CONTENTS
Thursday 6 March 1997
1996 annual report, Provincial Auditor: Section 3.12, assistive device services activity
Ministry of Health
Mr Geoffrey Quirt, acting assistant deputy minister, population health and community services system group
Mr Mark Cox, director, assistive devices branch
STANDING COMMITTEE ON PUBLIC ACCOUNTS
Chair / Président: Mr Bernard Grandmaître (Ottawa East / -Est L)
Vice-Chair / Vice-Président: Mr Richard Patten (Ottawa Centre / -Centre L)
Mr Marcel Beaubien (Lambton PC)
Mr Dave Boushy (Sarnia PC)
Mr Gary Carr (Oakville South / -Sud PC)
Mrs Brenda Elliott (Guelph PC)
Mr Gary Fox (Prince Edward-Lennox-South Hastings / Prince Edward-Lennox-Hastings-Sud PC)
Mr Bernard Grandmaître (Ottawa East / -Est L)
Mr John Hastings (Etobicoke-Rexdale PC)
Mr Jean-Marc Lalonde (Prescott and Russell / Prescott et Russell L)
Ms Shelley Martel (Sudbury East / -Est ND)
Mr Richard Patten (Ottawa Centre / -Centre L)
Mr Gilles Pouliot (Lake Nipigon / Lac-Nipigon ND)
Mrs Sandra Pupatello (Windsor-Sandwich L)
Mr Derwyn Shea (High Park-Swansea PC)
Mr Toni Skarica (Wentworth North / -Nord PC)
Substitutions/ Membres remplaçants:
Mr Toby Barrett (Norfolk PC)
Also taking part /Autres participant:
Mr Erik Peters, Provincial Auditor
Clerk / Greffière: Ms Donna Bryce
Staff / Personnel: Mr Steve Poelking, research officer, Legislative Research Service
The committee met at 1006 in room 228.
1996 ANNUAL REPORT, PROVINCIAL AUDITOR: SECTION 3.12,
ASSISTIVE DEVICE SERVICES ACTIVITY
MINISTRY OF HEALTH
The Vice-Chair (Mr Richard Patten): We'll open the meeting. We have reps from each of the parties and we expect more members to arrive. We have some witnesses from the ministry with us this morning and they have a brief presentation. Is it the wish of the committee that we continue as we did last time, 10 minutes for each caucus? Is that all right? All right.
Gentlemen, welcome to the meeting. If you would introduce yourselves, we await your presentation.
Mr Geoffrey Quirt: My name if Geoff Quirt and I'm the acting assistant deputy minister for population health and community services. On my right is Mr Mark Cox, who is the director of the assistive devices branch of the Ministry of Health.
With your permission, we'd like to proceed by providing the background information on the Ministry of Health's home oxygen program that you requested in your last discussion, and following that, respond specifically to the four questions you raised in your February 27 letter to Margaret Mottershead, the Deputy Minister of Health. On behalf of Margaret Mottershead, I'd like to apologize that she's not here. She wished to be, but she is elsewhere this morning. We have a short presentation, and then we'll be pleased to try to answer your questions.
The standing committee on public accounts requested at its meeting of February 13, 1997, that the Ministry of Health provide information with respect to the Ontario home oxygen industry. Specifically, the committee wanted to know the ministry's intentions concerning its pricing policy, who were the major companies, their connection to the association, the association's objects, and comparisons of oxygen pricing with other jurisdictions.
The following report is the ministry's preliminary response to this request. Further research is being undertaken on how other jurisdictions operate and pay for their home oxygen programs.
Effective April 1, 1997, the ministry will replace the current three-rate reimbursement structure for home oxygen with a single rate, and has extended the current agreement by two years to March 31, 2000. The current agreement with the Ontario Home Respiratory Services Association and the Ontario Hospital Association has three rates which recognize the three most common types of equipment needs for home oxygen clients:
(1) Concentrators with cylinders for backup and limited mobility at a rate of $347 per month currently;
(2) Concentrators with cylinders and a conserving device for enhanced mobility at a cost of $437 per month; and
(3) Liquid oxygen, usually with a concentrator for home use, for people who are on a high flow rate for their oxygen, can't tolerate the cylinders with a conserving device but require enhanced mobility. The cost for this level of service is $526 per month, the rate that the ministry pays to providers.
The Ontario Home Respiratory Services Association approached the ministry in the fall of 1996 seeking an extension of the current agreement to March 31, 2001. The ministry agreed to extend the agreement to March 31, 2000, on the condition that there be a single rate rather than the three rates. The Ontario Home Respiratory Services Association asked for a single rate of $437 per month. The ministry said that the rate would be $425 per month effective April 1, 1997.
This request by the association to open up the current agreement has given the ministry the opportunity to eliminate a potential incentive for liquid oxygen to be used rather than a suitable, less costly alternative, and it's given us the opportunity to free up staff resources to advance our plans to pilot the independent assessment process that the Provincial Auditor supported in his 1996 audit.
The home oxygen program and the respiratory component of the assistive devices program represent the majority of the respiratory services industry's revenues in Ontario, so price stability is important to the owners of these companies.
Why a single rate? The ministry began funding home oxygen in 1974 and there have always been separate reimbursement rates for liquid and concentrator users. Since 1993 the reimbursement rates for home oxygen have been lowered 33%, from $793 in 1993 to $526 per month currently. It's also been lowered by 12%, from $395 per month to $347 per month, for concentrators. The larger reduction in the liquid rate relative to the reduction in the concentrator rate is the reason expenditures on liquid have fallen from 72% of the total expenditures in the early 1990s to 52% in the past two years. So the government's payments for these services have been going down since 1993, not up.
The ministry and the Ontario Hospital Association have supported a single-rate structure for several years. The Ontario Home Respiratory Services Association has argued that the rate structure should reflect the relative costs of delivering the various modalities. This is why the rate for concentrators was established separate from the rate for liquid in 1991 and continues to this day.
