Digital Health Care Market Study — Part 2
October 5, 2022
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Aussi offert en français sous le titre Améliorer les soins de santé avec une politique d’approvisionnement favorisant la concurrence — Étude de marché sur les services de santé numériques — Deuxième partie.
In Canada’s single-payer health care system, governments and the broader public sector are responsible for buying the majority of products and services that are used to diagnose and treat medical conditions. This includes everything from bandages to magnetic resonance imaging (MRI) machines. To manage and optimize these purchases, governments put in place a large number of rules and regulations to ensure that they are getting the best value for taxpayer money.
It should not be a surprise then that those same rules and regulations play a key role in determining the quality of Canadian health care. For Canadians to benefit from the latest, world-leading products and services, government purchasing rules must keep pace with technology. A dynamic competitive process that encourages the adoption of digital health products and services will lower the overall costs of health care, improve product quality and user experience and increase innovation.
Without changes, Canada is at risk of falling behind international best practices for digitally-enabled health care treatments. Adjustments to government purchasing rules can ensure that Canadians continue to have access to the best care possible. This will take dedicated action on the parts of governments across Canada to work together and adapt their rules to an increasingly digitized economy.
Table of Contents
- Executive summary
- About the Competition Bureau
- The challenge facing Canada
- Innovation and competition in procurement policy
- Barriers to competition
- Initiatives to alleviate existing barriers
- Next steps
- How to contact the Competition Bureau
This report makes major recommendations to Canadian policymakers on ways to ensure that new, innovative ideas can compete on their merits against traditional health care products and services. More competition helps ensure Canadian patients and health care providers have access to the most appropriate and effective health care solutions.
Governments and the broader public sector (all together referred to as “governments” or “public procurers”) in Canada are responsible for purchasing a range of digital products and services that are used by health care practitioners and organizations to manage patient care and operations. They do this through public procurement processes, which are designed to be neutral and objective in choosing the solutions and suppliersFootnote 1 that provide the best value for taxpayer money. However, the Bureau’s survey of doctors, hospitals, governments and patient groups has identified six important barriers that can stop the best solutions from taking hold in Canada. These barriers include:
- The fragmentation and complexity of the Canadian health care system. In Canada, each province or territory is responsible for purchasing their own health products and services. Further, each jurisdiction has different levels of centralization, different health system priorities, different statutes (legislation, regulations, policies) and different regulatory authorities. When faced with opportunities elsewhere in the world, businesses may pause to assess these factors before selling in Canada.
- Strict demands in RFP requirements. Buyers want to make sure that they buy the right solution at the right price. But when requirements are ill conceived or too demanding, this mindset can eliminate potential bidders.
- Buyers focusing on price rather than value. When governments consider only the price of a health care solution, they can miss the big picture regarding the total cost of ownership. Solutions that could reduce government expenditures in the longer term, or have significant quality or efficiency benefits, but are more expensive up front can sometimes be excluded by public procurement processes.
- Culture of risk aversion. In a field where mistakes can have serious negative consequences, buyers prefer to choose products and services that are tested, secured and well known. Therefore, purchasing organizations might be hesitant—or even unwilling—to take the risk of bringing a new, innovative solution into the health care system or switching from an existing system.
- Lengthy procurement cycles. It can take years to complete public procurement processes. In areas where there is rapid technological development like digital health, this can mean that the product or service could already be outdated by the time a procurement process is complete.
- Overly prescriptive policies. Some Canadian provinces have policies that prescribe the use of a specific vendor or of a specific digital health care product or service. Where this is true, little competition can take place.
Each of these barriers has the effect of pushing potential innovators and competitors away, stopping them from even bidding on government contracts. When there are fewer bidders, there is less competition, leading to higher prices, lower-quality services and less innovation.
The Bureau makes three recommendations to governments across Canada to ensure that competition and innovation can flourish through public procurement processes:
- Establish a national innovation procurement centre of expertise. Canadian governments at the federal, provincial and territorial level should collaborate to establish a centre of expertise of innovation in public procurement.
- Remove barriers that harm competition. Canadian public buyers should remove barriers in tenders to ensure that all relevant suppliers have the opportunity to compete.
- Support innovation-friendly procurement processes. Canadian public procurers should encourage innovation-friendly competitive procurement processes by removing barriers to potential innovators.
About the Competition Bureau
The Competition Bureau (the Bureau) is an independent law enforcement agency that protects and promotes competition for the benefit of Canadian consumers and businesses. Competition lowers prices, increases innovation and fuels economic growth.
As part of its mandate, the Bureau advocates to policymakers for increased competition in regulated sectors of the economy, such as health care, telecommunications and banking. This report forms part of a market study that the Bureau has undertaken to support this goal. Market studies allow the Bureau to apply a competition lens to a range of the industries it examines. This type of analysis helps to highlight issues that could restrict competition and to recommend solutions to policymakers for the benefit of Canadians.
In this report, the Bureau reviews competition and provides recommendations to policymakers to encourage greater choice and innovation.Footnote 2
To inform its study, the Bureau gathered information from a range of primary and secondary sources. The study draws from public research, journals and other reports. It also incorporates confidential informationFootnote 3 shared with the Bureau by companies, governments and consumers.
