A court case concerning procurement by the Japan Community Health care Organization (JCHO), an umbrella for over a 100 hospitals and medical facilities, has reveals that bid-rigging practices and dividing up contracts by a group of Japan's largest medical distributors had been 'standard practice' for years, according to one of the accused.  JCHO is one of the national government entities added by the Japanese government in their offer to the EU in the EU-Japan Economic Partnership Agreement (EPA).

Officials of Suzuken, Alfresa, Toyou Yakuhin, and Mediceo, four of the largest medical distributors in Japan, with a dominant market-position in the provision of medical equipment and pharmaceuticals to government-administrated medical facilities, held frequent meetings to determine who would bid on contracts and set prices. Overall coordination was first settled by bureau and division chiefs in charge of tendering, deciding the expected orders for each company and taking past contracts won into account.

For individual tenders, staff in charge would coordinate the bids and in case the scheme did not produce the expected results, higher management would meet to smooth things out.  '

According to the indictment, company managers met for a number of days to coordinate before the deadlines for open competitive tenders by JCHO in 2016 and 2018. After they had come to an agreement on the prices, this would be written down and handed over to the people in charge of the tender.

The three companies indicted had already been fined by the Fair-Trade Commission in 2003 for having created a price cartel, but it seems that the companies restarted their practices already the following year.  In an earlier court session one of the indicted stated that he believed 'a little bit of collusion would be OK. The prosecutors also pointed out that due to the fact that price-setting was based upon standards set by the Ministry of Health and Welfare, made it difficult secure profits.  

Prosecutors have demanded a 16 months to 2-year prison sentences for the four former company officials and a €2.2 mn for each company. Sentencing is expected in June.

Although not always as large as the JCHO case, bid-rigging has remained a common occurrence in Japanese government procurement. In the case of already strictly regulated medical products, overregulation in procurement procedures has lead to a market environment where only a few companies operate and dominate the market. This has stifled competition and driven up prices.

Opaque and complex procedures, and regulatory barriers have made it close to impossible for foreign companies to independently participate in government tenders in Japan, with many forced to deal with local distributors instead. In the meantime, Japan's cash-strapped public medical facilities will continue to pay premium prices  for the foreseeable future.

Source: Nikkei Online (J)