REFLECTIONS ON HEALTHCARE LEADERSHIP ETHICS
Health leaders and ethical dimensions of managing ‘‘value adds’’ Suzanne Boudreau-Exner, CHE, SCP, MBA1
Healthcare Management Forum 2015, Vol. 28(3) 121-123 ª 2015 The Canadian College of Health Leaders. All rights reserved. Reprints and permission: sagepub.com/journalsPermissions.nav DOI: 10.1177/0840470415570181 hmf.sagepub.com
Abstract Value adds refers to an ‘‘extra’’ feature or features of an item of interest (product, service, and person) that go beyond the standard expectations and provide something more, even if the cost is higher to the client or purchaser. This article looks at the ethical dimensions health leaders face in managing value adds and provides recommendations for ensuring that ethical practice is being followed consistently. A summary of several healthcare-related codes of ethics are provided to support the recommendations.
Introduction What is a value add? The term value add has different meanings in different healthcare contexts, for example, in Lean healthcare, a non-value add is anything that creates waste in a system. For the purpose of this article, with its focus on the procurement of supplies and services, the following definition will be used: Value adds refer to ‘‘extra’’ feature(s) or features of an item of interest (product, service, and person) that go beyond the standard expectations and provide something ‘‘more,’’ even if the cost is higher to the client or purchaser. ‘‘Value-added’’ features give competitive edges to companies with otherwise more expensive products.’’1 Value adds have been a component of major purchases in healthcare for years. As healthcare funding continues to be stretched to meet the needs of providers, the focus on value adds has increased, organizations question what ‘‘extras’’ can we get through a procurement process that aren’t otherwise covered in our annual budget?
Discussion The ongoing amalgamation of healthcare organizations across Canada has left suppliers with fewer opportunities. With the strong emergence of provincial and national buying groups, single competitive processes are covering larger groups, resulting in fewer, high value contracts. Some contracts are being signed for longer terms for various reasons including the increase in emphasis on product standardization within buying groups, price protection (having long-term pricing assists in future budget planning), and product conversion efforts (switching products when a new contract is awarded can require significant time and resources). This results in vendors having fewer opportunities; if they lose a major competition, they face losing significant market share over what could be a long period of time. Financial limitations on the part of healthcare organizations, combined with increased competition and risk for suppliers, require suppliers to find a way to differentiate themselves. In many product categories, following years of increased competition, pricing has been significantly squeezed. Vendors cannot continue to reduce pricing indefinitely. Historically, differentiation has occurred through value adds, that is, offering additional
products, services, educational funding, and other options to their proposal to help them stand out in a competitive process. This is very tempting to the healthcare organization being offered the value adds, however, ethics need to be considered. With the introduction of the Agreement on Internal Trade (AIT) in July 1995,2 multi-provincial trade agreements such as the New West Partnership Trade Agreement,3 and provincial guidelines such as Ontario Buys,4 the scrutiny of procurement methods and outcomes has grown significantly. There are several formal avenues for vendors to lodge challenges over contract awards, if they feel they have not been treated fairly. This requires healthcare procurement groups to be more transparent in the way that they do business and be clear on their position, regarding accepting value adds in competitive processes. Some organizations have a strict ‘‘no value add’’ policy, ensuring that there are no questions around whether value adds impacted a final contract decision. Other organizations continue to include generic or specific value add clauses in their competitive processes to see what extras a vendor may offer as part of their proposal. Although most leadership roles in healthcare organizations are required to sign and agree to a ‘‘code of conduct and/or ethics’’ upon employment, there is no standard across Canada. However, there are standards among specific groups across Canada.
Possible resources Supply Chain Management Association (SCMA): As the largest professional body in Canada related to supply chain, SCMA has a code of ethics which clearly states the requirements around business relationships with suppliers and third parties as well as the acceptance of gifts, gratuities, or hospitality.5 As the contracting professionals dealing directly with suppliers around competitive processes, this group is under 1
Materials Management Services, Regina, Saskatchewan, Canada.