The Bureau conducted more than 70 interviews, received 42 written submissions and heard from 425 Canadians through an online survey. The Bureau also commissioned expert opinions, including from an individual who regularly works with digital health care entrepreneurs, a regulatory expert and a doctor who was a key participant in bringing digital health care to Canada. The Bureau thanks everyone who took time to provide information and to help advance this important study.
This report is the second in a series of three reports presenting the results of the Digital Health Care Market Study:
- The first report, Unlocking the power of health data, makes major recommendations to Canadian policymakers on ways to make it easier to access and share personal health information—securely and efficiently—to benefit competition.
- This second report, Improving health care through pro-competitive procurement policy, focuses on how strategic use of government purchasing rules can bring about greater competition, innovation and choice for both health care providers and patients within public health care systems.
The challenge facing Canada
- Industries providing digital products and services to the health care sector are growing in terms of both spending and innovation.
- In order for Canadians to receive world-leading treatments in this evolving area, Canadian public procurement needs to foster competition and promote innovation and choice by strategically leveraging governments’ purchasing power.
- Competition will ensure that all Canadians can benefit from lower costs, greater choices and access to innovative solutions that improve care and health outcomes.
The COVID-19 pandemic has increased digitalization of the health sector across Canada. In a 2021 survey conducted for Canada Health Infoway and the Canadian Medical Association, 94% of physicians said they had adapted their practice to use virtual care, such as undertaking telephone and video appointments, using email, and offering remote patient monitoring.Footnote 4 With almost all Canadian physicians saying that they will continue to use these new ways of communicating after the pandemicFootnote 5, virtual care is expected to become a core part of the health care delivery system in Canada.Footnote 6
For example, in May 2020, the federal government invested $240.5 million to accelerate the use of virtual tools and digital approaches to support Canadians.Footnote 7 Of this, $200 million is helping provinces and territories adopt virtual health tools, with five shared priority areas:
- secure messaging and information-sharing platforms;
- secure video-conferencing technology;
- remote patient monitoring tools;
- patient access to COVID-19 and other lab results; and
- back-end supports for integration of new platforms and supports.
In the face of an increasingly digitized health care system, public organizations will need to purchase new products and services suitable for responding to changing needs. Competition will ensure that, when public organizations acquire these health care products and services, all Canadians can benefit from lower costs, greater choices and access to innovative solutions that improve care and health outcomes.
That is why this second report of the Bureau’s Digital Health Care Market Study focuses on the framework of public procurement of digital products and services intended for use by health care providers and patients. In particular, the Bureau has centred its work on how public procurement agencies can:
- remove existing barriers to competition by adapting their rules and processes to promote pro-competition considerations; and
- promote innovation and choice by strategically leveraging their purchasing power.
Considerations in public procurement in the health care sector go well beyond competition policy and innovation. For example, issues of patient privacy, health data security, digital infrastructure and digital literacy need to be part of a broader debate about public procurement of digital products and services in the health care sector.Footnote 8 While all decision-makers need to factor in these important considerations, this report focuses on how to maximize competition and innovation through pro-competitive procurement policy.
Digital health care products and services
Digital health products and services refer to digital technologies used by health care professionals and patients to improve health. This encompasses a wide range of smart and connected devices, including the Internet of Things, advanced computing, big data analytics, artificial intelligence (including machine learning) and robotics.Footnote 9 It also includes health information technology, such as electronic health records, medical devices and wearable devices.Footnote 10 Those technologies are helping to further digitize the health care sector through disruptive technology and cultural change.
According to a report by Precedence Research, global spending in 2021 on digital health products and services exceeded US$270 billion.Footnote 11 This spending is expected to grow at almost 20% per year, to more than US$1,354 billion by 2030.Footnote 12 In Canada alone, spending on medical devices was about US$7.5 billion in 2020, accounting for about 1.8% of the global market.Footnote 13
Digital health technologies typically involve elements such as the following:Footnote 14
- Big data. From smart beds equipped with sensorsFootnote 15 to medical devices incorporating machine learning,Footnote 16 the digitalization of the health sector comes with the rapid collection of an unprecedented amount of complex data. Approximately 30% of all data in the world is generated by the health care industry.Footnote 17
- Cloud computing. To maintain, access and exploit the vast quantity of data, cloud computing provides users with access to on-demand computing resources (e.g., storage, services, networks, servers, applications) without the need to maintain an infrastructure.Footnote 18 Cloud computing is already in use in the health care sector for electronic health records or patient monitoring, and is attracting interest for the deployment of the Internet of Things in the health care sector.Footnote 19
- Connected health. From smart medical alert systems for senior care to therapeutics focusing on specific diseases, connected health devices provide patient health data to providers to facilitate monitoring and decision-making in real time. These technologies allow health care interventions that are specific to patient needs.Footnote 20
- Gamification. Principles and tools from the gaming industry are being used to design features and programs for clinical purposes. Gamification has also been used in health and well-being to motivate consumers to exercise more, and to adopt other lifestyle changes that will improve their overall health.Footnote 21
In 2020, Canada-based digital health start-ups raised more than US$300 million in funding—roughly double the amount raised in 2019.Footnote 22 According to the Canadian Venture Capital and Private Equity Association, investment in Canada’s life sciences sector accounted for 13% of the country’s total investment in 2021.Footnote 23
How Canadian governments make purchases
Government purchases of products and services are subject to a complex set of rules.Footnote 24 Public procurement in Canada must be open, fair and transparent to ensure that Canadian taxpayers receive value for their money.Footnote 25 How these goals are achieved, however, tends to differ between the federal government and each provincial or territorial government.Footnote 26
Provincial and territorial governments have the primary responsibility for health care administration and delivery. This means that each sets its own priorities, and administers its own health care budget. The federal government, under the Canada Health Act, defines the national principles that are to be reflected in provincial and territorial health care insurance plans.Footnote 27
Chart 1: Overview of the Health System in Canada
Overview of the health system in Canada. Image explaining the public authorities involved in the public procurement supporting the health care system in Canada.
