The ostrich view: Philips knew of bribery in Poland, but decided to look the other way.

On May 18^th, I wrote an article on the accusations of bribery that were made against employers of Philips Healthcare in Poland. And I wrote how hard it is to prevent this kind of bribery, when the company and so many people depend on the successes of your tenders. And although, due to legal reasons, I didn’t dare to predict yet that the Philips headoffice knew of this bribery scandal, I didn’t hold this for impossible at all.

Here is a large fragment of this article:

Employees of Philips Poland were accused of bribing hospital officials.

And Philips Poland? Did they know it? And did the headoffice of Philips in The Netherlands know? Your guess is as good as mine and I’m certainly not going to make accusations in their direction!

But look at it objectively: X-Ray machines, radiation treatment machines, CT-Scanners and MRI-scanners are extremely expensive machines with price ranges between €100,000 and €2.5 mln. I took these prices from a dissertation on the purchase of a CT-scanner / PET-CT scanner from 2007.

The development costs for these machines are extremely high and the safety conditions and conditions for approbation by the international Health authorities are very, very stringent. This means that the producers of these machines, like GE Healthcare, Philips, Hewlett-Packard and Siemens, are operating in a very small and inaccessible market, where the margings are extremely high. Every machine that your company sells extra, means a machine less for your competitors.

Selling 20 extra CT-scanners or 10 extra PET-CT scanners per year means an extra turnover of €25 mln for your company. And the only thing you have to do for it, is giving a thick envelope with contents to the guys in the hospital that pull the shots. See it as a “special marketing investment”.

Today a follow-up on this story was printed in the Dutch financial newspaper, Het Financieele Dagblad (www.fd.nl). This story confirmed my initial thoughts on the presumed knowledge of this fraud at the headoffices of Philips in Poland and The Netherlands.

Philips knew of fraud in Poland (link in Dutch)

Philips in The Netherlands knew that its employees paid bribes in Poland. This is proved by internal documents, coming from the European headoffice of Philips Healthcare in Best (The Netherlands), that are in possession of the Polish department of prosecution. Het Financieele Dagblad has had access to these documents.

Philips denies any comments, when asked, as long the internal investigation of the Polish corruption case is not finished.

The Philips headoffice in Best got on a regular basis information from Poland, that public tenders were ‘rigged’.

From internal documents the following can be concluded:  Philips employees in Poland adviced local hospital direktors to set up the technical demands for public tenders in such a way that the competion didn’t stand a chance

On September 23, 2005, Jan Zasadzinski, accountmanager for Central and Eastern Poland writes:”We have an 80% chance to get six Duo-projects. We rigged the tender specifications throughout the whole year”.

The explicit mentioning of ‘rigged’ tenders doesn’t cause any astonishment or disapproval in The Netherlands, according to the mails returned to Poland. There is only annoyment that the Polish customers want to reserve the machines in such a short notice.

Peter van de Ven, senior director direct countries, writes:’As a consequence of these ridiculous times of delivery that are demanded, we already have to book an order if we want to meet the deadlines. That means booking an order before the tender is officially opened. This is clearly not a procedure that I am in favour of’.

In spite of this reservations, he approves of the order in order ‘not to miss this enormous opportunity’.

The bribes that were paid at this tender, are clearly visible in the price calculations that were approved of by Philips in The Netherlands.

Although Philips itself is not subpoenaed in Poland, the company risks a high penalty in the United States, when the American supervisor SEC concludes that the corruption in Poland was more than just a local incident.

The conclusion of my first article in this series was: You can be sure that this kind of corruption will be there to stay for as long as a few people decide on such large investments.

With this statement, I didn’t want to approve of these practices. It is unfair, dishonest and even straightforward corruption what Philips Healthcare did in Poland. Whether it is ‘the ostrich view’ of the Philips Healthcare headoffice or deliberate policy of the brand, I don’t know. But I wouldn’t be surprised if this is not only common practice at Philips, but also at the other suppliers of medical equipment. You can read my motivation in the excerpt of my first article.

Bribery cases like this, could lead to the situation that not the best medical equipment is chosen by hospitals, but just the brand that offers the largest bribes. Especially with medical equipment, this could lead to hospitals purchasing equipment of questionnable quality, that might even be flawed. That might cost human lives in the end.

Therefore I am very glad that Polish prosecution is seemingly investigating this case to the bottom. Because although Philips Healthcare is a Dutch company and a lot of jobs are depending from the outcome of this investigation, there should be no room for corruption in the medical world.

And I’m afraid that this Polish bribery case might only be the tip of the iceberg.