Corresponding author: Suzanne Boudreau-Exner, Materials Management Services, 3sHealth (Health Shared Services Saskatchewan), Regina, Saskatchewan, Canada. E-mail: [email protected]
Downloaded from hmf.sagepub.com at Bobst Library, New York University on November 15, 2015
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significant scrutiny to ensure that they are following all appropriate guidelines, are not in a conflict of interest, and do not put themselves in a position of being unduly influenced by suppliers. The code of ethics clearly outlines the ethical responsibilities of supply chain professionals in Canada. This, combined with the rules of the AIT, provides clear guidance on ensuring that all competitive processes are professionals managing the process. Canadian Medical Association (CMA): The CMA also provides clear guidelines for physicians across Canada. The CMA Code of Ethics was last updated in March 2014. Clause 50 states that as a responsibility to their profession, physicians are to ‘‘Avoid promoting, as a member of the medical profession, any service (except your own) or product for personal gains’’.6 This makes the position of physicians very clear; they should not personally be accepting any value adds. The vendor community has developed their own codes, with one goal being to encourage transparency and consistency in their conduct around value adds. MEDEC is a national association created by and for the Canadian technology industry (medec.org). They provide advocacy, information, and education on medical technology for members, healthcare, and the general public.7 MEDEC membership is comprised of medical technology suppliers. In 2005, MEDEC developed a Code of Conduct to promote ethical business practices among its members. It is a voluntary Code of Conduct, was last updated in 2012, and has been adopted by MEDEC members.7 The Code of Conduct has a clause that specifically covers value adds, Clause K: Value Added with Request for Proposals (RFP) and Tenders—It is not unlawful for healthcare facilities to request ‘‘value-added items, grants, or donations from companies in conjunction with an RFP or tender process.7 Therefore, valueadded requests are not unlawful inducements. However, MEDEC does not consider all value added as procurement best practice, unless the value add relates to the product and services requested in the RFP and are clearly defined (documented) in the RFP document. As an example, if there is an RFP for an ultrasound machine and the buying organization requires additional items such as educational funding, financing to attend a conference, some ‘‘no charge’’ consumable products, and so on, these requirements must be clearly listed in the RFP and they must be related to the ultrasound machine being purchased. They cannot be related to miscellaneous products or services. Rx&D is the association of leading research-based pharmaceutical companies dedicated to improving the health of Canadians through the discovery and development of new medicines and vaccines.8 The Rx&D code of ethical practices was introduced in 1988, most recently updated in 2012. Although it does not specifically use the terminology value adds, it provides very clear guidelines on the provision of gifts or inducements to healthcare professionals and has a strong focus on transparency and accountability. Although the Canadian College of Health Leaders code of ethics is not focused specifically on procurement, it contains requirements regarding conflict of interest. Section F. Conflict
of Interest states that ‘‘The member shall: Neither accept nor offer personal gifts or benefits with the expectation or appearance of influencing a management decision’’.9 Value adds should never be offered in a format that favours or could be perceived as favouring an individual, particularly if that individual is involved in the decision-making process.
Conclusions Leaders in healthcare should be knowledgeable of, or at the very least, aware of the ethical requirements around procurement and value adds. They should be cognizant of the requirements around transparency in competitive or negotiated contracting processes or have the expertise readily available. In an era where stretching a dollar is more and more of a challenge and competition is increased, the temptation to offer and accept significant value adds has grown. Unfortunately, over the years some organizations/departments have become dependent on value adds to provide much needed equipment, training, or educational funding for which there are no dedicated budget dollars. The organizations get caught up in believing that these value adds come at no additional cost. The value adds may not be a transparent bottom line cost on a departmental budget, but rest assured, the organization is being charged for a value add, in the form of increased product costs. Suppliers are in business to make a profit, logically, an unprofitable business is not a sustainable business. Thriving businesses include the cost of value adds in their annual business planning and budgeting. It may appear invisible to the end user, but the costs are there. There are significant pitfalls to becoming dependent on value adds. Organizations become dependent on specific vendors and have difficulty ‘‘letting go’’ when contracts are up for renewal. This results in conflict between following rules and regulations around procurement versus the risk of losing value adds that organizations have become reliant on. Not following rules and regulations to protect existing value adds opens an organization up to vendor challenges and further scrutiny about other practices. Morale of employees who have come to rely on the value adds may be negatively impacted. Recommendations to ensure that ethical practice is being followed are as follows: Identify all requirements in a competitive process. If your organization has become dependent on historical value adds, they are no longer value adds, they are requirements and should be treated as such. If they are truly requirements, they should be clearly defined in a competitive process, they should not be referred to as value adds, and they should be scored as part of the proposal evaluation process. Leave the procurement process to the professionals that were hired to do the job. Qualified procurement
Downloaded from hmf.sagepub.com at Bobst Library, New York University on November 15, 2015
Boudreau-Exner
123
professionals have a clear understanding of the rules and regulations around procurement, can provide advice, and ensure that your organization is not setting itself up for challenges or unethical practices. Consult with legal advisors where appropriate. Ensure that all processes follow AIT (and local, as applicable) requirements, with openness and transparent being key. Be very clear in your process what components will be evaluated, overall weighting for those components, and do not deviate from that process. If value adds are requested (no specifics provided) and offered in a competitive process, they should be put to the side until the formal evaluation has been completed. Once a final contract decision is made, then the value adds can be introduced. At this point, they are a bonus to the process and not considered an inducement. Document, document, document. You need to be sure that your process is defensible if challenged by an unsuccessful vendor.