- Under the Canadian Constitution, the Federal, provincial and territorial governments are involved in the public procurement of products and services from vendors community. The Federal Government also provides transfer payments to provincial and territorial governments under the requirements set in the Canada Health Act. The Federal, Provincial and Territorial Governments are part of collaborative initiatives and organizations.
- Under the Provinces and Territories jurisdictions, health authorities as well as entities under the public procurement framework are involved in the public procurement of products and services from vendors community.
This means that public procurement of products and services in the Canadian health care system mainly falls under provincial and territorial jurisdiction.Footnote 28 To provide health care to Canadian residents, organizations within health care systems rely on various vendors to supply products and services.
Under Canadian public procurement frameworks, buyers can use a range of processes to make purchases, from awarding a contract directly to using competitive processes: Request for Proposal (RFP), Request for Prequalification (RFPQ), Request for Quote (RFQ) and Request for Bid (RFB). Smaller purchases tend to be more flexible; above certain financial thresholds, however, public agencies are often required to follow mandatory processes, such as holding a competitive process or using centralized government procurement agencies.Footnote 29
One particular characteristic of the Canadian competitive public procurement framework includes what is known as the Contract A / Contract B format.Footnote 30 Contract A is an agreement a bidder enters into with the procuring authority when submitting a compliant bid in response to a request for bids (or similar document). Contract A covers the bidding process that the bidder and procuring authority must follow, for example, for the evaluation of the bids or any communication with bidders. Contract B is the performance contract awarded to the successful bidder.Footnote 31
Innovation and competition in procurement policy
- Governments need to assess how health care procurement can promote competition, for example, by favouring competitive bidding processes, preventing and detecting bid-rigging in competitive bidding processes, and removing barriers to competition in public procurement frameworks.
- When public organizations buy a significant majority of the products and services used in providing health care, they are also in a position to stimulate demand for innovative products and services. An innovation focus in public procurement can help to ensure that Canadians can access the best and most modern health care and optimize the value of their purchases.
Around the world, governments are increasingly using public procurement as a tool to spur innovation and competition. This helps to lower overall costs, modernize markets and improve the quality of services to citizens. As the Organisation for Economic Co-operation and Development (OECD) observed:
Due to the magnitude of the spending involved, public procurement can have a market impact beyond the mere quantities of goods and services purchased: through its procurement policies, the public sector can affect the structure of the market and the incentives of firms to compete more or less fiercely in the long run. Procurement policy therefore may be used to shape the longer term effects on competition in an industry or sector.Footnote 32
Governments, through their purchases, have the potential to revolutionize markets. With their outsized impact, public purchases have the ability to welcome new suppliers into the marketplace. New suppliers can improve competition and ensure that citizens are well served by innovative and dynamic new products and services.
Public procurement and competition
OECD governments, on average, commit more than 9% of their GDP to government spending on health care.Footnote 33 In Canada, public entities are the main buyer of health care products and services. Canadian public procurement policies can have long-term impacts on the ability of and incentives for firms to compete across sectors of the economy.
The connection is clear. Public procurement rules have a direct impact in determining who can compete for government contracts.Footnote 34 For example, a government could seek to simplify its procurement process by setting a rule that only past suppliers of a product are eligible to bid for a given contract. This could make it easier to judge who should get the contract based on real-world experiences with the suppliers. However, such a rule would also mean that any business that offers a new, innovative product, could not bid. Such an approach favours the tried and true at the expense of competition and innovation.
Government procurement has the potential to affect the competitive landscape in an industry. Procurement rules should take into account how they can support competition, for example:
- Favouring competitive bidding processes. Under certain conditions, such as for smaller-value public procurements, governments often have the flexibility to directly award contracts, or otherwise forgo a fully competitive process. However, whenever possible, public entities should favour competitive bidding processes as competitive bidding between firms promotes lower overall costs, higher-quality products and increased innovation. Open and competitive bidding processes ensure Canadians get the highest value for their tax dollars.Footnote 35 Non-competitive processes should be used in only limited circumstances, such as crises where urgency is a key consideration.
- Preventing and detecting bid-rigging in competitive bidding processes. Bid-rigging occurs when two or more suppliers agree that a specific supplier will win a contract. For example, as part of an agreement with another company or companies, one company might agree not to submit a bid, to withdraw a bid or to submit an agreed upon bid. Bid-rigging is a criminal offence under the Competition Act.
