PwC under fire for overpricing medical implants, other devices

PwC was contracted over recent months by the federal government to review the prices of medical implants in Australian private hospitals, despite previously advising multinational companies supplying the nation’s $12 billion medical device market on how to set their prices.

Health experts are calling on the Department of Health and Aged Care to review the advice from the embattled consulting firm on the pricing of medical implants and other devices.

The call for a review comes after the tax leak scandal in which confidential information on changes to the federal government’s multinational tax avoidance laws was leaked by PwC to its clients.

A spokesman said PwC could not comment on client engagements, but had processes in place to address any conflicts of interest, “and these processes are followed before an engagement is accepted”.

The Department of Health has regularly contracted PwC in recent years and had 12 contracts with the firm totalling $25.2 million as of last month.

PWC recently undertook a review for the department into the cost of human tissue items – such as bone fragments, vascular grafts, corneas and heart valves – on the prostheses list, which finished up on April 14 this year.

Up until December 2020, PwC was also doing work for the Medical Technology Association of Australia (MTAA), which represents the multinational medical device suppliers, on the setting of prices on the prostheses list. The global companies provide many of the items on the list, including some of the human tissue items subject to the recent review.

Medical devices can cost up to three times more in Australia than in other countries, and they are considerably more expensive in private hospitals than in the public system.

The federal government sets the prices for more than 11,000 types of medical devices – such as hip joints, screws, pacemakers and trauma plates – for privately insured Australians through the prostheses list.

In a letter sent to Department of Health secretary Brendan Murphy last month, Private Healthcare Australia chief executive Rachel David accused PwC of producing a flawed analysis in 2017 which she says was then relied on by the previous government to set the prices of medical implants.

“The use of transfer pricing for medical implants inflates the cost in Australia and minimises the tax payable in this country,” David wrote in the letter.

“PwC is currently involved in several Department of Health and Aged Care reviews which will have a direct impact on health fund claims costs and health system costs more generally.

“This type of direct link between PwC acting as an advisor to government on one hand, while supporting multinational clients on tax strategies has been the very focus of the media and parliamentary investigation that has generated the adverse publicity.”

No PwC staff who were involved in the recent review for the department were involved in previous work for the MTAA, according to the accounting firm.

Peter Breadon, the director of the health and aged care program at the Grattan Institute, said the 2017 agreement that underpinned the prosthesis list, which expired last year, was “impossible to defend”.

“The prices private hospitals had to pay were set by a committee that included industry representatives. Those prices were way too high, well above those paid by public hospitals,” he said.

“The new policy is better, but even it could deliver bigger price reductions faster.”

Breadon said the department should ask PwC to identify all potential conflicts of interest, check that any conflicts were properly disclosed and guarantee that it did not share any confidential information with other clients.

The Department of Health said it was reviewing all existing contracts to ensure ethical conduct contractual obligations were being met.

The department said it was also undertaking “value for money assessments” on past contracts which may still be relevant including a consideration of ethical conduct.

“The department has no knowledge or insight into PwC providing advice to the MTAA regarding the 2017 agreement between MTAA and the government. This agreement concluded in 2022 and pre-dated the reforms currently under way,” the department said.

The private healthcare industry has previously accused the multinational companies of shifting the profits they are making in Australia to other countries including Singapore and Switzerland.

In 2018, the Australian Tax Office adopted new guidelines which rated the top 15 overseas corporations supplying Australia’s $12 billion medical devices market as tax avoidance risks.

On December 10 of that year, PwC provided a briefing to MTAA members on how to comply with new ATO guidelines.

“As you may have heard, with the ever increasing ATO focus on multinationals and their international tax arrangements, there have been some recent developments from the ATO in the transfer pricing space,” read an invitation sent out by the MTAA to its members on November 14, 2018.

“Specifically, we are anticipating the public release of a document known as a Practical Compliance Guideline (PCG) from the ATO towards the end of November.

“In the lead-up to the release of the guidance, we have been in discussions with PwC in respect to hosting an event to discuss the key elements of this anticipated guidance and what this may mean for the industry.”

The briefing came two years after the introduction of the new multinational tax avoidance laws at the centre of the tax leak scandal. PwC last week handed over a list of 67 current or former partners and staff who had received at least one of emails containing the then-confidential government plans.

Late last year, the Tax Practitioners Board found Peter Collins, PwC’s former head of international tax, shared confidential government briefings on multinational tax reform with PwC partners and clients to help them sidestep the laws.

The partners who provided the 2018 briefing to medical device suppliers are not among those who have been stood down in recent weeks.

A spokesperson for the MTAA said it had never engaged PwC to provide advice on transfer pricing, nor has it engaged the accounting firm any time during the current process of reform to the prostheses list.

Greens senator Barbara Pocock said PwC had been “walking both sides of the street”.

“Where PwC has been involved in both advising a government department on pricing, for example, and at the same time advising clients on purchasing or related matters – there’s a clear conflict of interest,” she said. “And we know the business model of these very large entities is to make money on both sides of those transactions.” The Sydney Morning Herald