Procurement

Procurement in health involves the purchase of products, supplies, equipment and related services, as well as the commissioning of the construction of health facilities. For medicines this comes after a product has been selected for inclusion on a national reimbursement list and/or a health facility list. This is a considerable expense in most health budgets, with drug procurement budgets being significantly high in low-and middle-income countries.

Effective procurement processes result in high-quality and cost-effective products being purchased in the correct volume, at the right time and that are aligned to health needs. In contrast, corruption in procurement wastes resources and potentially leads to dangerous products entering the health system. The high volume and value of contracts in the healthcare sector make this a high corruption risk.

Procurement is primarily an interaction between suppliers and healthcare providers. The process can be divided into three stages: pre-bid in which the purchase need is determined and the specifications for a contract are set; bid in which suppliers submit their proposals for assessment by procurement officials who will then choose the winner; and post-bid in which the contract is delivered by the supplier and monitored by officials.

Officials can use this as an opportunity to exploit suppliers by demanding bribes in return for giving the supplier a contract. Likewise, suppliers can offer bribes to officials, which may be more likely when they are under pressure or in a highly competitive environment where the need to win a contract is higher. The actual process of giving a bribe to an official often occurs through the use of intermediaries such as product distributors.

National procurement laws will influence the corruption risks and necessary anti-corruption measures in this area in public health systems, by providing requirements for how tenders are set and evaluated. Measures can be implemented to reduce the opportunities for corruption in procurement by increasing transparency and accountability. One such measure is open contracting which is the practice of publishing and using open and accessible information throughout the procurement process, beginning with publishing needs assessments and continuing through to quality assurance and contract completion. By increasing procurement transparency civil society can track purchases and hold officials to account.

The people responsible for making the decision to purchase a product can have relationships with pharmaceutical companies. For example they can be relatives, they can be friends or they can be engaged in professional service agreements. Companies may take advantage of this conflict of interest to win business.

— Angela Ma. Neira - Compliance & Ethics Director, Abbott Colombia and Venezuela

Corruption Types

Unnecessary or ineffective purchases

Procurement officials deliberately set requirements and purchase products, supplies, services and construction that are not needed.
Read more

Otherwise termed as false needs assessments, it primarily occurs because the official has demanded or will receive a personal benefit from the supplier. This could be because an official has a financial stake in a company that will supply the product. Alternatively, politicians may put pressure on officials to complete a purchase that will generate publicity and gain votes for their re-election.

As a result, purchases are made that are ineffective for healthcare delivery. Medical equipment may be bought without staff trained to use the equipment or health facilities may be built with no further funding to actually equip the facility with staff, equipment and supplies.

Rigged contract requirements

Procurement officials fix the bidding process so to pre-determine the winner.
Read more

A procurement official tailors contract specifications to a supplier’s capabilities, or a tender process is circumvented completely without real justification so that a product is purchased directly from a supplier.

In both cases a supplier could bribe the official or the official could have a conflict of interest with the supplier, such as having a personal connection with an employee.

Preferential selection of contractor

Officials determine the winner of a tender due to inducements from a supplier or personal considerations between the two actors.
Read more

This can be facilitated through a number of channels. One of the most common pathways is a kickback. This is where an official artificially increases the payment due to a supplier, who is then able to refund the money to the personal account of the official. This can be carried out indirectly such as if the supplier refunds the amount to the official as a holiday package.

A supplier may also pay an official to receive confidential information about competitors, allowing it to tailor its bid unfairly so as to win the contract.

Like other types of corruption, an official may determine the winner of a tender based on personal connections. A local procurement official may hire friends and family to complete a construction project.

As a result of selecting the winner of a tender for inappropriate reasons, the price may be artificially high, wasting finite healthcare funds; or it may compromise the delivery of the products/services as the winner may not actually have experience working on such a contract.

Collusion between bidders

A secret agreement between suppliers to conspire and commit actions to deceive a transparent and competitive tender process.
Read more

Suppliers may divide different contracts in a nation or region between themselves. While giving the appearance of a competitive tender process the suppliers will have determined in advance which supplier will win a contract. Crucially suppliers can confer to collectively set their prices. In both cases the overall aim is to increase the amount received by the suppliers, which will result in products being bought at an artificially high price and wasting healthcare funds.

Unfulfilled contract delivery

Suppliers do not provide the services or goods as required in a contract or provide them to a lower quality than agreed.
Read more

There may be an agreement between a supplier and officials that the inspection of goods will be successful despite not meeting the contractual quality standards in return for a payment. Alternatively, in return for an inducement an official may change the contract requirements, allowing the provision of lower quality products by the supplier. As well as lower quality products, corruption here can lead to expired medicines being delivered or buildings being constructed to a poor standard.

It can be hard to determine this type of corruption as a lack of performance monitoring or audits on the part of relevant officials may facilitate poor contract delivery.

Case Studies

China, May 2016 – China authorities investigating bribery in vaccine scandal

Estonia, September 2016 – Charges pressed against leaders of Estonia’s largest hospital

Romania, June 2016 – Two Bucharest hospital managers arrested for bribery

Philippines, July 2016 – Ex-health secretary indicted for graft

Pakistan, September 2016 – Embezzlement of millions of rupees while procuring medical supplies

Germany, March 2014 – Former pharmaceutical company employees convicted of bribery in Germany

The Pharmaceuticals & Healthcare Programme is an international programme of Transparency International, based in the London office of Transparency International UK.

Contact Us