(Reuters) — Siemens (NYSE:SI) and China’s State Administration for Industry & Commerce, a competition regulator, denied a Reuters report that the SAIC investigated the German group’s healthcare unit and its dealers for "commercial bribery."
"The SAIC has not launched a commercial bribery investigation into Siemens Healthcare Unit," a spokesperson for the regulator said in a statement on its website.
"The fact is, a branch of Administration of Industry and Commerce (AIC) in Shanghai is looking into Siemens Healthcare’s Laboratory Diagnostics marketing and business model, which is common worldwide in the industry," Siemens spokesman Matthias Kraemer said. "Contrary to the recent media reports, the probe is neither corruption-related nor related to any personal benefits to individuals," he said, adding Siemens was working closely with AIC to dispel its concerns and "expects to resolve the matter in the near future."
Reuters reported May 1 that the SAIC investigated Siemens 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, citing 3 people with knowledge of the probe.
The investigation, which was not previously reported, follows a wide-reaching probe into the pharmaceutical industry in China that last year saw GlaxoSmithKline (NYSE:GSK) fined nearly $500 million for bribing officials to push its medicine sales.
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 people said.
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, 1 of the sources said. 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 GE Healthcare (NYSE:GE), Royal Philips (NYSE:PHG), Medtronic (NYSE:MDT) and Johnson & Johnson (NYSE:JNJ).
SAIC accused Siemens and its dealers of having committed "commercial bribery" under Article 8 of the Anti-Unfair Competition Law, the sources said, 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 & Family Planning Commission.
The 3 people, 2 of whom have direct knowledge of the investigation, asked not to be named. The 3rd 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 said.
Reuters was unable to ascertain which dealers were involved.
Siemens had China sales of €6.44 billion ($6.94 billion) in 2014, around 8% of its total. It employs 32,250 people in China, where it also has units operating in sectors from railways to energy.