The ministry prefers a single rate because it gets the ministry out of the business of adjudicating modality. A single rate provides certainty for the user, the supplier and the physician that the ministry will fund whatever modality is prescribed. The removal of the uncertainty on funding is why the industry is now supporting a single rate.
A single rate is also fairer for the hundreds of clients who have to pay 25% of the cost, since a single rate means everyone pays the same amount regardless of the modality that the person needs.
There are more people on oxygen in Ontario per million population than in most other jurisdictions. We feel this may be because physicians rely heavily on the advice of professional staff employed by the suppliers to determine whether a patient meets the ministry's medical criteria. The Provincial Auditor confirmed our understanding that the majority of tests to see if people meet the ministry's medical criteria for funding are done by therapists who are employed by the suppliers. This testing is not an exact science, particularly if oximetry testing is used.
With a single rate, the ministry can use the resources we now use in adjudication and transfer those resources to ensure that people who do not have a medical need for oxygen do not get on the program in the first place. Persuading a physician to put someone on a concentrator rather than liquid in the current environment saves the program $2,148 per year. Not having someone on the program because they don't have a medical need for oxygen would save the program $5,100 per year, or over $25,000 over five years, the average length of stay of our users. Independent assessments will also make it more likely that people get the modality that best meets their needs, not the one that is most profitable for the supplier.
The ministry saw the Ontario Home Respiratory Service Association's request for an extension of the agreement on pricing as an opportunity to free up staff resources to undertake independent assessments of eligibility, and as a way of speeding up the transition away from liquid as the only modality for mobile oxygen users.
It follows that to the extent the single rate is successful in encouraging less use of oxygen, then average expenditures will decrease. This may be offset by concentrator users switching to or using conserving devices. Any net bonus to the industry from a single price will be more than offset by the millions of dollars that will be saved by concentrating efforts on assessment.
It must be emphasized that the current rate structure with separate rates for liquid and concentrators would not achieve the 35% objective for liquid, whereas a single rate should.
What is the experience in other jurisdictions? It is difficult to compare Ontario with other jurisdictions because most do not base their price on a comprehensive package as Ontario does. The Ontario monthly rate includes installation, training in its use, equipment rental and maintenance, the cost of the gas and its delivery to the home, professional respiratory services, supplies such as masks, tubes and 24-hour emergency service.
The United States medicare has a monthly rate of C$475 for concentrator users and C$715 for liquid users, considerably higher than the Ontario rates of $347 and $526 respectively. Alberta has rates that range from $337 per month to $468 per month, depending on what the person needs. However, they do not fund liquid oxygen. Saskatchewan pays $410 per month but does not fund liquid oxygen. By not funding liquid, Alberta and Saskatchewan are discriminating against the person who has a high flow rate and cannot tolerate the use of a conserving device, our customers would argue.
It is interesting to note that Alberta relies on staff of suppliers to do the assessments for eligibility. In the mid-1990s they did an independent assessment pilot where professionals paid for by the Alberta government did the assessment. The results of the study show a significant reduction in the numbers who qualify when the government pays for the assessment. The industry went to court to prevent the publication of the results, claiming the pilots were not conducted fairly.
The United Kingdom has tendered for oxygen. We have unconfirmed information that only a concentrator is funded in the United Kingdom and that the supplier in paid $250 in the month of setup and $100 every month thereafter.
What is the makeup of the Ontario oxygen supply industry? The majority of oxygen suppliers are private sector companies, although there are seven hospitals registered with the ministry and others that have entered into joint ventures with private sector suppliers. These suppliers each have a contract with the Ministry of Health that outlines their commitments and the ministry's commitments with respect to delivering the home oxygen program.
The suppliers must meet ministry requirements such as liability insurance, financial stability, a qualified workforce, a permanent location that provides direct access to the public during normal business hours and emergency service on a 24-hour basis. The suppliers can be audited by ministry auditors or staff of the Provincial Auditor, and contract violation can be grounds for terminating the contract.
The private sector oxygen suppliers are represented in their dealing with the ministry and other third-party funding agencies by the Ontario Home Respiratory Services Association, OHRSA. It in our understanding that about 17 of the 39 private sector suppliers belong to OHRSA; however, those 17 companies serve more than 80% of the clients on the program. The OHRSA board of directors consists of six members, all of whom currently represent the four largest suppliers.
There are five multinational companies that supply liquid oxygen to the home oxygen suppliers who are registered with the Ministry of Health's home oxygen program. These companies are: Praxair, a United States-based company; Air Liquid, a France-based company; the Messer Group, a German-based company; the BOC Group, a United Kingdom-based company; and Air Products, also from the United States.
Concentrators, masks, tubing etc are purchased by the suppliers from a number of manufacturers and distributors. Four of the five -- Praxair is the exception -- supply oxygen to the independently owned companies that are home oxygen program suppliers.
The majority of program expenditures -- 75% -- are to four companies: Medigas, 32%; Vitalaire, 25%; Professional Respiratory Services, 9%; and Respircare, 9%. Medigas is owned by Praxair, Vitalaire is 50% owned by Air Liquide, Respircare is owned by the Messer Group and Professional Respiratory Services buys its gas from the Messer Group.
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The seven hospitals that are vendors -- Hotel Dieu Hospital in Cornwall, North York General Hospital, Oshawa General, Peel Memorial Hospital, Scarborough General, St Joseph's Health Centre in London and St Thomas in Elgin -- represent 2% of expenditures. The other 23% of expenditures is by 35 small, independent companies that purchase their oxygen and related equipment from the five multinational manufacturers we've mentioned.
Over the past four years since the ministry began to manage oxygen expenditures, the number of companies has been reduced from 86 to 46, with Medigas, Vitalaire, Respircare, Shoppers Home Health Care and Al Can Medical purchasing the clients and equipment inventory of those that have closed.
The industry has advised us that the number of employees across all companies has been reduced to 700 or 800 employees since 1992. The reductions, which total in the hundreds, have involved respiratory therapists, registered nurses, administrative and customer service staff and delivery personnel.