Along with investigating allegations of bid-rigging, the Bureau works with businesses and governments to ensure that bidding processes are free of collusive practices.Footnote 36 The Bureau also promotes the use of Certificates of Independent Bid Determination by all tendering authorities in Canada. These certificates mean that bidders must sign a written confirmation that their bid has been developed independently from their competitors. These have proven to be effective around the world at deterring bid-rigging by potential suppliers. In addition to other efforts, the Bureau has recently developed a Collusion Risk Assessment Tool to provide an early warning about potential risks of bid-rigging, as well as mitigation strategies to minimize those risks and to help ensure a fair, competitive procurement process. The Bureau also offers free training for procurement professionals.
- Removing barriers to competition in public procurement frameworks. Barriers to competition prevent relevant businesses from competing to win contracts. During this study, the Bureau heard of several barriers preventing businesses, especially small and medium-sized enterprises (SMEs), from competing for public contracts, particularly in health care systems. This report identifies such barriers, and encourages public entities to remove those barriers that stop businesses from effectively competing for public contracts in the Canadian health care sector.
When barriers to public procurement processes are removed or lessened, bidding processes are more inclusive and attract a greater number of bidders. This, in turn, ensures greater competition for government contracts, leading to lower overall costs, higher-quality products and services, and increased levels of innovation.
With respect to digital health products and services, public procurement processes should take into account that the sector is driven by innovation.Footnote 37 In particular, Canada’s medical devices industry includes a large number of SMEs.Footnote 38 Also the Canadian virtual care industry counts some well known companies as well as smaller ones. However, several SMEs that participated in this study reported that it was often difficult for them to participate in competitive public procurement processes.
Public procurement and innovation
Public procurement is the bedrock of the Canadian public health care sector and, therefore, its processes act as enablers for the technologies and treatments that guarantee Canadians’ well-being.
Governments around the world recognize that promoting innovation should be a central feature of procurement policy.Footnote 39 This is a challenge though when government buyers—and the procurement framework—err too frequently on the side of caution. Policies based on perpetuating the status quo fail to adequately prioritize dynamic competition and the adoption of innovative solutions.
Governments that promote innovation increasingly use “demand-side policies”Footnote 40 in addition to “supply-side policies.” Traditional supply-side approaches require a buyer to choose among existing marketplace options. Demand-side policies, however, involve the government specifically acting to stimulate demand for better and innovative products and services. Policymakers acknowledge the benefit of combining both supply-side as well as demand-side policies.
An example of demand-side policy is the recognition of societal needs, such as better senior care for an aging population, and having the government offer contracts to those that can provide workable solutions. Such a policy could attract new innovations by ensuring buyers for the solutions, rewarding those that successfully solve the problem. This is, in effect, the government acting to “buy” innovation. Public procurement is a central way of achieving this type of demand-side innovation.Footnote 41
The European Union (EU) is active in promoting such demand-side policies.Footnote 42 It aims to devote 17% of its public procurement expenditure to public procurement of innovative solutions.Footnote 43 In doing so, the EU seeks to act as a significant early adopter to encourage innovative products and services.Footnote 44
An innovation focus in public procurement can help to ensure that Canadians can access the best and most modern health care. Indeed, innovation is risky from the perspective of both business and health care organizations, and often involves significant up-front investments without any guarantee of success. Having a procurement process managing the risks for the business community and the health care system would support the adoption of products and services fit for the changing needs of the Canadian population.
Barriers to competition
- The Bureau identified six important barriers to competition:
- fragmentation and complexity of the Canadian legal framework,
- restrictive contracting requirements,
- emphasis on price,
- risk-averse contracting,
- lengthy procurement cycles, and
- prescriptive policies.
- Addressing these barriers can ensure that Canadians benefit from greater competition and innovation in digital health care.
Throughout the Digital Health Care Market Study, the Bureau met with dozens of industry stakeholders, and received written feedback from hundreds of others. Much of this feedback focused on the role of existing public procurement processes in competition and innovation in Canada’s digital health sector.
Through these consultations, the Bureau identified six important barriers to competition. By addressing these barriers, decision-makers can act to ensure that Canadians benefit from greater competition and innovation in digital health care—leading to greater value for money in public procurement, higher-quality products and services, and the introduction of innovative health care solutions.
Barrier 1: Fragmentation and complexity of the Canadian legal framework
Innovative health care solutions are almost never used in only one country. On the international stage, Canada is a relatively small economy. In 2020, PwC Canada estimated that Canadian digital health expenditures made up just 5% of total digital health global expenditures ($100 billion).Footnote 45 The size of the Canadian economy can make it hard to convince innovators to choose Canada as an early destination for their new products and services.