In the end, if an organization follows ethical practices, there should be no fear or concern over public or vendor perception.
There should be no concern over possible conflicts of interest, and there should be appropriate documentation on hand to backup all steps of a process. References 1. Available at: en.m.wikipedia.org. Accessed November 2, 2014. 2. Available at: https://buyandsell.gc.ca/policy-and-guidelines/supply-manual, https://www.ic.gc.ca/eic/site/ait-aci.nsf/eng/il00006. html. Accessed November 2, 2014. 3. Available at: www.newwestpartnershiptrade.ca/the_agreement. asp. Accessed November 2, 2014. 4. Available at: https://www.doingbusiness.mgs.gov.on.ca/mbs/psb . . . /bps-aboutontariobuys. Accessed November 2, 2014. 5. Available at: www.scmanational.ca. Accessed November 2, 2014. 6. Available at: www.policybase.cma.ca. Accessed November 2, 2014. 7. Available at: www.medec.org. Accessed November 2, 2014. 8. Available at: www.canadapharma.org. Accessed November 2, 2014. 9. Available at: www.cchl-ccls.ca/document/579/CCHL_CodeEthics _EN.pdf. Accessed November 2, 2014.
Downloaded from hmf.sagepub.com at Bobst Library, New York University on November 15, 2015
Health leaders and ethical dimensions of managing ‘‘value adds’’ Suzanne Boudreau-Exner, CHE, SCP, MBA1
Healthcare Management Forum 2015, Vol. 28(3) 121-123 ª 2015 The Canadian College of Health Leaders. All rights reserved. Reprints and permission: sagepub.com/journalsPermissions.nav DOI: 10.1177/0840470415570181 hmf.sagepub.com
Abstract Value adds refers to an ‘‘extra’’ feature or features of an item of interest (product, service, and person) that go beyond the standard expectations and provide something more, even if the cost is higher to the client or purchaser. This article looks at the ethical dimensions health leaders face in managing value adds and provides recommendations for ensuring that ethical practice is being followed consistently. A summary of several healthcare-related codes of ethics are provided to support the recommendations.
Introduction What is a value add? The term value add has different meanings in different healthcare contexts, for example, in Lean healthcare, a non-value add is anything that creates waste in a system. For the purpose of this article, with its focus on the procurement of supplies and services, the following definition will be used: Value adds refer to ‘‘extra’’ feature(s) or features of an item of interest (product, service, and person) that go beyond the standard expectations and provide something ‘‘more,’’ even if the cost is higher to the client or purchaser. ‘‘Value-added’’ features give competitive edges to companies with otherwise more expensive products.’’1 Value adds have been a component of major purchases in healthcare for years. As healthcare funding continues to be stretched to meet the needs of providers, the focus on value adds has increased, organizations question what ‘‘extras’’ can we get through a procurement process that aren’t otherwise covered in our annual budget?