I'll now turn it over to Mark to respond to the four questions that you detailed in your February 27 letter.
Mr Mark Cox: As Geoff indicated, my name is Mark Cox and I'm director of the branch that is responsible for administering the home oxygen program.
The first question the committee had related to the details of the agreement that we've negotiated with the home oxygen suppliers. The home oxygen program pricing agreement that the ministry has with the Ontario Home Respiratory Services Association and the Ontario Hospital Association is intended to give the oxygen suppliers the pricing stability they require to manage and plan their businesses. The agreement was originally formalized in a March 15, 1995, letter from the assistant deputy minister, Ministry of Health, to the presidents of OHRSA and the OHA. The letter outlined several conditions which the ministry and the associations have agreed to, including the right of the ministry to reduce reimbursement rates notwithstanding the price stability commitment if this is necessary to meet the ministry's funding allocations.
Other agreed-upon principles and conditions include: Funding should be available only to those who have a medical need for oxygen; modality selection should be based on the least-cost alternative; the budget should reflect utilization increases; the ministry commits to price stability provided OHRSA and the OHA assist the ministry to develop options to live within the allocation each year; the three parties will share information on utilization and modality changes.
It's important to note that while the agreement forms part of the contracts that the ministry has with each of the 46 individual companies, the contracts do allow the minister to change the contract unilaterally. This means that the pricing agreement, including the pricing structure, could be altered unilaterally by the minister.
The agreement which was due to expire on March 31, 1998, has been extended for an additional two years, to March 31, 2000, and the single rate of $425 will be in effect as of April 1, 1997. We know we've got a good deal or we feel strongly we've got a good deal because the president of OHRSA has indicated to us that the association is not happy with the $425 rate. However, the ministry has confirmed its decision to proceed effective April 1, 1997.
There is no formal price negotiating procedure outlined in legislation or policy. The ministry is free to change pricing for home oxygen unilaterally, although it has always chosen to seek input from the associations that represent the home oxygen suppliers. The ministry has no legislated authority under which it can request access to costing information from the businesses that supply home oxygen. They have been understandably reluctant to volunteer this information when they know we may use it to reduce reimbursement rates. In the absence of this information, we have made arbitrary reductions to reimbursement rates on a consistent basis since 1991.
The total annual payments under the agreement will depend on how successful the ministry is in reducing expenditures through management actions during the term of the agreement. These will include independent assessment pilots or direct involvement in eligibility determination and modality selection by health professionals who are not employed by the suppliers. The agreement is a commitment to a number of principles, including price stability. It does not bind the ministry to a specified payout over the life of the agreement.
The second question related to the methodology used by the ministry in determining that renegotiating its agreement with the suppliers would provide a cost savings to the taxpayers of Ontario and also requested a comparison with the savings that would have resulted from reducing liquid oxygen usage under the previous agreement.
The new pricing structure, which comes into effect April 1, 1997, has a built-in incentive to reduce expenditures on liquid. Under the current agreement, there is no incentive that will reduce expenditures on liquid. In fact, the average payment under the program has increased marginally, from $421 a month to $425, in the past 18 months and liquid expenditures have increased to 52% from 51% of total expenditures. Prior to the last reduction in the liquid rate in late 1994, liquid expenditures were approximately 60% of expenditures.
There's reason to believe that the average monthly expenditure will not reduce and may even increase over the next few years under the current rate structure, which pays a $179-per-month premium for liquid. One of the reasons the average rate may go up is the introduction last fall of a new rate of $437 per month to allow concentrator users to access oxygen-conserving devices and cylinders to give them more mobility. Another reason is that there are over 4,000 people who have been on the program since before the ministry introduced medical criteria and who do not meet the criteria. It has not been possible to wean them off their psychological reliance on oxygen. Most of these people are on liquid. Also, the pricing of $426 per month under the current agreement for liquid and $347 for concentrators still makes it attractive for the supplier to encourage liquid for new clients.
We have found it very difficult to adjudicate with physicians and consumers to force the use of concentrators, rather than liquid, for people who should only need a concentrator system. If the ministry gets directly involved in the assessment process, we should be able to influence the choice of modality much more easily than we can in the existing environment, where the physician, with the help of the health professionals employed by the suppliers, makes a decision several weeks before the ministry gets involved.
Independent assessment should accomplish the twin objectives of reducing expenditures and having fewer people on liquid. OHRSA has agreed to cooperate in assisting the ministry to conduct independent assessment pilot projects beginning early in fiscal 1997-98. The new agreement reduces the payment for liquid by $101 per month and increases the payment for a concentrator client by only $78 per month. This should encourage a movement away from liquid. Each time this happens, the program will save $276 per year.
We would like to stress that the new agreement should not increase total costs, since the monthly payment will be equal to the current average, whereas the current agreement has the potential to increase costs and to do nothing in terms of reducing expenditures on liquid.
The Provincial Auditor estimates that we would save $3 million per year if we were to reach a target of 35% of expenditures on liquid under the current rate structure. The problem is that the existing rate structure makes it virtually impossible for that 35% target to ever be reached.
The third question related to criteria and justification for negotiating rather than tendering for the purchase of oxygen. The ministry could tender for oxygen, and it would undoubtedly result in a lower monthly payment. The government needs to consider, however, that the number of home oxygen suppliers has been reduced from 86 to 46 over the past four years because of the ministry's actions, which have reduced oxygen expenditures from $84 million a year in 1992-93 to a forecast $52 million in the current fiscal year. This has meant the loss of hundreds of jobs in the industry since 1992. Tendering would reduce the 46 companies to one company, or two to three if regional tenders were offered, and result in the loss of many more jobs and the closure of all of the small, independent suppliers.
If the ministry were to decide to award a tender, it would have to terminate the contracts it has with the individual suppliers. There is 30-day escape clause in these legal contracts. This could be done prior to the termination of the existing pricing agreement that expires on March 31, 2000. As part of the tender process, the ministry could ask for the detailed costing information that has not been available to date to assist in determining a fair reimbursement rate for home oxygen.