An added deterrent is the fact that, in Canada, except for a few specific circumstances, each province or territory is responsible for purchasing its own health products and services. This creates a complicated procurement structure with 14 different jurisdictions in which to market any one health care product or service (i.e., the federal government, 10 provinces, and 3 territories).Footnote 46 Each jurisdiction has different levels of centralization, health system priorities, statutes (legislation, regulations, policies) and regulatory authorities.Footnote 47 Even a single province or territory can have more than one purchasing organization. For example, Ontario has several health care buying groups (e.g., HealthPRO, Mohawk Medbuy, Plexxus).Footnote 48Footnote 49
Having multiple purchasing organizations across the country also means having different procurement requirements and technology standards. Thus, products and services must often be customized for each organization. This customization can be costly for vendors, making it more difficult for them to compete to supply each area. Further, the small size of any commercial opportunity can make it difficult for SMEs to scale up to provide a customized product for a given province and territory. Some larger vendors, in the same respect, can consider the commercial opportunity too small to be worth their while. These effects can result in fewer bidders for any government contract in Canada, leading to higher costs, fewer choices and less innovation.
Having said that, some companies interviewed mentioned the downside of excessive centralization. According to them, establishing fewer and more centralized purchasing organizations can create:
- more bureaucracy;
- longer processes;
- fewer opportunities to try different digital solutions; and
- solutions that are less adapted to a specific organization.Footnote 50
Another issue with the fragmentation of the market is that purchasing processes and rules can vary significantly across Canadian provinces, hospitals, long-term care homes and other health care organizations.Footnote 51
Procurement thresholds are a real world example of how regulatory landscapes can differ from one jurisdiction to another. These thresholds are often monetary values established in each jurisdiction. When a purchase exceeds the threshold, procurement agents must use certain types of processes (e.g., competitive procurement). Below these thresholds, however, other options are available (e.g., sole source contracts).
For example, Newfoundland and Labrador has the following thresholds for a competitive procurementFootnote 52 :
|Regional health authority
|Estimated value of $105,700 or greater
|Estimated value of $26,400 or greater
|Estimated value of $105,700 or greater
However, Prince Edward Island requires an open competitive bidding process for the following thresholdsFootnote 53 :
(i.e., Health PEI)
|Goods valued between $10,000 to $30,300
(i.e., Department of Health and Wellness)
|Goods valued between $250,000 and $605,600
Neither approach is necessarily superior, as the extra administrative costs associated with using a formal competitive procurement can likely be offset by cost savings generated by open bidding. However, these examples illustrate the complexity of the legal landscape in Canada.
Navigating these rules can be difficult for even an experienced business. One commentator noted that these jurisdictional differences can “create a complicated labyrinth of pathways for innovators trying to scale up their technology adoption and diffusion across the country.”Footnote 54
Procurement rules are intended to provide a transparent competitive process and fair access to Canadian markets to all companies, whether foreign or domestic.Footnote 55 In Canada, businesses need to comply with a large number of different rules, making it much more difficult to bid on and win contracts. This can make it more difficult for businesses to deliver innovative solutions across the country.
Barrier 2: Strict demands in RFP requirements
To participate in a competitive public procurement process, companies typically must reply to a request for proposal (RFP). RFPs often specify requirements that potential vendors have to meet (e.g., specific performance characteristics, requirements to ensure privacy, interoperability of information). RFP criteria are usually defined by the buyer (i.e., health care organizations).
Many stakeholders mentioned that overly strict RFP requirements tend to eliminate potential bidders. Reducing the number of bidders will generally mean less competition and lower levels of innovation. Specific requirements that tend to create issues include:
- The cost of updating obsolete information technology systems. In an RFP, buyers often require vendors to bear the cost of adapting existing information technology systems to a new product or service. This can rule out some competitors (especially SMEs), as obsolete systems can often be expensive and time-consuming to adapt to new technologies. Such requirements also tend to favour the incumbent vendor that initially provided the solution.
- Costs and conditions related to obtaining certification. Buyers can ask vendors to obtain certification by a third party. Although certification programs have advantages (e.g., ensuring that a potential system provides a basic level of functionality or is interoperable with other solutions), they can also limit the introduction of newer products or services that could have a different orientation than other solutions. Vendors that fail to obtain required certification cannot participate in the relevant procurement process, or must spend an up-front cost to get certified without any guarantee that they will ultimately obtain a contract.
- Financial warranties. As an RFP requirement, buyers sometimes ask vendors to provide proof of financial health. In some circumstances, such thresholds can be set unduly high, making it impossible for some companies (especially SMEs) to compete for a contract.
- Focus on functionalities instead of outcomes. In setting RFP requirements, health care organizations can focus too narrowly on requiring a product or service to deliver a specific set of functionalities. This can exclude innovative companies that have found news ways of reaching a desired outcome that could provide a different set of functionalities.
- Overly restrictive requirements. Buyers are not always experts in digital health care products and services. This can mean that they create RFP requirements based on existing products that they are already familiar with. This can result in procurement processes inadvertently disqualifying potential vendors. Further, to win a bid that has overly strict requirements, companies are motivated to deliver products that merely comply with the minimum requirements that buyers set, and to offer their lowest price possible. Such procurement processes can hinder some businesses from participating in a procurement process and discourage innovative products from emerging.
- Not adapted to new business models. The health care system and procurement processes must constantly adapt to new business models (e.g., Software as a Service, known as “SaaS”). For example, in recent years, some health care vendors have moved away from selling licences to use a product or service, toward selling time-limited subscriptions to a product or service. This can bring certain benefits—such as being able to spread customization or development costs across several monthly subscription payments, instead of requiring them in a single lump sum. However, these new business models may not fit with current procurement processes, standard agreements, a hospital’s accounting policies and funding mechanisms, which favour licensing.
