No such thing as a cheap lunch

Investigations and surveys by Transparency International Slovakia show that healthcare procurement is considered corrupt in Slovakia, but over the past years only a handful of cases have been formally investigated and no one has been brought to justice. That is why monitoring procurement in healthcare has become a priority for us and why we decided to delve into publicly available procurement data to find out what was going on.

We worked with SME, a major Slovak newspaper, and decided to dig deeper. The story we published in December brought protesters to the streets of Bratislava, the capital, and three days after the story broke the Minister of Health asked his chief of staff as well as managers of three of the hospitals we had investigated to step down. (In the fourth hospital, the manager who had overseen the tender we investigated was no longer in office).

The government also made commitments to tighten and monitor health care procurement.

In short succession in 2013 and 2014 DORA Gastro Slovakia, a company with no previous procurement experience, won three huge 10-year tenders to operate catering in three major hospitals. A second firm, Hospital Catering Solutions (HCS), won a similar tender in another hospital. The four state-owned hospitals were to pay more than 80 million EUR (US$94.5 million).

Such long-term tenders that included costs for refurbishing catering facilities were unheard of in Slovakia. Previously, hospitals took care of providing meals themselves in existing facilities or had them delivered from outside.

SME picTextbook red flags of collusion

DORA Gastro and HCS appeared to have put in independent competing bids but we found out that the two companies were connected. Documents showed that Peter Bittó was chairman of Dora Gastro and general manager of HCS. In a separate procurement tender, carried out by another Slovak municipality, the two companies had joined forces on a common bid.

Companies that take turns winning in similar tenders raise textbook red flags for collusion, the illegal secret agreements made between parties to fix pricing in an effort to guarantee financial gain.

Neither DORA Gastro nor HCS had previous experience with large tenders and both only won the tenders working with established companies that had previously succeeded in public procurement.

More worrying were the high costs of the winning bids: the four hospitals could have saved more than 21 million EUR (US$25 million) over 10 years had they bought catering services elsewhere.

So who was really behind these bids and these companies? The majority stake in HCS is held by Kanebo Investments, an anonymous company based in Luxembourg in a building that houses dozens of other companies. The beneficial owner of Kanebo Investments remains unknown. It is not clear who really owns DORA Gastro either. All we know is that it is a joint stock company. This lack of transparency was another red flag.

Breaking the law with consequences

When the story broke of the alleged collusion between DORA Gastro and HCS and the alleged links to government officials, all major media in Slovakia reported on the scandal. An opposition political party highlighted the fact that the three hospitals had broken the law when they failed to obtain the cabinet’s approval for the large tenders. The tenders had merely been approved by the Ministry of Health’s chief of staff Martin Senčák. Before joining the ministry, Senčák had worked for a global catering company that collaborated with HCS on one of the hospital tenders in Slovakia.

The Ministry of Health has since announced tighter oversight of public procurement in healthcare in line with recommendations that Transparency International Slovakia has made over a period of time. In the future, procurement cost comparisons will be carried out and published; price caps for services or medical equipment will be introduced and greater transparency of hospital management will be enforced.

This seems promising. Two years ago, we found that prices hospitals pay for CT scanners can differ by up to 100 percent. Comparing prices hospitals pay in different countries could go a long way to increasing spending efficiency and curbing corruption in healthcare.

We will continue to keep pressure on the government to put in place the promised measures and monitor further tenders. Aggregate procurement data have proven a useful source for identifying red flags. However, we are still waiting for the illegal hospital catering tenders to be formally cancelled.

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Zuzana Dančíková

About Zuzana Dančíková

Zuzana Dančíková is a Project Coordinator at Transparency International Slovensko.

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4 Responses to No such thing as a cheap lunch

  1. Claire Martin
    Claire Martin 17 January 2015 at 3:36 pm #

    Great piece Zuzana!

  2. Pavel 30 January 2015 at 11:30 am #

    Dear Zuzana
    You have published a quite interesting article about corruption in Slovakia. But have some questions, if you would like to answer them. Probably your readers also will be interested to read them.
    In the first paragraph of your article you have written: “ … healthcare procurement is considered corrupt in Slovakia, but over the past years only a handful of cases have been formally investigated and no one has been brought to justice. That is why monitoring procurement in healthcare has become a priority for us …”.
    This statement is raising many questions. Why only a handful of cases have been investigated? Do you know other cases when existed a supposition of corruption and police refused to investigate? If not, then is not correct to say that only few cases were investigated. Maybe there were only few case of corrupted procurements. Now you blaming your police that they don’t do their job – there are many corrupted healthcare corruption cases in Slovakia and they don’t want to investigate. This is a completely wrong approach. In my opinion, your police acted correct. To start an investigation they need a reason. They don’t have to investigate everything and everywhere. Probably healthcare procurements is considered corrupted in Slovakia, as you say. Maybe it is as in many other countries, including mine. But more important is to ask (or force) police to do the right thing. Police investigations without any serious reason is a disaster and will lead only to higher level of corruption. If I am wrong, please give me your arguments.
    Now let’s discuss those handful cases that were investigated. Do your know anything about them? Do you know why no one has been brought to justice? Police still investigate them? Or cases are closed? Didn’t police find enough proof to press charges? Or police found that procurements were made legally? The answers to these questions are very important.
    You say that you started to monitor procurements in healthcare because is highly corrupted. But it seems that the problem is in police and not in procurements. Because they don’t want to do their job. What is the point to monitor the corrupted procurements with justice system that doesn’t work?
    With other comments I will come a little later.