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The second part of question 3 related to the processes that the ministry follows in negotiating with sole suppliers, such as manufacturers of products covered by the Ontario drug benefit program. Mary Catherine Lindberg and Linda Tennant are here to address that question. If I could just do the last question, then you can decide whether you want to talk about drugs.
The Vice-Chair: Sure, go ahead.
Mr Cox: The fourth and final question related to the history of rates and consumption in Ontario over the past few years. In 1992, our expenditures on oxygen were $83.6 million; in 1993-94, they were $73.5 million; in 1994-95, $68.7 million; 1995-96, $56.1 million; and we're forecasting $52 million for this year.
In terms of consumption, which we measure in terms of the number of people on the program, we had 18,400 people on the program in 1992-93; it went up to 19,400 in 1993-94; down to 17,100 in 1994-95; 16,900 in 1995-96; and we forecast about 16,000 on the program this year.
Responsibility for managing the program was transferred from the drug programs branch to the assistive devices branch two years ago. What we've been able to do with our computer system is monitor the number of client-months. We feel that's a fair way of doing it, since we pay based on the month. Last year, the client-months were 132,000, and this year we figure they will be 122,300.
That completes my answers to the four questions.
The Vice-Chair: Okay, fine. Does the committee wish to hear from the assistant deputy minister on the second part of the third question, or do you want to just proceed to questions?
Mr Gilles Pouliot (Lake Nipigon): We are ready to go to questions now, Mr Chairman.
The Vice-Chair: Okay. Let's begin with the NDP. They seem enthusiastic.
Mr Pouliot: Thank you very kindly and good morning and full appreciation of your valuable time and your concern with these issues. I am personally satisfied, and you're to be commended. Your track record is commendable indeed to focus on this relatively small but nevertheless important issue, because it did not go unnoticed by our Provincial Auditor. In fact, under scrutiny, there was a need for an encore, explaining your reason for being here this morning.
You've mentioned -- I hope you did so with tongue in cheek -- that you knew you had a good price because the suppliers were unhappy. I really admire your business acumen, but for members of the committee it might not suffice, because you don't go in for requests for proposals, you don't issue tenders. Well, they couldn't have been so unhappy as not to sign. What measures and mechanisms do you have to compare prices?
Mr Cox: My comment about the president of OHRSA was an attempt at humour, which is something I guess civil servants have trouble with. But no, we don't tender. It's that simple. We could tender. If the government wanted us to tender, we could tender. We do compare with other jurisdictions. We think our price for a full package is better than what we've found in other jurisdictions that have the full package. It's really that straightforward.
Mr Pouliot: You think the price is better, but you don't convey a lot of confidence.
I see you as the client here, driving the hardest bargain with the taxpayers' dollar for the product that you're after. You speak of your responsibility about jobs and your concern about price stability, while next door they're about to lay off 3,000 people because of hospital closure. I have to take this with a grain of salt, the kind of solace. Look around you, look at your colleagues and you'll see fewer. With these people, you'll see fewer in the years ahead.
Do you feel -- well, you don't know -- that by tendering you could go at the very core of hard bargaining and drive a better bargain, a better bang for our tax dollars? But you don't know.
Mr Cox: I know that if we tendered we'd get a lower price. That's obvious.
Mr Pouliot: It's obvious. You've got 46 people in there who are saying, "Take me, take me," and you don't even issue a tender price. Is the fix in or what? I don't know. This is not a very good way of doing business, is it? No request for proposal, no tendering; just have a deal with the association. Not only this, then you extend the deal to the year 2000. You knew that the heat was on, that we were coming after you, but now because of contractual arrangements we have to look at that until the year 2000.
Mr Cox: That's not correct, sir. We could tender tomorrow if you want. That's what I was trying to say in my comments. The contracts are with the suppliers, not with the association. We could break those contracts and tender tomorrow if the government wanted us to.
Mr Pouliot: Will you tender tomorrow?
Mr Cox: I can't answer that question, sir. It's up to the Minister of Health to make that decision.
Ms Shelley Martel (Sudbury East): I would like to have a better breakdown of some of the costs that we asked for. You said earlier that you think our package price is comparable or better than what is offered elsewhere. I'm not clear what the package price is. I would like some more specific information about the actual cost of the oxygen, the cost of that being serviced, the cost of installation, the cost of the tubing. I ask for that because the auditor made it really clear that it might even make more sense if the ministry, for example, looked at buying a concentrator, which appears to cost about $1,300 to $1,500 and lasts from five to seven years, versus paying -- now we're going to have a cost of $425 per month ad nauseam. By more than far, the supplier recoups his or her money. You could have paid for that after four or five months, frankly.
I'd like to know what the exact costs are, as close as you can come, of some of these individual items. Because I want to know if the ministry looked seriously at the possibility of actually buying concentrators for people versus paying the kind of fee we're going to pay on a monthly basis, which is far beyond what the things cost. Do we have any of those expenditures broken down in the so-called package?
Mr Cox: We know what our package includes. We don't have detailed costing on the elements of the package. The industry has never given that to us. We've never negotiated on that basis.
The problem is, if you buy the equipment -- and that's what we do through the assistive devices program; we generally have the consumer buy it because they're on long term. We have a lot of people who get oxygen on palliative care who are on for just a few days, up to five years. That's one factor in not purchasing the equipment.
We could run a pool like we do for high-tech wheelchairs and communication and vision aids, where we'd distribute these concentrators from warehouses throughout the province and have the government administer the delivery of the program that way, but we'd need a lot more staff and a lot more support costs for that.
Ms Martel: I'm not convinced that's not one option that might actually cost less. I heard you tell this committee that there's going to be a cost saving here because some of your people are going to be freed up now to follow up on the independent assessments, yet I thought at the last committee meeting when you were here you made it clear to the committee that the ministry staff wasn't going to be doing the assessments at all; that work was going to be done by other people. I'm having a bit of trouble seeing where the big savings are here, because the ministry staff was not going to be doing the assessments in the first place. Some of the arguments you've given us as to why this is a better deal are, frankly, some arguments that I'm finding it hard to accept. That's one of them.
