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Tuesday, October 20, 2020

Explained: What is the Andhra Pradesh ESI scam?

ESIC scam: The main accusation is that three former directors of Insurance Medical Services, which implements the ESI scheme, made purchases from firms which were not empanelled with the government or Non Rate Contract firms.

Written by Sreenivas Janyala , Edited by Explained Desk | Hyderabad | Updated: June 13, 2020 8:39:36 am
ESIC scam, andhra pradesh former minister arrested The Government of India enacted ESI Act, 1948 for extending health care to employees who are earning salary less than Rs 21,000 per month in the industrial and service sectors, known as Employees State Insurance Scheme

The Andhra Pradesh Anti-Corruption Bureau (ACB) Friday morning arrested Telugu Desam Party MLA and former labour minister in the Chandrababu Naidu government, Kinjarapu Atchanaidu, and four others.

After coming to power last May, Chief Minister Y S Jagan Mohan Reddy had ordered an investigation into the dealings and contracts awarded by the previous TDP regime during which the ACB probed alleged irregularities in the procurement of medicines for ESI hospitals.

So, what is the ESI scam in Andhra Pradesh?

According to the ACB, when Atchanaidu was labour minister, there were several irregularities in the purchase of medicines, surgical equipment, and furniture for the four Employees’ State Insurance (ESI) hospitals, 3 ESI Diagnostic Centers and 78 ESI Dispensaries spread across the state.

The main accusation is that three former directors of Insurance Medical Services, which implements the ESI scheme, made purchases from firms which were not empanelled with the government or Non Rate Contract firms. They are accused of fabricating quotations from Non Rate Contract firms and paying excess rates, sometimes as high as 36 per cent. The purchases were made from Non Contract Rate firms without calling for tenders and excess amount was paid without negotiating the rates properly.

If the directors had purchased the drugs with Rate Contract firms, they would have saved an amount of Rs 51.02 cr. Due to non purchase of drugs from Rate Contract firms, they caused huge wrongful loss to the exchequer, according to the ACB. Similarly, excess amount was paid to purchase furniture, establish a sewerage treatment plant, and procurement of bio-metric devices.

What is the accusation against Atchannaidu?

The main accusation against Atchannaidu is that he ordered one of the directors to entrust a tele-calling contract to Hyderabad-based Tele Health Services Pvt. Ltd. The director, without following the usual process of calling for tenders, awarded the contract to Tele Health Services simply based on a letter from Atchannaidu. The firm violated several rules and regulations cited in the agreement but was paid Rs 7.96 crore without proper verification.

Tele Health Services Pvt Ltd was hired two provide toll free services and ECG services on nomination basis. As per MoU, the service provider has to provide toll free services to patients whenever they call for assistance of pending reimbursement and referral bills. The director agreed to pay Rs 1.80 per month for each IP irrespective of calls attended. The director also entered into MoU with the same service provider to provide ECG services to the patients at Rs 480 per ECG. During enquiry, it was found that the service provider claimed the bill by submitting call logs of Telangana State IPs and the director paid the amount without verifying the genuineness of the call logs.

It was also found that the service provider utilised the services of PG Diploma Clinical Cardiologists instead of qualified DM Cardiologists by violating agreement conditions and claimed the bills. The directors, Dr C K Ramesh Kumar and Dr G Vijaya Kumar paid Rs 4.15 cr for toll free services and Rs 3.81 cr for ECG Services, though the service provider violated the terms and conditions of MoU / agreement. However, the ACB has not clarified whether Atchanaidu made any unlawful gain by asking the directors to award the contract to Tele Health Services Private Limited.

What are the alleged irregularities?

According to the ACB, during the five years of TDP rule when Atchanaidu was Labour Minister, three then directors of Insurance Medical Services Dr B Ravi Kumar, Dr C K Ramesh Kumar and Dr G Vijaya Kumar all together issued purchase orders for procurement of drugs, medical equipment, surgical items, lab kits and furniture worth Rs 975.79 crore by violating procedures and guidelines issued by Government of Andhra Pradesh, Ministry of Labour and Employment, Training and Factories, and ESI Corporation.

The three directors issued purchase orders without constituting Drug Procurement Committees and without calling for open tenders. The purchased from firms which overcharged and thus caused huge losses to the state exchequer. The directors also awarded purchase orders to firms which were owned by relatives of some senior staff members. The quotations from non-rate contract firms were fabricated and it was found that staff members themselves wrote the quotations so that competitive bidding could be avoided a the directors could favour Non-Rate Contract firms of their choice.

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The total budget allocation for the purchase of drugs and medicines during the tenure of the three directors was Rs 93.51 crore but the directors purchased drugs and medicines from Rate Contract and Non-Rate Contract firms worth Rs.698.36 Cr. by exceeding the budget provision by violating the procedural guidelines. The directors issued Purchase Orders beyond the budget provisions to favour Non-Rate Contract firms. For example, Rs 15.93 crores worth of purchase orders were issued to Non-Rate Contract firms M/s.Raasi Pharma and M/s.Veeresh Pharma. According to ACB, on verification of the invoice price of those two Non Rate Contract firms, the value of those drugs came to Rs 8.52 cr. After considering trade margin of 20 per cent, the value of those drugs comes to Rs 10.22 cr. The difference price between the Purchase Invoice and Sale Invoice of the above two firms comes to Rs 5.70 crores which was the excess amount paid. One purchase order of Rs 9.50 crore was issued to M/s Jercon Enterprises which is a Non Rate Contract firm belonging to Ravilla Tejaswi, daughter-in-law of the pharmacist of Central Drug Store, K Dhana Lakshmi.

What are ESI hospitals?

The Government of India enacted ESI Act, 1948 for extending health care to employees who are earning salary less than Rs 21,000 per month in the industrial and service sectors, known as Employees State Insurance Scheme – ESIS). In 1978, the Insurance Medical Services (IMS) was established under the Ministry of Labour, Employment, Training & Factories Department by separating ESI branch from Medical & Health Department.

The ESI Scheme is monitored and implemented by the Director of Insurance Medical Services (DIMS) in Andhra Pradesh. The employers and employees of the relevant sectors contribute their share of 3.25 per cent and 0.75 per cent of their salary respectively for ESI Scheme. The expenditure ratio between the state government and ESI Corporation is 1:7. The entire expenditure is initially be met by the state government and subsequently, the ESIC reimburses its share to the state government.

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