- Lack of expertise to define requirements. When defining RFP requirements, buyers might unintentionally omit important aspects of a product or service. Other aspects might be too technical for them to define well. This can cause cost overruns when buyers, after committing to a vendor, discover that they need extra features that were not included in the original RFP.
- Lack of market intelligence. Buyers do not always have the tools to identify new digital health care vendors or solutions. This can have the effect of prioritizing existing, more familiar businesses at the expense of those offering newer, more innovative solutions.
It is important to get RFP requirements right. Failing to do so can create barriers to market entry, particularly for innovative companies and SMEs. Improperly scoped RFP requirements can make procurement policies needlessly complex and, at their worst, can reduce competition and innovation to the detriment of the Canadian health care system.
Barrier 3: Focus on price rather than value
After bids have been submitted in response to an RFP, buyers typically assess bidders against predetermined evaluation criteria. Many observed that many buyers’ most important evaluation criterion is price. In other words, contracts tend to be awarded to the business that can deliver the cheapest product. On one level, this makes a lot of sense–who wants to pay more for something they could get for less? But a deeper analysis shows the weakness of this type of thinking.
First, focusing only on price hinders innovators and SMEs: they often cannot match the low prices offered by larger companies for often less-innovative products or services. Focusing on price also incentivizes companies to cut their prices by adding only the minimum required features to their product or service. As a result, buyers might not receive the best version of the product or service. It often leads to conversations between the winning vendor and the buyer about adding extra features at an extra cost. Thus, the buyer ends up paying more than what was initially planned in the RFP.
A focus on price also eliminates companies, especially SMEs, that are not financed by other products or services. Larger firms that have multiple products or services might be able to offer lower prices for digital health products or services as long as they can recoup lost revenue through other products or services that they sell.
Some buyers have moved beyond a sole price consideration. For example, the Secrétariat du Conseil du trésor du Québec allows public organizations to choose between four different methods for assessing bids:
- price only,
- minimum quality and price,
- lowest adjusted price, and
- quality only.Footnote 56
The method that will be used often depends on the type of products or services to purchase. For example, the lowest price would be used to buy furniture, but to purchase a more complex product like a digital solution, the minimum quality and price method or the quality only method might be used. Health care organizations decide which award criterion to use.
An important distinction is the difference between value or quality and outcome. While some buyers are starting to integrate quality considerations into their bid assessments, very few purchasing organizations look deeper into the life cycle of a product (e.g. the ongoing integration and the maintenance costs).Footnote 57 For example, consider a company that produces an innovative diabetes management application for patients. This system could cost more up front but, over time, it can lower the patient’s use of the health care system by better controlling their disease. This life cycle cost saving should be taken into account in the evaluation.
Procurement agencies that focus narrowly on price can miss the big picture. Such agencies could end up buying suboptimal solutions by inadvertently shutting out competitors that could provide a better product over the longer term. Effective competition requires procurement decisions to incorporate not just the short-term cost of a solution, but also the entire range of benefits it can deliver, including both lower long-term costs and better patient outcomes.
Barrier 4: Culture of risk aversion
It is not surprising that the health care system is risk averse. In a field where mistakes can have serious consequences, buyers prefer to choose products and services that are tested, secured and well known.Footnote 58Footnote 59, By definition, innovative technologies are disruptive, meaning that there might not be any similar technologies on the market with which they can be compared.Footnote 60 Therefore, purchasing organizations might be hesitant–or even unwilling–to take the risk of bringing a new, innovative solution into the health care system.
In health care, it can be challenging to procure innovative products and services. Establishments prefer to stay with the products and services they are familiar with. However, ensuring that Canadian patients can benefit from the latest, world-leading treatments should be an important objective. By encouraging the adoption of new products, purchasers will benefit from a dynamic competitive process, resulting in lower costs, higher-quality products and increased levels of innovation. This should done while making sure patient safety is not compromised.
It is reasonable for buyers of new health care solutions to want clinical evidence of their efficacy. However, the Bureau has heard that some purchasers in Canada are so risk averse that they demand Canadian clinical evidence. In other words, evidence of efficacy coming from another country is not good enough. This, of course, can act as another barrier to the adoption of innovative products in Canada.
Barrier 5: Lengthy procurement cycles
For digital health care products and services, it can take years to complete the procurement process. This timeline can be troubling, as it means that technological development can move faster than the time it takes to buy a new product. In other words, the rapid pace of modern technological development means that the product or service could already be outdated by the time a procurement process is completed.
The consequences of this are twofold. First, products and services currently used by health care organizations would rarely be the latest, most innovative ones. Second, innovators might have to wait years before they can see a return on the investments that they have made to develop a new product. Both of these effects tend to limit competition by making new product development more risky than would be the case if procurement processes moved more quickly.
Barrier 6: Overly prescriptive policies
Some Canadian provinces have policies that require the use of a specific vendor or a specific digital health care product or service. For example, a policy that orders every government department in the province to use a particular product eliminates the possibility that a competing product could use an individual hospital or buying group as a place to gain a foothold. This, again, pushes potential innovators away, and eliminates the positive competitive effects that they can have in creating pressure for all vendors to lower their prices, improve their product quality and bring new innovations to market.