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Mr Quirt: I take your point that we haven't provided you with a breakdown of information on the costs within the rate, and we'll certainly be more specific if we can be about the breakdown of the range of services that's included in that rate.
With respect to the comments about whether the program would be tendered or not, our response at this time is that we have achieved a substantial reduction in the cost of the program through other management activities. We've gone from $83.6 million in 1992-93 to, in 1996-97, an expenditure of $52 million. That's a substantial decrease in the cost to the government. We've done that through measures other than tendering, and we're indicating to you that our next effort in managing the cost of this program relates to making sure that only those people who need oxygen are on the program. We feel that effort spent on developing a system of independent assessment is the next logical step in reducing the cost and making sure those people who need the service have access to it.
We have a couple of choices. We could hire more civil servants to do the assessments or we can contract with reliable operators in communities across Ontario to do those assessments, independent from the suppliers. It's that route that we've chosen, to contract and pilot with organizations that can do assessments independent of the providers. It doesn't necessarily have to be a civil servant doing it to know that it's done independently and fairly.
With respect to tendering, calling for proposals, we've noted in our presentation that the number of home oxygen suppliers has been cut almost in half in the past five years in Ontario, and in addition to economies of scale and competitive bidding on tendering, there are other factors that need to be considered, including the range of programs and services available in each community to customers of this service. Not only are we concerned with cost, we're concerned with accessibility and appropriate service for the customers.
Your suggestion of tendering is a valid one for us to consider, and we'll certainly relay that suggestion to the Minister of Health. Our position at this time is that the next logical step for us is to try to develop a system whereby an independent assessment reduces the number of people on the program, make sure only those people who need it are on the program. As we pointed out in the presentation, the savings from that, we feel, are more important, more substantial than the savings that could be achieved through a tendering process.
Ms Martel: Can you give me the cost again for a person to be on the program?
Mr Cox: It's $425 a month; $5,100 a year if you're on it for the full year. People are on an average of five years, so it's $25,000 you'd save by not having that person come on the program.
Mr Pouliot: Tendering intrigues me, and I appreciate your rationale. This eventually will be, you hope, a $52-million item. I find it quite difficult because of the rotation we've had here. We were exposed to some ministries. I had the good fortune of having served with four ministries, one of which was transportation, and it had the largest capital expenditure in the province. Its budget was $2.7 billion, but on the capital side we were quite fortunate, so contracting was the order of the day. If anything went above -- I could be wrong -- a quarter of a million dollars, you had a formula in place where you would tender.
Of course I understand that no two situations are identical, but I find it difficult that when you have a consequential sum of money, well over $50 million at present, and you have 46 suppliers, you would not automatically tender. Do you have guidelines, a policy, when can you and when can you not? Who makes those decisions? Tendering is the competition of the marketplace. When you have as many suppliers, it is your guarantee of a best-price policy. It usually is. That's why we tender. People will come and put their best foot forward and lower the price. Then you would be hard-pressed not to give it to the lowest one. If the quantity and quality and delivery of the product suffice for your criteria, then you would go to the lowest bidder. You would have to, but now you're hard-pressed to come up with an answer.
Mr Dave Boushy (Sarnia): I have a very brief question dealing with a local issue related to this matter. I want your help. Last Friday I was visited by representatives of two companies, Aerocare and Medigas, and they complained to me. Apparently in our riding there are three companies that supply oxygen: those two, plus Lambton Professional Home Health Care Corp. They claimed that most of the business, if not all, is going to that one company, Lambton Professional Home Health Care Corp. Aerocare and Medigas are hardly getting any business to supply oxygen. Could you help me on this local issue? Why is this? Would it be any better off as of April 1? If you can help me, I would like to send them a copy of Hansard so they'd be happy and satisfied with it. Could you help me? What's the problem there?
Mr Cox: The way you get on the program is a physician prescribes oxygen and the physician will direct you to vendors in the community. Perhaps the physicians in that community are directing them to that particular company because they like the level of service the one company provides. I'm just not sure why one company would be getting all the business and the other two wouldn't, but we can look into that and see if there is that pattern. We can check and see in that geographical area you speak of how many people are going to each vendor. That's usually what we do when we get complaints that all the business is going to one spot: do a computer check and see if it's true. Then we can approach the physicians in the area and ask them why they're directing all their patients to one vendor. Would you like us to do that?
Mr Boushy: I indicated that to them and their answer was that most of the referrals are not coming from doctors; they're coming, I think, from hospitals or home care.
Mr Cox: That's true. That's correct.
Mr Boushy: Will their position improve as of April 1 or will they continue to have the same problems?
Mr Cox: The agreement shouldn't have any effect on that. The agreement is just a pricing agreement.
Mr Quirt: Mark will check into the situation in your particular community and call you directly with some more information.
Mr Marcel Beaubien (Lambton): Good morning. Thank you for coming. I want to follow on the lines that my able friend across the room was, questioning you on the tendering process. I think it's commendable the minister has seen fit to reduce the cost of oxygen in the past number of years from $83 million down to $52 million, especially when the number of companies providing oxygen has been going down and we have an aging population, so I'm sure the numbers have probably escalated in the past few years.
I have a lot of difficulties, though, in rationalizing some of the arguments you put forth. For instance, Mr Quirt mentioned that the minister prefers the single rate because everyone basically pays the same. I can swallow that one. Also, that oxygen suppliers like to deal with the ministry because it gives them price stability and it gives them an orderly procedure to manage their business. I'm not going to comment with regard to why you got a good deal and your response as to why you felt you had a good deal, because Mr Pouliot touched on that.