Discussion The ongoing amalgamation of healthcare organizations across Canada has left suppliers with fewer opportunities. With the strong emergence of provincial and national buying groups, single competitive processes are covering larger groups, resulting in fewer, high value contracts. Some contracts are being signed for longer terms for various reasons including the increase in emphasis on product standardization within buying groups, price protection (having long-term pricing assists in future budget planning), and product conversion efforts (switching products when a new contract is awarded can require significant time and resources). This results in vendors having fewer opportunities; if they lose a major competition, they face losing significant market share over what could be a long period of time. Financial limitations on the part of healthcare organizations, combined with increased competition and risk for suppliers, require suppliers to find a way to differentiate themselves. In many product categories, following years of increased competition, pricing has been significantly squeezed. Vendors cannot continue to reduce pricing indefinitely. Historically, differentiation has occurred through value adds, that is, offering additional
products, services, educational funding, and other options to their proposal to help them stand out in a competitive process. This is very tempting to the healthcare organization being offered the value adds, however, ethics need to be considered. With the introduction of the Agreement on Internal Trade (AIT) in July 1995,2 multi-provincial trade agreements such as the New West Partnership Trade Agreement,3 and provincial guidelines such as Ontario Buys,4 the scrutiny of procurement methods and outcomes has grown significantly. There are several formal avenues for vendors to lodge challenges over contract awards, if they feel they have not been treated fairly. This requires healthcare procurement groups to be more transparent in the way that they do business and be clear on their position, regarding accepting value adds in competitive processes. Some organizations have a strict ‘‘no value add’’ policy, ensuring that there are no questions around whether value adds impacted a final contract decision. Other organizations continue to include generic or specific value add clauses in their competitive processes to see what extras a vendor may offer as part of their proposal. Although most leadership roles in healthcare organizations are required to sign and agree to a ‘‘code of conduct and/or ethics’’ upon employment, there is no standard across Canada. However, there are standards among specific groups across Canada.
Possible resources Supply Chain Management Association (SCMA): As the largest professional body in Canada related to supply chain, SCMA has a code of ethics which clearly states the requirements around business relationships with suppliers and third parties as well as the acceptance of gifts, gratuities, or hospitality.5 As the contracting professionals dealing directly with suppliers around competitive processes, this group is under 1
Materials Management Services, Regina, Saskatchewan, Canada.
Corresponding author: Suzanne Boudreau-Exner, Materials Management Services, 3sHealth (Health Shared Services Saskatchewan), Regina, Saskatchewan, Canada. E-mail: [email protected]
Downloaded from hmf.sagepub.com at Bobst Library, New York University on November 15, 2015
122
Healthcare Management Forum
significant scrutiny to ensure that they are following all appropriate guidelines, are not in a conflict of interest, and do not put themselves in a position of being unduly influenced by suppliers. The code of ethics clearly outlines the ethical responsibilities of supply chain professionals in Canada. This, combined with the rules of the AIT, provides clear guidance on ensuring that all competitive processes are professionals managing the process. Canadian Medical Association (CMA): The CMA also provides clear guidelines for physicians across Canada. The CMA Code of Ethics was last updated in March 2014. Clause 50 states that as a responsibility to their profession, physicians are to ‘‘Avoid promoting, as a member of the medical profession, any service (except your own) or product for personal gains’’.6 This makes the position of physicians very clear; they should not personally be accepting any value adds. The vendor community has developed their own codes, with one goal being to encourage transparency and consistency in their conduct around value adds. MEDEC is a national association created by and for the Canadian technology industry (medec.org). They provide advocacy, information, and education on medical technology for members, healthcare, and the general public.7 MEDEC membership is comprised of medical technology suppliers. In 2005, MEDEC developed a Code of Conduct to promote ethical business practices among its members. It is a voluntary Code of Conduct, was last updated in 2012, and has been adopted by MEDEC members.7 The Code of Conduct has a clause that specifically covers value adds, Clause K: Value Added with Request for Proposals (RFP) and Tenders—It is not unlawful for healthcare facilities to request ‘‘value-added items, grants, or donations from companies in conjunction with an RFP or tender process.7 Therefore, valueadded requests are not unlawful inducements. However, MEDEC does not consider all value added as procurement best practice, unless the value add relates to the product and services requested in the RFP and are clearly defined (documented) in the RFP document. As an example, if there is an RFP for an ultrasound machine and the buying organization requires additional items such as educational funding, financing to attend a conference, some ‘‘no charge’’ consumable products, and so on, these requirements must be clearly listed in the RFP and they must be related to the ultrasound machine being purchased. They cannot be related to miscellaneous products or services. Rx&D is the association of leading research-based pharmaceutical companies dedicated to improving the health of Canadians through the discovery and development of new medicines and vaccines.8 The Rx&D code of ethical practices was introduced in 1988, most recently updated in 2012. Although it does not specifically use the terminology value adds, it provides very clear guidelines on the provision of gifts or inducements to healthcare professionals and has a strong focus on transparency and accountability. Although the Canadian College of Health Leaders code of ethics is not focused specifically on procurement, it contains requirements regarding conflict of interest. Section F. Conflict
of Interest states that ‘‘The member shall: Neither accept nor offer personal gifts or benefits with the expectation or appearance of influencing a management decision’’.9 Value adds should never be offered in a format that favours or could be perceived as favouring an individual, particularly if that individual is involved in the decision-making process.
