With aberrant evolution of modern medicine and advancement of medical procedures, everything appears to be controlled by medical industry. The investors have gained control of the financial game. How large companies create a web of corrupt practices, and earn huge profits, is a common prevalent sentiment. Tip of the Iceberg has been revealed indicating inducements to some doctors and dubious deals with hospitals. If these are the hallmarks of the big unregulated medical bazaar in India and some others, a rare case involving a global major has put a figure to it.
In a filing two months ago, the top financial regulator in the USA, the Securities and Exchange Commission (SEC), ordered the world’s leading manufacturer of orthopaedic implant devices, Stryker, to pay $7.8 million (over Rs 55 crore) in settlement for violating its corruption norms in India, China and Kuwait, documents accessed by The Indian Express reveal.
The settlement, recorded by the SEC on September 28, came after the Commission’s “accounting and audit enforcement” proceedings noted a number of “violations” by the company’s Indian subsidiary and its dealers. These “violations” include questionable payments to doctors for “consulting fees, travel, and other benefits” and “inflated invoices” issued to “mostly large, corporate hospitals”.
And that’s not all. In 2012, the anti-monopoly regulator, Competition Commission of India (CCI), fined an authorised distributor of Stryker India and two other firms Rs 3 crore for allegedly rigging bids, manipulating tenders and forming a cartel to sell equipment to the All India Institute of Medical Sciences (AIIMS) and Safdarjung Hospital, two of the largest government hospitals. In its scrutiny of Stryker’s India operations, including the findings of internal audits between 2010 and 2015, the US SEC concluded: “Payments intended to benefit HCPs (Health Care Providers) also lacked sufficient documentation, such as consulting fees paid to doctors without adequate explanation of the doctors’ consulting services or hours billed, and payments for HCP travel with documentation that appeared falsified…
“Additionally, the forensic review found missing or inaccurate documentation for numerous other transactions flagged as high-risk, including expenses related to consulting fees, travel, and other benefits to health-care professionals in India.”
The US regulator’s severe indictment of Stryker’s India operations is one of the most startling findings to emerge from the Implant Files investigation by The Indian Express and the International Consortium of Investigative Journalists (ICIJ) on the medical bazaar, where pharma majors hard sell their products without any regulation via a dubious nexus with hospitals and doctors.
Stryker India has four offices in the country — Delhi NCR, Mumbai, Chennai and Kolkata — and an annual turnover of Rs 300 crore in FY 2017-18, mainly from selling hip and knee implants, and medical devices for spine and neuro surgeries. The US-based parent company has a market cap of $58.87 billion with operations spread across 100 countries covering Asia, Europe, Africa and Latin America.
Dubious deals with hospitals:
Private hospitals that “requested inflated invoices from dealers profited from their purchase of Stryker orthopaedic products by passing on the higher (invoiced) prices to their patients or their patients’ insurers, even as the hospitals paid the lower prices previously negotiated with Stryker India to Stryker India’s dealers”, the US SEC found.
In doing so, the SEC said, the dealers “allowed these private hospitals to gain a windfall from passing on the higher (invoiced) prices to their patients or their insurance companies”.
Linking Stryker to these deals, the regulator said: “Stryker India authorized these dealer transactions only after Stryker India’s management negotiated and approved the price that the hospitals would pay to the dealers. Thus, in determining the price charged to dealers, Stryker India’s management and the dealers specifically negotiated the profit margin such dealers would stand to earn based on the difference between what hospitals paid the dealers and what the dealers paid Stryker India.”
SEC records do not identify the dealers involved. But documents maintained by CCI show that it had fined PES Installations, an authorised distributor, and two other firms, MDD Medical System and Medical Product Services (MPS), Rs 3 crore in April 2012 for a number of alleged irregularities in sale of equipment to AIIMS and Safdarjung Hospital, both in Delhi.
Responding to a questionnaire from The Indian Express on the SEC findings, Stryker said in a statement: “We are committed to working with our customers to make healthcare better while operating ethically and in compliance with all applicable laws and regulations.”
The US SEC, meanwhile, found a number of similar violations in Stryker’s operations in China and Kuwait, too. According to the SEC, it took into consideration “Stryker’s cooperation and remedial acts undertaken” while deciding to accept the company’s settlement offer to be paid “within 14 days”.