Initiatives to alleviate existing barriers
- Several initiatives to remove barriers to competition and innovation involve bringing together key stakeholders in different parts of the health sector to provide opportunities to develop innovative solutions or to encourage new market entrants to bid.
- On the procurement side, different jurisdictions are exploring ways to improve the process in support of competition and innovation.
Innovation requires an entrepreneurial spirit. It thrives when people are willing to take chances and try something that has never been tried before. To reap the rewards of innovation and competition, businesses need to be fearless in the face of failure.
In Canada, several initiatives are aimed at revolutionizing the way things are done. These initiatives recognize some of the barriers already discussed, and are working to counteract them. Specific efforts made by these initiatives include the following:
- CAN Health Network’s Edges. “Edges” are groups of hospitals, home care organizations, health authorities, private clinics and others that collaborate and procure innovative domestic solutions. They act as both test beds for new innovations, and purchasers that are positioned to take first advantage of resulting breakthroughs. When the time comes to put out an RFP, Edges work together to form an informal buying group, thereby simplifying the procurement process for vendors, and ensuring that multiple buyers need not run their own, independent procurement processes.
- Canadian Collaborative Procurement Initiative (CCPI). The CCPI is a federal initiative, led by Public Services and Procurement Canada, aimed at modernizing procurement practices in Canada. It works to reduce the impact of fragmentation and the complex legal framework by offering national procurement tools to all participants. CCPI brings together groups of buyers, making it easier for vendors to sell their products and services to multiple organizations, and thus avoid duplicative procurement processes. It allows buyers to share knowledge and learn about procurement best practices in various areas, including health care.
- MEDTEQ+’s Beachhead. A Beachhead involves a team of patients, researchers, clinicians, health administrators, governments and industry members. Their objective is to accelerate the adoption of value-based innovations. By working collaboratively, each Beachhead works to validate innovations in a real-life health care setting, allowing companies to gather clinical evidence. In turn, organizations within the network can use these relationships to take advantage of the newest innovative care. This initiative helps to overcome the complexity and fragmentation of the Canadian legal framework for procurement, while also creating Canada-specific evidence of product or service efficacy.
- Ontario’s Innovation Procurement. The Ontario government has launched its Innovation Procurement framework, which aims to place innovative solutions front and centre in Ontario’s public procurement. Under this approach, government organizations engage with potential vendors before preparing an RFP to:
- improve their understanding of product offerings, and
- more realistically structure RFP requirements.
- Canada Health Infoway Procurement Toolkit. The toolkit was created to help hospitals, clinics and other health care organizations with the procurement of virtual visit or remote patient monitoring solutions. It offers buyers some guidelines on how to define their key requirements.
- Other organizations are breaking out of the traditional procurement framework. Market participants mentioned other examples of purchasing organizations working to change things in the procurement field:
- In an RFP, buyers usually start by evaluating the legacy component, which refers to the procurement requirements under the old business model (licences). Then the vendor with the highest score is evaluated on its new business model (e.g., SaaS). This process can hinder vendors who are trying to sell new solutions (like SaaS) and buyers who are looking for them. One long-term care centre decided to do the opposite procurement process. It led with SaaS as its preferred business model and then evaluated the legacy component. This initiative allowed them to get the most innovative solution possible to match their needs.
- In another province, a government buyer defined the minimum requirements for vendors to comply. Once they were evaluated on these requirements, all the qualified vendors were invited to submit a price. Health care establishments could then choose one of the certified solutions at the price submitted by the vendor. Instead of competing only on price, it allowed vendors to put forward, and be judged on, the innovative features of their products or services.
- Members of the legal community have been advocating for the suppression of Contract A (solicitation documents, as opposed to Contract B which is the contract awarded to the successful bidderFootnote 61) in the Canadian public procurement framework.Footnote 62 Some of the considerations for not having a Contract A in the framework are related to the level of complexity associated with the existence of a binding contract as well as the lack of flexibility needed to negotiate terms and specifications that meet the buyer’s needs. In this context, non-binding RFPs avoid the issues related to Contract A since there is no contract.Footnote 63 However, this process has some drawbacks, including the reduced control buyers have over the process.Footnote 64
In the digital health care space, public procurement acts as a critical enabler. Procurement rules are central for deciding who can and who cannot compete to provide the digital health care products that Canadians rely on daily. Focusing these rules on competition and innovation will ensure that Canadian governments receive digital health care solutions at the lowest overall costs and highest levels of quality.
The Bureau makes three recommendations to help foster greater competition and innovation through procurement policy.
Recommendation 1: Establish a national innovation procurement centre of expertise
Canadian governments at the federal, provincial and territorial level should collaborate to establish a centre of expertise of innovation in public procurement.
The establishment of such a centre aims at addressing the concern heard from both public procurers community and vendor community. From the public procurers community, as all Canadian jurisdictions are not at the same level in terms of implementing a strategy of procurement for innovation, there is the acknowledgement that jurisdictions could learn from each other. This seem to already be done informally by some jurisdictions and often on an ad hoc basis. A center of expertise would formalize such initiatives.