Conclusions Leaders in healthcare should be knowledgeable of, or at the very least, aware of the ethical requirements around procurement and value adds. They should be cognizant of the requirements around transparency in competitive or negotiated contracting processes or have the expertise readily available. In an era where stretching a dollar is more and more of a challenge and competition is increased, the temptation to offer and accept significant value adds has grown. Unfortunately, over the years some organizations/departments have become dependent on value adds to provide much needed equipment, training, or educational funding for which there are no dedicated budget dollars. The organizations get caught up in believing that these value adds come at no additional cost. The value adds may not be a transparent bottom line cost on a departmental budget, but rest assured, the organization is being charged for a value add, in the form of increased product costs. Suppliers are in business to make a profit, logically, an unprofitable business is not a sustainable business. Thriving businesses include the cost of value adds in their annual business planning and budgeting. It may appear invisible to the end user, but the costs are there. There are significant pitfalls to becoming dependent on value adds. Organizations become dependent on specific vendors and have difficulty ‘‘letting go’’ when contracts are up for renewal. This results in conflict between following rules and regulations around procurement versus the risk of losing value adds that organizations have become reliant on. Not following rules and regulations to protect existing value adds opens an organization up to vendor challenges and further scrutiny about other practices. Morale of employees who have come to rely on the value adds may be negatively impacted. Recommendations to ensure that ethical practice is being followed are as follows: Identify all requirements in a competitive process. If your organization has become dependent on historical value adds, they are no longer value adds, they are requirements and should be treated as such. If they are truly requirements, they should be clearly defined in a competitive process, they should not be referred to as value adds, and they should be scored as part of the proposal evaluation process. Leave the procurement process to the professionals that were hired to do the job. Qualified procurement
Downloaded from hmf.sagepub.com at Bobst Library, New York University on November 15, 2015
Boudreau-Exner
123
professionals have a clear understanding of the rules and regulations around procurement, can provide advice, and ensure that your organization is not setting itself up for challenges or unethical practices. Consult with legal advisors where appropriate. Ensure that all processes follow AIT (and local, as applicable) requirements, with openness and transparent being key. Be very clear in your process what components will be evaluated, overall weighting for those components, and do not deviate from that process. If value adds are requested (no specifics provided) and offered in a competitive process, they should be put to the side until the formal evaluation has been completed. Once a final contract decision is made, then the value adds can be introduced. At this point, they are a bonus to the process and not considered an inducement. Document, document, document. You need to be sure that your process is defensible if challenged by an unsuccessful vendor.
In the end, if an organization follows ethical practices, there should be no fear or concern over public or vendor perception.
There should be no concern over possible conflicts of interest, and there should be appropriate documentation on hand to backup all steps of a process. References 1. Available at: en.m.wikipedia.org. Accessed November 2, 2014. 2. Available at: https://buyandsell.gc.ca/policy-and-guidelines/supply-manual, https://www.ic.gc.ca/eic/site/ait-aci.nsf/eng/il00006. html. Accessed November 2, 2014. 3. Available at: www.newwestpartnershiptrade.ca/the_agreement. asp. Accessed November 2, 2014. 4. Available at: https://www.doingbusiness.mgs.gov.on.ca/mbs/psb . . . /bps-aboutontariobuys. Accessed November 2, 2014. 5. Available at: www.scmanational.ca. Accessed November 2, 2014. 6. Available at: www.policybase.cma.ca. Accessed November 2, 2014. 7. Available at: www.medec.org. Accessed November 2, 2014. 8. Available at: www.canadapharma.org. Accessed November 2, 2014. 9. Available at: www.cchl-ccls.ca/document/579/CCHL_CodeEthics _EN.pdf. Accessed November 2, 2014.
Downloaded from hmf.sagepub.com at Bobst Library, New York University on November 15, 2015