You also felt that tendering might result in lower costs, but if you did tender, you felt that the number of suppliers would go down and it might result in many job losses. I thought the role of the Ministry of Health was to manage health, not be concerned with business management or level of employment. I am concerned, as a representative of my constituents, to make sure that they get the best bang for their buck. I don't think, with the rationale you've given us here this morning, that you yourself, personally, even feel we are getting our best bang for the buck. Can I have your comments on that?
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Mr Quirt: As Mr Cox indicated, he's of the opinion that if we were to call for proposals for home oxygen, we would achieve a savings in the cost to the taxpayer. That's correct. As I tried to indicate, that's one of a number of ways in which we can properly manage this program and bring the cost down. It's not one that we're pursuing at this point, the notion of calling for proposals. It's one that we will take back as a suggestion from this committee to the senior management of the ministry and to the Minister of Health to discuss.
But I would disagree partially with your statement, sir, in that our job in the Ministry of Health is to ensure that there's an appropriate range of health services for the people of Ontario first and foremost and do that efficiently and effectively. It doesn't necessarily follow that calling for proposals and getting the best possible price from a small number of companies is a better way to serve customers than to have a variety of different providers in communities across the province, independent or familiar with their communities, who can deliver this service. It may well be that services wouldn't be negatively affected if we were to go to a lowest-price-wins-the-contract kind of approach to tendering.
As I mentioned earlier, we've had success in reducing the costs substantially through other measures. We feel that making sure only those people who really need the service are getting the service is the next logical step in trying to manage this service and also protect the service for those people who actually need it.
I would agree with you completely that tendering would be a logical and important step if the cost of oxygen had gone up from $52 million to $83 million in the past four years rather than gone down from $83 million to $52 million.
Mr Beaubien: I agree that the cost has gone down, but there are a number of reasons. I realize that you're going from liquid to concentrators and there's a higher percentage of people on concentrators today. But when we look at savings of roughly $31 million in the past five, six years -- and I don't know the number of users you had on the system five years ago as opposed to the number we have on the system today, but why have we been able to find $31 million? I know that we have because of using concentrators in a higher percentage. Where does the pressure come from for the companies to reduce their price to this level? After all, $31 million is almost a 30% reduction in the past five, six years on the cost of oxygen? It's commendable for the ministry to have found this saving -- I'm certainly not being critical of that and kudos go to the ministry for that -- but could we have done better? That's my concern.
Mr Quirt: That's a very valid point and clearly a number of members of the committee have suggested we look closely at calling for proposals or tendering for oxygen. We'll take that suggestion back and consider it along with the other opportunities we have to continue to manage the program well.
Mrs Sandra Pupatello (Windsor-Sandwich): With regard to the reduction in the cost for the oxygen program from $83 million to $52 million, my experience at home with this issue has been that in the past patients have been able to use oxygen with little or no problem in terms of getting it covered by the Ontario government. During this last year we've had a number of instances where we've had to lobby the ministry to ensure that our patients get the coverage. The rationale at that time was not that there was a change in regulation as to the use that would be allowed and covered, but rather that they are now enforcing the regulation that in the past perhaps wasn't being enforced and people were getting on it who shouldn't have been getting on it.
My comment is that your reduction may simply be a matter of fewer people using the system as opposed to anything to do with a more efficient or stringent procurement of the oxygen. I'm curious to know how many clients used it when you were at $83 million compared to how many clients use it at $52 million. If you also incorporate the change in the cost of use between the liquid and the concentrate, I think that is more telling, that in fact we've become much more stringent in allowing people to get coverage for oxygen. That's one comment I'd like.
Secondly, could you explain, as a summary, if the Management Board guidelines for procurement of product are clear, have you informed or made Management Board aware that you are outside of the guidelines for procurement of it? You likely did, because we know what the guidelines are and you're outside the guidelines. Given that, what was the rationale that you gave to Management Board for being outside the guidelines? I understand that there will be administrative savings to not go through a tendering process in every community, for example. The administration at the ministry level, some of that you could probably rationalize as being cost savings in terms of staffing. There would be another angle that the oxygen companies would be aware of, that the smaller companies would simply get eaten up by the large companies which can afford to profit by volume because they'll just low-ball but know they are so large that they will get all of the business and then make their profit on volume.
Mr Cox: In terms of the number of people on the program, there are about 2,400 fewer people on the program now than there were four years ago. If we assume about $5,000 a person, maybe $10 million of that $30 million in savings is because of the enforcement of medical criteria. The other $20 million is because of lower prices for oxygen.
Mrs Pupatello: So 30% of your savings is due to people who no longer are eligible by ministry standards?
Mr Cox: Because they don't meet medical criteria. What we've started doing in the past year and a half is enforcing the criteria around people who are borderline, with this figure of 55. Now, for people who are 56 to 59, we're having the doctor confirm that there is evidence of improvement when they're put on oxygen.
Mrs Pupatello: Just on that point, can you explain the rationale by the ministry that for a certain type of use of oxygen your condition has to be bad enough. In order for the patient to get bad enough, they don't get oxygen. You don't give them oxygen, therefore they get bad enough to need oxygen, yet if you gave them the oxygen they would never get bad enough. This was the argument we had with ministry staff over this issue, that we had to allow the patient to get severe enough to finally meet the criteria as opposed to getting them the oxygen so that they didn't get to such a severe state. It was very frustrating. How do you feel about that?
Mr Cox: I hope it wouldn't have to get to that point before someone would qualify for funding. I know when they do the annual renewal, the test, they have to meet the criteria and the doctor has to be able to demonstrate for those borderline people that when they're on the oxygen there's improvement in their condition, that they're not just short of breath, that there is a medical need for the oxygen.
On the issue of have we informed Management Board that we're not tendering for the service, the home oxygen program used to be part of the Ontario drug benefit program. It came over to the assistive devices branch about two, three years ago. The drug benefit program, the assistive devices program and the home oxygen program are all run using the private sector to deliver the services. We've never thought we had to go to Management Board to get an exemption from tendering because those programs have been around for years and years and no one's ever raised the issue of, "Why don't you tender for delivery of the service?"
Mr Quirt: Since you've raised the issue, we'll review those guidelines.
