A staff member at the Vietnam-Germany Hospital sold the used plastic items -- including IV transmission lines and syringes, some still contaminated with blood -- said the police-run An Ninh Thu Do (Capital Security) daily.
The medical waste was sold for 1,500-6,000 dong (0.09-0.3 dollars) per kilogramme from 2002 and was melted and shaped into utensils such as plastic drinking cups, washing bowls and waste baskets, the report said.
The director of the hospital denied involvement by the management board and his medical staff in the scandal, which hit many newspapers Wednesday.
"A contractual staff member responsible for cleaning the hospital secretly sold the waste," Nguyen Tien Quyet reportedly told the police paper. "We immediately sacked her."
When contacted by AFP, hospital officials declined to comment.
State media did not say whether anyone had been arrested but reported that the hospital was fined 20 million dong (1,200 dollars).
The Vietnam-Germany hospital, a major surgery centre, was established by the French as a clinic in 1904 and received financial support from the former East Germany from 1958. It is state-run and has no ties with the German government.
Environmental, health and safety issues have grown as a major concern for consumers in communist Vietnam, a fast-industrialising nation where pollution is on the rise and government controls are lax in many sectors.