Unlike in India, the US has robust anti-corruption checks in place with the Foreign Corrupt Practices Act (FCPA), enacted in 1977, prohibiting the payment of bribes to foreign officials to assist in obtaining or retaining business, and mandating companies “to maintain accurate books and records”. In Stryker’s case, the SEC decided on a settlement after issuing a “cease-and-desist” offer to the company.
WHAT THE US REGULATOR FOUND
Inadequate oversight of dealers
* In 2012, in response to allegations of misconduct concerning Stryker India’s dealers, Stryker exercised its audit rights over three dealers in India. Those audits revealed insufficiencies in the financial record-keeping and internal accounting controls of all three dealers. Additionally, Stryker identified suspicious expenses by one dealer and instances of another dealer over-billing a hospital upon the hospital’s request. While Stryker took some corrective actions in response to these audits, including terminating one of the three dealers, the actions were limited to the three dealers audited.
* (The)deficiencies violated Stryker India’s agreements with its dealers. Specifically, the deficiencies in dealers’ financial record-keeping violated dealers’ obligation to “maintain complete and accurate records relating to [their] promotion, marketing, use and distribution of [Stryker] Products,” and the over-billing violated Stryker’s business conduct policy prohibiting participation in any improper payments. Despite the red flags raised during the 2012 audits, and numerous complaints reported to Stryker of dealer misconduct, Stryker did not act to determine the scope of dealer-inflated invoices until 2015.
* In 2015, Stryker performed audits of other dealers in India. The audits revealed that the practice of Stryker India’s dealers inflating invoices for the sale of Stryker orthopaedic products to certain private hospitals — an improper practice identified three years earlier in connection with the 2012 audits — had become more widespread.
Lack of accurate books, records
* From 2010 through 2015, Stryker India failed to make and keep complete and accurate books and records that reflected its transactions and disposition of assets. In particular, Stryker India recorded potentially problematic payments to its dealers and to HCPs, some of which lacked any supporting documentation reflecting a clear business purpose.
* A forensic review of Stryker India’s general ledger for the period 2010 through 2015 found a complete lack of documentation for 144 out of 533 transactions selected as a sample of Stryker India’s highest-risk and most compliance-sensitive accounts.
* During the period of 2010 through 2015, Stryker was unable to provide any documentation for 27% of sampled high-risk transactions on Stryker India’s general ledger.
The SEC ordered Stryker to appoint an independent consultant, review and evaluate the company’s internal controls, record-keeping and anti-corruption policies, and procedures relating to use of dealers, agents, distributors, sub- distributors, and other such third parties that sell on behalf of the company. The SEC noted in its official filing: “Stryker fortified its existing compliance program, which is designed to prevent, detect, and remediate potential misconduct. This program develops, maintains, and implements corporate policies and standard operating procedures setting forth specific due diligence and documentation requirements for relationships with foreign officials, health care professionals, consultants, and distributors.”
The company has also retained an independent consultant to “formulate a work plan: that will be evaluated by the agency and Stryker to address the SEC’s findings”.
WHAT INDIA’S REGULATOR FOUND
Dealers rigging bids, forming cartel
* In April 2012, the CCI fined PES Installations, MDD Medical System and Medical Product Services for “bid-rigging and forming a cartel” in tenders for procurement of a Modular Operation Theatre (MOT) and other medical equipment at AIIMS and Safdarjung Hospital.
* The CCI also examined a contentious question: did the dealership agreement between Stryker India and PES violate sections of the Competition Commission Act? According to the official website of the Ministry of Corporate Affairs, the Act, enacted in 2002, aims “to
prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants…”
* In its final order issued on April 16, 2014, based on the documents placed before it, CCI ruled that “according to the agreement struck with the dealer (PES Installations), Stryker could appoint any other firm as its dealer”. “However, according to the agreement, in this case PES Installations, the dealer could not sell products of any other company without the permission of Stryker,” the order said.
* The Director General appointed by CCI, under section 26 of the CCI Act, to conduct the investigation noted that the agreement that restricts PES to Stryker alone “impeded and restricts competition” and “constitutes violation of the law”.
* However, the CCI ruled in its final order that the agreement was “not violative of the law” on the grounds that “there are other competing products in the market” that are available to other “similarly placed” distributors.
The point to ponder here is that, with such unholy scenario and milieu developing, where business deals and investors decide the treatment with aberrant medical evolution taking place. Doctors involved with such big companies will be promoted, projected and survive. Will the honest doctors, who are not part of the game, be able to survive, sustain themselves or ultimately alienated to extinction?