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Mrs Pupatello: I'm assuming that's the case. There must be a reason why it was raised by Mr Shea in the first place to even question the tendering process. We wondered why, and I'm assuming because it was outside some guidelines, but in fact it may not be outside a guideline. Is that correct?
Mr Quirt: We're not sure what the answer to that question is, but we'll certainly look into it now that you've raised it.
Mrs Pupatello: May I ask the auditor that question?
The Vice-Chair: Yes. You have another three minutes.
Mrs Pupatello: Mr Peters, a quick answer: Is it in or out of Management Board criteria for the procurement of product? Does it fit under that guideline?
Mr Erik Peters: Yes, it does. In fact, the Management Board guideline talks about acquiring supplies and equipment. It says, "Supplies, equipment and services are to be acquired competitively from qualified suppliers to meet specified needs and to achieve, at the least cost, value for money expended." That's one of the reasons we raised the issue in our report.
The second one talks about competition. It says, "Supplies, equipment and services must be acquired through a competitive process that ensures the best value for the funds expended to meet the specific needs and promote fair dealings and equitable relationships with the private sector." Those are the two key paragraphs.
Mrs Pupatello: That's great. Given that equitable treatment of the private sector, was there some sense that having one flat rate for the use would allow the smaller oxygen company suppliers to at least remain in the business as opposed to being absorbed by larger firms? Was that a consideration?
Mr Cox: Yes. The smaller companies tend to be heavier on the concentrator side, and that avoids the need to have to purchase the liquid oxygen from these multinational companies that produce it, so it's definitely an advantage to the small independent company to have in the pricing structure an incentive towards concentrators.
Mr Jean-Marc Lalonde (Prescott and Russell): Your argument that you know you're getting get the better deals, I'm not too sure of that one. At the present time we have renegotiated the contract; we haven't gone to tendering. Has your ministry ever gone to the standing offer agreement instead of going to tendering right at the beginning like we did in this case, the fact that you have gone to one supplier at the present time, which is the supplier that you had previously? What would happen at the present time if this supplier would have some difficulty? Do we have a second one that we could go to? You only have the one supplier?
Mr Quirt: We really have around 50 suppliers, 46 suppliers across the province, but the rate that gets paid to those suppliers for the services is one that's established at one level by the province after discussions and negotiations with the Ontario Home Respiratory Services Association, so if one of those suppliers were to leave, then the other 45 would presumably pick up the extra business.
Mr Lalonde: That's clears up the question we had last time.
Mr Pouliot: I need your help, because it's your field of expertise. There are so few of us, with the courtesy of the Ontario electorate, that we have to sit on so many committees. We age very fast and we don't have time to digest everything that they put to us, so I want you to help me with the process. I apologize, not only for being candid, but for knowing so little.
I go see Dr Jones. She tells me that I need to go on oxygen. I can go with the Holt Renfrew oxygen, the liquid, at $526, or I can go to Zellers, on the concentrator, and pick one up at the $347, but Dr Jones didn't tell me what kind of oxygen. Who is going to tell me whether I go to Holt or to Zellers, whether I need the $526 or the $347?
Mr Cox: The doctor will do a blood gas test. Based on the results of that blood gas test, the doctor will know whether you meet ministry criteria for funding or not. If you meet the criteria, the doctor will put you on a concentrator or on cylinders with a conserving device or on a liquid system or a combination of any of those three.
The system that's chosen depends on your medical condition. If you are a highly mobile person, you are going to be put on liquid or you're going to be put on cylinders with conserving devices. If you're someone who requires a very high flow rate, you're going to be put on liquid, because a concentrator is only good up to four litres per minute. The doctor will advise you on what modality, depending on your medical condition.
Mr Pouliot: So there's no assessor, nobody else, nothing but the relationship between the doctor and the patient?
Mr Cox: What happens is that a year from then you'll come up for renewal. Generally, a respiratory therapist who works for the supplier will probably come to your home to do an oximetry test, which involves putting an instrument on your ear or on your finger -- it's a very imprecise science -- and if it registers 88 or below, you will qualify.
Mr Pouliot: I don't wish to impute motive, but you see, I'm selling two products here -- I'm the supplier -- and the bottom line is a motivator. Is it not more encouraging to flow the $526 rather than the $347? I work on a percentage here, so if I can sell -- and after all, it gives people more mobility, more facility, because they are getting a higher quality of oxygen. The assessor is in the game after one year, not my doctor. The doctor-patient relationship was at the initial stage. After the first year, someone else can tell me that I need this oxygen or that oxygen. Is that the way it works?
Mr Cox: It certainly costs the supplier more to provide the liquid than a concentrator, because a concentrator you just plug in the wall and you need one or two cylinders for backup. The liquid costs more because you have to purchase the gas. We're not sure whether there's a higher profit rate on the liquid rate or the concentrator rate. I'm not sure, because we don't have the detailed costing information.
Mr Pouliot: I want to go back to your pricing. As of April 1 I thought it cost more but they'd get more, but as of April 1 they'll get $425 a month, right?
Mr Cox: We've reduced the liquid rate by $101, but the concentrator rate goes up by $78, so overall there's a net reduction of $23.
Mr Pouliot: So you'd want to go from liquid to concentrator next April. Thank you.
Ms Martel: Can I just follow up on that? If I look at that, for people who would be doing concentrators, they get about a 20% rate increase because they go from $347 to $425. I think you said it's the smaller suppliers who are in that game; they're going to do fairly well by that. But what I don't understand is how we assess whether the taxpayers are getting a good break on that deal. What the ministry is trying to do and what has been happening is that more people are moving from liquid to concentrators, and I think you said it's your hope that with the independent assessments and making sure people qualify etc, you'll probably see even more of a shift. What we are actually doing is funding, to an even higher level, the same price structure that we think is going to increase, right? Your hope is that you will see more people on concentrators, and we're actually going to increase by over 20% that same rate.
