Chinese Regulators Investigated Siemens Healthcare for Alleged Bribery

A Chinese regulator investigated Siemens AG last year over whether the German group’s healthcare unit and its dealers bribed hospitals to buy expensive disposable products used in some of its medical devices, three people with knowledge of the probe have told Reuters.

The investigation, which has not previously been reported, follows a wide-reaching probe into the pharmaceutical industry in China that last year saw GlaxoSmithKline plc fined nearly $500 million for bribing officials to push its medicine sales.

China’s State Administration for Industry and Commerce (SAIC) accused Siemens and its dealers of having violated competition law by donating medical devices in return for agreements to exclusively buy the chemical reagents needed to run the machines from Siemens, the sources said.

Reuters was unable to determine whether Siemens had denied the accusations or if any action was taken against the company or the dealers.

A senior spokesman for Siemens in Germany said he was “not aware” of the investigation and declined to comment on specific questions about the investigation: “We are not aware of any situation that conforms to what you describe,” said Germany-based spokesman Matthias Kraemer in response to questions emailed to Siemens in China and to the group’s headquarters. He declined to comment further, Reuters reported.

SAIC declined to comment.

China-based lawyers said it was not uncommon for regulators to conduct investigations behind closed doors and for legal teams to then negotiate settlements to keep probes under wraps.

The Siemens investigation, which involved as many as 1,000 hospitals, could signal further probes into other medical device makers, one of the sources told Reuters. It comes as Beijing pushes hospitals to use more locally-made medical devices and reduce a reliance on imports that account for three-quarters of a Chinese market worth around $34 billion.

Other foreign medical device firms operating in China include General Electric, Koninklijke Philips, Medtronic and Johnson & Johnson.

SAIC accused Siemens and its dealers of having committed “commercial bribery” under Article 8 of the Anti-Unfair Competition Law, the sources claimed, and the regulator took a tough line on a practice that, while technically illegal, is relatively common in China’s healthcare sector.

Chinese medical institutions are prohibited from accepting donations under conditions that impede fair competition or otherwise affect procurement decisions, according to China’s National Health and Family Planning Commission.

The three people, two of whom have direct knowledge of the investigation, asked Reuters not to be named. The third works closely with Siemens’ healthcare team in China and was briefed on the investigation.

Medical device makers work closely with their dealers, and contracts to sell equipment to hospitals are usually signed by both the manufacturer and the distributor. The Siemens investigation involved a range of medical devices, including those used to carry out blood tests, the sources noted.

Reuters was unable to ascertain which dealers were involved.

Siemens reported China sales of 6.44 billion euros ($6.94 billion) in 2014, around 8 percent of its total. It employs 32,250 people in China, where it also has units operating in sectors from railways to energy.