Health & Family Welfare Minister Surjit Kumar Jyani suspended Dr Narinder Singh after the department's principal secretary Vini Mahajan's surprise visit to the hospital.
She found out that the patients were being made to purchase medicines and undertake laboratory tests from outside the hospital, officials said.
The government had announced 218 types of essential drugs and various other consumables and suture materials would be provided free of cost at all government hospitals.
Taking a serious note of the irregularity, the Health Secretary discussed the matter with the minister who directed the SMO be immediately placed under suspension.
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