South Africa is to prosecute three pharmaceutical suppliers, after a three-year investigation by the Competition Commission found they had colluded to fix prices and split the market when bidding for government tenders to supply public hospitals.

The firms – Adcock Ingram Critical Care (AICC), Dismet Criticare and Thusanong Health Care - established the cartel to avoid competition between them and manipulate prices for pharmaceutical and hospital products, in contravention of Section 4 of the Competition Act, the Commission says. A fourth supplier, Fresenius Kabi South Africa (FKSA), has admitted its involvement in the cartel but its agreement to cooperate with the investigation grants it immunity from prosecution under the Commission’s Corporate Leniency Policy.

All the charges have been denied by AICC, Dismet and Thusanong, plus South Africa’s biggest foods producer Tiger Brands, which owns AICC and has also been charged with collusion. However, the Commission says it has “detailed information” with which it can go ahead with the prosecutions.
"This is an important case in the light of growing public concern about escalating health care costs.
Collusive behaviour would undoubtedly be one of the contributing factors to higher prices in healthcare markets," said Competition Commissioner Shan Ramburuth.

The Commission’s investigation, which began in 2005, discovered that representatives of AICC, FKSA, Dismed and Thusanong held telephone discussions and meetings prior to the submission of their respective responses to the Department of Health’s annual invitation to tender for the supply of pharmaceuticals, large-volume parenterals and other products to public hospitals. The company officials collaborated on their responses and agreed on prices. They also agreed amongst themselves who would win the tenders, the terms of their respective bids and that, whenever the tenders were not awarded as agreed or arranged between them, the winning firms would cede portions of the tender to one of their colluding partners, it says.

The Commission found that while this conduct had come to the attention of several board members of Tiger Brands, no action had been taken. This is the second charge of collusion to be brought against the latter within the last three months; in November the firm agreed to pay nearly 100 million rand to settle charges brought by the Commission that, in 2006, it had operated a cartel with other firms to fix the price of bread.

Adcock Ingram chief suspended
Tiger Brands, which plans to spin off Adcock Ingram as a separately listed company by the end of next month, says it is “devastated” by the charges and will conduct its own investigation, not only into ACCI but also “every single business that we are involved in. We are determined to find and root out any anti-competitive or collusive practices,” said the company’s non-executive chairman, Lex van Vught, who added that its findings would be shared with the competition authorities. The firm also said that Adcock Ingram’s managing executive, Arthur Barnett, is on suspension while the internal investigation is underway.

The Commission also found that AICC and FKSA were engaged in dividing markets in the supply of pharmaceutical products and services to private hospitals, including Afrox Healthcare (now Life Healthcare Group Holdings), Network Healthcare Holdings, Medi-Clinic Corporation and mine hospitals. This involved them agreeing who would provide which products and to which hospitals.

Other tenders are being examined and further companies are likely to be named in the investigation; the agency is “quite confident that these are not the only tenders that have been rigged,” said Commission spokesman Thulani Kunene. The Department of Health says it will now review its procurement arrangements, in light of the investigation’s findings.