From the vendors community, as fragmentation and complexity of the Canadian market is often cited as a barrier, a center of expertise could foster a common vision of procurement for innovation while respecting provincial and territorial jurisdictions.
As a first step, this centre of expertise should create a Canadian roadmap for the implementation of innovation procurement. The centre should also be responsible for providing education, guidance and resources to public procurers to provide common direction. It could also help disseminate Canadian and international best practices in the field of procurement for innovation—particularly with respect to the use of competitive procurement processes. Such a centre should build on the knowledge and experience gained by ongoing initiatives including prequalification programs or tender design for digital health products and services.
Governments of various levels have come together before to collaborate in the health sector. Some examples of pan-Canadian collaborations include:
- the FPT Virtual Care/Digital Table, a pan-Canadian collaborative platform established in March 2020 with a mandate to consider and develop a proposed plan for accelerating the deployment of virtual care in Canada both during COVID 19 and for the longer term; and
- the pan-Canadian Pharmaceutical Alliance, an alliance of the provincial, territorial and federal governments that collaborates on a range of public drug plan initiatives to increase and manage access to clinically effective and affordable drug treatments.
In the EU, the Procure2Innovate project provides institutional support for public agencies that implement innovation procurement. The support available to the web of public procurers include funding programs to trigger innovation procurement activities, training sessions on various subjects from raising their awareness on procurement for innovation to explanations about functional requirements. This project, offers a strong model for Canadian jurisdictions on ways to enable cultural changes within various jurisdictions.
Recommendation 2: Remove barriers that harm competition
Canadian public buyers should remove barriers in tenders to favour competition. From a competition perspective, this approach ensures that all relevant suppliers have the opportunity to compete. It also allows health care systems to take advantage of the benefits of greater competition: lower overall costs, greater product quality and increased innovation.
In order to remove barriers in tenders, public procurers will need to appropriately engage with the industry, especially when procuring innovative solutions to respond to unmet needs or new ones that are not adequately addressed by existing solutions on the market.
Such engagements should be transparent and non-discriminatory. The goal of this approach is to assess available solutions against the state of the art to ensure that all appropriate businesses have a chance to compete.
We invite public procurers to self-assess their practise under the barriers identified above while designing their tenders. Indeed, under this approach, tenders should:
- be developed further through appropriate market scanning and engagement with the vendor community;
- account for the full life cycle of a product or service to procure, rather than just its up-front prices;
- consider how changes in technology could affect current and future needs; and
- take into account requirements facilitating switching from one vendor to another whenever appropriate.
Some Canadian jurisdictions have already started down this path:
- The British Columbia Procurement Concierge Program promotes innovative procurement approaches, and is designed to ensure that all suppliers can participate in public processes. The program collects information with the goal of helping government buyers learn which options are available to them in the marketplace—particularly in markets characterized by rapid technological progress.
- The Ontario Innovation Procurement approach seeks to enable public procurement that overcomes many of the barriers identified in this report. Innovation Procurement favours early engagement with potential suppliers; new approaches to specifying RFP requirements; and ensuring broad access to procurement processes.
Recommendation 3: Support innovation-friendly procurement processes
Canadian public procurers should encourage innovation-friendly competitive procurement processes by removing barriers to potential innovators. Indeed whereas the previous recommendation addresses barriers facing suppliers of existing solutions, this one relates to barriers facing suppliers of non existing solutions.
Adopting innovation-friendly competitive procurement processes would include:
- Drafting specifications in a way that allows innovative solutions to compete. For technical specifications, the use of functional requirements instead of descriptive ones. Minimum functional requirements will give the opportunity to vendors to compete on ways to achieve the desired outcomes; allowing suppliers to propose alternative solutions closely matching intended specifications. This covers situations where tenders allow public procurers to consider and eventually buy an innovative solution proposed by the supplier on its own initiative in its bid for the procurement;
- Taking steps to enable SMEs to participate more vigorously in public procurement processes. As SMEs have limited resources to participate in public procurement processes that are lengthy or involve a lot of red tapes, public procurers should continuously rethink their practises with the aim at facilitating the effective participation of SMEs; and
- Using flexible award criteria that incorporate more than solely prices. Flexible award criteria, such as the most economically advantageous tender (MEAT) used in the EU, aims at rewarding both quality and price. Such flexible criteria can stimulate innovation for example by the use of cost as an award criterion.
The EC’s Guidance on Innovation Procurement is an excellent starting point for governments that want to conduct innovation-friendly procurement processes.
Our digital future demands a rethink of historical government procurement policy. The old ways of making government purchases can make it hard for new, innovative digital health care solutions to compete for government contracts. By consciously considering how procurement rules support greater competition and innovation, governments can help ensure that Canadians can access the most appropriate and effective health care, while at the same time, ensuring greater value for taxpayer dollars, higher-quality products, and increased choice among suppliers.
The Bureau invites Canadian policymakers to review and consider the recommendations made in this report to accelerate Canadians’ access to digital products and services while taking into account the impact of their purchasing power on competition and innovation. The COVID-19 pandemic has presented an important crossroads for innovation in health care. The Bureau welcomes the opportunity to continue working with policymakers to help ensure policies do not unnecessarily impede competition and innovation in this important sector.
How to contact the Competition Bureau
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