The View from the West

Winnipeg Free Press - PRINT EDITION

'Brown envelope' coverage stains white coats

By: Adam Topp

8/02/2009 1:00 AM | Comments: 0

I bought a gaming system for my son this Christmas and was pleasantly surprised when the retailer gave me a second controller for "free."

This meant I had no alternative but to get beaten by my son in basketball not only in the driveway, but now also in video!

So I'm not sure if the second controller could really be considered a "value-added" benefit or not, but it certainly was intended to influence which game system I purchased.

As it turns out, it didn't have much influence on my purchase decision, because my son was very explicit about which system he wanted. Maybe my son would have been influenced, though, if he had known about the offer before he told me which system he wanted?

Such value-adds are not uncommon.

I bought some clothes for Christmas and received a gift card to encourage me to come back and buy more in January. Last fall, I received from a retailer $20 worth of gas, which was indeed a benefit, given the price of gas at the time. Even at fast-food restaurants they always ask if you want the "combo" or "fries with that?"

In marketing, such practices are known as up-selling, suggestive-selling, bundling and by a variety of other names.

Reading the press last week, you could be forgiven if you got the impression that such practices have never been offered to anyone except the Winnipeg Regional Health Authority. The approach the media took with this story was extremely unfortunate.

Prior to joining the Health Sciences Centre, I spent six years in the private sector as a consultant working with hospitals, health regions and governments across the country. The purchasing practices of the WRHA are, in my experience, actually very progressive with respect to value-adds. The value-added benefits offered by suppliers and vendors to the WRHA often come in the form of "free" product (similar to volume discounts), training for staff who will be using the equipment being purchased, enhancements to the functionality of the equipment purchased, deals on maintenance contracts, or research funds often aimed at improving the technology associated with the product being purchased -- whether it is equipment, medical and surgical supplies or drugs.

Sometimes such items may be requested as part of the bid process (maintenance contracts, for example).

If such items are not explicitly requested in the bid request, then they are, by definition, "value-added" items included at the discretion by the vendors. Vendors often use such value-adds as an attempt to differentiate their product from the competition, to encourage additional sales -- or, frankly, to influence the purchase decision.

This was presented in the media as an unusual business practice; in fact, this is very common in all purchasing scenarios. I would think people would be surprised if vendors didn't try to influence the purchase decision -- that's their job.

Unfortunately, the portrayal of such value-adds as "brown envelopes", and the obvious implications in the media that individual management staff and board members were personally benefitting, is unfair and inaccurate.

I can assure you that no individual benefitted personally from such value-adds. As Dr. Brian Postl noted in his letter to the editor last week, WRHA policy strictly prohibits anyone from personally benefitting and, further, the policy requires that all value-adds be used for the benefit of patients, either through purchase of new equipment, additional staff training or research. The intention of the policy is to limit the potential that value-added components will influence or otherwise affect a purchase decision. By ensuring that the value-adds are considered only after the purchase decision, and by accepting only unrestricted value-adds, the benefit to the vendor is drastically reduced.

The success of the policy is proven by the fact that over the last two years there have been virtually no "brown envelopes" included in the bidding process.

Where the WRHA has been progressive is in writing this policy as an attempt to limit value-adds. Most organizations have no such policy and explicitly choose not to limit the value-added items; it is argued that value-adds benefit the system by providing another source of funding for equipment, etc.

Although there is some truth in this argument, value-adds also limit the accepting organization's control of what they are buying and simultaneously increase costs.

Other jurisdictions have not written such a policy because they have not tried to control the process to the same extent as the WRHA.

As Health Minister Theresa Oswald said in the media, the WRHA is a Canadian leader in its attempt to limit the relationships with medical suppliers by removing value-adds from the bidding process.

It is ironic that the WRHA is vilified for trying to change a culture that has existed for so long, for trying to be transparent.

I know that the portrayal in the press was extremely different from what I have described here -- the implication that individuals are accepting brown envelopes for their personal benefit is simply wrong. It is unfortunate that sometimes being the leader in changing an accepted practice also exposes you to such criticisms.

Adam Topp is the chief operating officer of the Health Sciences Centre.

Republished from the Winnipeg Free Press print edition February 8, 2009 A11

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