Higher Rock Education - Economics Blog

Wednesday, February 08, 2017
The above image is of Coltea Hospital in Bucharest, Romania. It is one of the hosptials where Hexi Pharma products were used.

What is the solution when government corruption leads to the loss of life of many people due to a tainted product? Is it more government regulations? Is it more competition? The primary responsibility of any government is to protect its citizens. Can protection be improved by allowing companies to compete? There is no simple solution, but a story by our Romanian contributor illustrates what can happen when there is wide-spread corruption in the health care sector that hinders competition. Here is what she wrote:

In April 2016, Romanians were shocked to learn that Hexi Pharma, a leading supplier of disinfectants, had been selling diluted solutions for several years, ultimately killing many patients. Hexi Pharma had contracts with 152 Romanian hospitals totalling 11.5 million euros between 2014 and 2016, according to an article published in
Romania Insider on May 27, 2016. Hexi Pharma's disinfectants were used by doctors and hospitals to cleanse themselves and equipment of life-threatening bacteria prior to surgery, or the treatment of wounds.

The scandal was revealed following a fire in a nightclub that ultimately killed 64 people, 27 at the fire, and the remaining 37 from bacterial infections contracted at the hospital following their treatment for burns. A research team of journalists headed by Cătălin Tolontan published their conclusions in Gazeta Sporturilor. One doctor reported that many of the patients could have been saved. Hexi Pharma initially denied any wrong-doing, but tests revealed otherwise. Disinfectants had been diluted to one-tenth the concentration claimed, rendering them as effective as dishwater. To learn more about their investigation read, "Journalistic Investigation Reveals Disinfectant Fraud in Romanian Hospitals," published in Romania Insider on May 4, 2016.

How did Hexi Pharma get away with such atrocities for many years? Bribery of public officials and office managers.
The Economist reported in its June 4, 2016 edition that the disinfectants were being sold for a higher than market price and that some hospitals were receiving a 30% cut from Hexi Pharma. Romania Insider reported, "According to the doctor, who didn't want her identity to be made public, Hexi Pharma used to pay large kickbacks to hospital managers, doctors, and even nurses, to make sure that those hospitals would buy their products. The hospital managers would share some of the money with the political parties that supported them." Sadly, the disinfectants had never been tested. Furthermore, Romania Insider reported on May 11, 2016 that the lab responsible for testing the disinfectants was controlled by none other than Dan Condrea!

Following the discovery, Dan Condrea, the owner of Hexi Pharma was indicted and the company was ordered to stop production. The day before Dan was to testify, he died in a car crash. Witnesses claim they saw him drive into a tree at 60 miles per hour.

Romania's health care industry has one of the worst reputations in the EU. This will not help.
The Guardian reported that Romania has the highest rate of avoidable deaths in the EU. Efforts have been made to cleanse Romania from corruption. In 2015, the National Anti-Corruption Directorate prosecuted 1,250 people.

But the more important question is, "What needs to be done to prevent such tragedies in the future?" Many would argue that the responsible government officials should be prosecuted and replaced. I agree. The health minister, Patriciu Achimas-Cadariu, resigned, and the prime minister Dacian Ciolos launched an investigation. However, what or who is to prevent the new officials from succumbing to corruption? Romania has a history of corruption. Would more stringent regulations be the answer? Possibly, but I believe increased competition is an important part of the solution. Companies monitor their competition. In fact, one of Hexi Pharma's competitors suspected negligence and filed a complaint with Romania's National Anticorruption Directorate (DNA) in 2012. The case was sent to a prosecutor's office and later dismissed according to an article published on May 4, 2016 in Romania Insider. Furthermore, a good corporate reputation is essential in building and maintaining market share, unless the market share is purchased with bribes. No doubt - government corruption hinders the benefits of competition, but more market competition reduces (not eliminates) government corruption.

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