  3. Pavel 9 February 2015 at 3:57 pm #

    Dear Zuzana,
    As promised, I am returning with more comments. Taking into account that you didn’t answer to the previous comments, you aren’t interested in your own blog article and in the reader’s comments.
    Anyway, your article is quite interesting between others and there is something good to be learned.
    In nutshell, you wrote that two companies DORA Gastro and HCS won catering contracts for four major hospitals in Slovakia with a total amount of 80 million EUR for ten years. And these four hospitals could save more than 21 million EUR if they had bought catering services elsewhere.
    This statement raises some questions. If there are companies that can offer for such catering contracts a bid of 59 million EUR (80 m. EUR– 21 m. EUR), why didn’t they participate at the tender? You didn’t say that other companies were hindered to participate at the tender. So, why the contracts are overpriced? Maybe DORA Gastro and HCS could offer their catering services with 59 million but they decided to offer 80 million. There is nothing illegal here. And that is not a corruption. The problem is in your tender system, because it is not selecting the right offers.
    Why you are focusing on those two private companies? Obviously, the problem is in your governmental tender system, because is allowing to select wrong bidders. If there are offers for 59 million, how your tender system accepted offers of 80 millions. You didn’t say that there is anything wrong in your governmental tender system. You just found guilty in corruption those two private companies. Imagine that these companies didn’t offer any bid, and another company X, with no connection with your governmental officials, would offer a bid of 100 million. In this case, according to you, there is no corruption because is not connected to any Slovak officials. But in this case the losses of the hospitals would be 41 million and not 21 million. Is that better?
    You say that the contracts are illegal because they weren’t approved by government. How that could be possible? How these contracts were signed, if not all procedures were finished? Again, I see the problem in your tender system. How you presented the situation and taking into account the worldwide practice in such cases, these two contracts will not be cancelled.
    Regarding why these contracts will not be cancelled, I will come with more comments later.

  4. Pavel 7 April 2015 at 10:45 am #

    Dear Zuzana,
    In last sentence of the article, you wrote that you are waiting when the illegal catering tenders will be cancelled. Most probable these contracts will not be cancelled.
    If your Government will start the procedure of cancelling the contracts, the situation will be worse. Why? Because exists such a practice of defending the corrupted contracts, which is very often worldwide used, inclusive in my country. Don’t forget that in any country the judicial system is highly corrupted. But in your case there is no need to corrupt any judge.
    My country has a very sad experience of cancelling the corrupted contracts. Once, when a new Government came to power, they found that previous Government signed many corrupted contracts. And this new Government decided to cancel all these contracts. The companies with cancelled contracts went to courts and in few years they got the final court decisions. Almost in all cases the final decision was that the contract was cancelled illegally by Government. Now my Government is paying all prejudges and fines, taking money from the state budget, and is paying today and will pay many years in future. So, my country has double losses. The first one is that all corrupted contracts were declared legal and the second one is that supplementary to the contract amounts Government is paying the fines.
    About defending corrupted contracts. For example how is proceeded in my country. One abstract example. The Government deliberately is signing a corrupted contract with a big amount of money for long term. One person, it could be from Government or from corrupted company, is initiating a fake scandal that this contract is highly corrupted. So, the Government immediately is freezing the contract and the company goes to the court. In this judicial process, the corrupted company is waiting for the final decision of the Supreme Court. Normally in such cases, the company is able to get the final decision of the Supreme Court in half of year. Now everything is set. The company has a corrupted contract with 100% of protection assured by country Constitution and legislation. Such a contract accompanied by a decision of Supreme Court can not be cancelled. Cannot be investigated by police because the contract is examined in courts and the decision is already taken. Now many companies follow this procedure. They sign a contract with Government and after that they wait half a year until they get a final decision of Supreme Court. This decision is a 100% guarantee that any contract will be fully executed. Even the honest businessmen do the same procedure, because the good contracts could be cancelled by corrupted officials from the Government and in addition this is a good protection from corrupted policemen.
    If we return to your case and DORA Gastro and HCS will get the court decision that contracts were signed legally and there is no any act of corruption. Will you in that case publish on your blog that court decision? Probably not. Taking into account that you named in your blog these companies as corrupted companies, they can force you through the court decision to publish a disclaimer on the website of Transparency International. What will be the impact? How this disclaimer will influence the reputation of the Transparency International?
    You are not focusing on the real problem. Doesn’t matter how much DORA Gastro and HCS stole from your state budget. You already have lost this money. And you can lose much more doing wrong things as my Government did. If you really care of your country then start doing the right things which will clean step by step your country from corruption.
    I would like more to discuss with you on different methods how to fight corruption and not a hopeless cases of corrupted contract. But that depend on you and which way you will choose in your work.