stipulate the price of extended warranties, installation and construction,” said Liu. “However, there is always a huge chunk that cannot be justified.”

The Chinese hospitals and companies involved in bids mentioned in this article did not respond to detailed questions for this article, and in almost all cases gave no official comment. However, one senior manager at the Shenzhen Gaokaiyue Trading Co. – which made a losing bid to sell a Philips MRI machine to a hospital in Shenzhen province in 2019 – did speak, though he declined to give his name, as he felt the information he was offering was “sensitive” and wanted to be able to speak freely. He said that though final prices for equipment could differ from US market prices, depending on “varied features and configurations” in China, “the actual price should not be 80 percent more or even double than the net price in the States.”

Contrary to what both GE and Siemens spokespeople claimed, the Gaokaiyue manager also said that it was in fact routine for manufacturers’ employees to be involved in a reseller’s bidding process. He said “every manufacturer’s salesman will represent the company” in meetings to explain the medical devices for clients during the bidding process, and added that management level officials from manufacturers were also occasionally on hand, depending on the region and the brand of the equipment.

That account is also backed up by Chinese court cases released in the past year, in which witnesses testified that employees of both GE and Siemens were directly involved in the bid-rigging schemes. In one verdict, released in September 2020, a hospital president convicted of taking bribes from 2004 to 2017 testified that a Siemens business manager offered to pay him ¥2 million ($300,000) in 2011 in exchange for help ensuring Siemens products win the bids. In another verdict against a corrupt hospital president, released in July 2020, a third-party reseller testified that a GE regional manager was not only complicit in a 2011 bid-rigging scheme but “would be responsible for taking the GE authorization letter and making the bidding submission.”