Mr Cox: That's true in that case, but there are also maybe just as many people who might switch from concentrator to one of these cylinders with a conserving device, which under the current pricing structure is the midpoint, the $437 a month.
Ms Martel: Who is prompting people to make the switch? Are the consumers themselves making the switch? Is it going to be the independent assessors who are going to convince them to make the switch? How is that happening?
Mr Cox: Do you mean in terms of modality switch? It's the physician in talking to the patient; whatever is best for the patient is what makes that shift. If someone is on a high flow rate or very mobile, the doctor isn't going to take him off liquid just because of the pricing structure.
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Ms Martel: How we are going to see a switch down to 35%? The last time you were here you said it was the ministry's target to try and get 35% of your expenditures on liquid. How does that shift happen? How do you expect to see that happen if it's still the physician, at the end of the day, who is going to make those choices? It seems the ministry has no role to play whatsoever.
Mr Cox: It's going to happen because we've reduced the monthly rate for liquid by $101, so the supplier is going to get that much less for even their current liquid people; they're going to get $101 less. Just over time, that average expenditure is going to come down because we're paying that much less per month. We also feel that to the extent the supplier has an influence over the choice of modality, and if there is a higher profit now on liquid, maybe the suppliers will be pushing the concentrator more for those people who could go either way. But generally it's that $101 reduction in the liquid rate that's going to reduce the expenditures on liquid.
Ms Martel: So it's the shift in rate, not the shift in actual users to another system?
Mr Cox: That's right; primarily, yes.
Ms Martel: Can I ask the auditor, with respect to his two recommendations, if he could give this committee some idea of what he was thinking about when he made the two recommendations he did to the ministry with respect to pricing.
Mr Peters: There were a number of concerns. There was first still the question of eligibility; our concern was that the assessment of eligibility for that kind of device was not independent. Most of the people who were doing the testing were essentially employees of the industry itself. They're making that judgement as to what kind of equipment the recipient should be on.
That was the recommendation we made: "To ensure consistency and fairness, the ministry should review eligibility requirements and funding provided for each assistive device category."
I think I just made a mistake. I flipped to the wrong page.
Ms Martel: I'm looking at pricing on page 163.
Mr Peters: First, we said: "Implement guidelines for conducting independent medical tests for determining eligibility," and that was the independence point I was talking about. The other concern in this area was whether a peer process was operating effectively, because there was some problem there. But if I may --
Ms Martel: No. Mr Peters, I'm asking about page 163. There are two points:
"Review at the earliest opportunity the costs relating to oxygen concentrators and liquid oxygen; and
"Consider more cost-effective alternatives before paying the liquid oxygen rate."
Mr Peters: Thanks, Ms Martel. First, the concern was as to the rate. We found out that $347 per month is paid for the concentrator, $526 for the liquid oxygen, and we found that since 1990 there had been no assessment of what the cost of the concentrators was. At that point it was $1,300 to purchase. We found there was no analysis available and nothing was done to assess how much of the $347 was supposed to cover the equipment cost and how much was supposed to cover the service cost.
Ms Martel: Can I stop you there? That's the same question I asked earlier with respect to maintenance, installation, tubing, all of which you're going to supply to the committee, as best you can, because I don't think we have really seen that breakdown at this point. Is that correct?
Mr Cox: Yes. I think the industry is bound to be forthcoming with that information since the standing committee has asked for it.
Ms Martel: Is this the same area where you said you can't get that information because there's no legislative requirement for industry to provide it?
Mr Cox: That's correct.
Ms Martel: All right. Sorry, Mr Peters.
Mr Peters: The second part was that if the ministry wanted to meet its target of 35% of the people on liquid -- that means approximately 62%, incidentally, on concentrators because there's a 3% bracket, as Mr Cox pointed out, on another modality. But if this target were achieved with the current pricing structure, we estimated a $3-million savings could be achieved.
We also noted that the information we were supplied with later on was that there is an international standard: Other jurisdictions were aiming far lower even than the 35%; they were going for 10% to 15%.
The other point we raised was that other provinces have more stringent rules in terms of supplying. For example, we heard this morning that some of the evidence that came before from the witnesses talked to the Alberta situation. Indeed it's our understanding that Alberta does increase the price to $468 but does not fund liquid, but if the patient requires liquid it becomes a copayment; they go on that.
The UK has a different rule. For example, only the concentrator is funded by the UK.
Mr Pouliot: Don't give them any ideas.
Mr Peters: There, presumably because of some information on the equipment cost versus service cost split, there is a $250 startup cost and then there is a reduced monthly rate as they carry on.
Those were some of the ideas of cost-effective alternatives we had in mind when we were making the second part of our recommendation, to consider more cost-effective alternatives before paying the liquid oxygen rate.
If I may for a moment walk you through some numbers and possibly the -- I don't want to infringe on the time, Chair. I have to find my numbers, where we developed them.
Ms Martel: Before you do that, can I ask a question on some of the information just provided? I'm curious about why, before renewing this agreement a year in advance, the ministry would not have looked at the breakdown between the cost of equipment, the service cost etc, which you say now the industry will provide as a consequence of this committee wanting to have that information.
It seems to me that the auditor was pretty clear in terms of some instructions or some ideas the ministry should undertake, but we find today that we still don't have those costs. You tell us you can't really get them by legislation, but perhaps they will be provided by the industry now because we want them. Why would you have gone ahead, then, and renegotiated without even taking that step, so that the ministry and the public and frankly this committee would be clear about some of the costs we're all looking at?
Mr Cox: I'd better clarify what I said. The industry in the past has supplied costing information, but what they haven't agreed to is to have independent cost analysis done of that costing information. We've seen the figures, but we don't know if they're right, and until we get that independent costing we're not going to be confident that we're getting the true costs.
The provincial auditor made two recommendations around pricing. One was to review at the earliest opportunity the costs relating to oxygen concentrators and liquid oxygen. We did that. That's why we've come up with a flat rate that reduces the liquid rate by $101 a month. The second recommendation was to consider more cost-effective alternatives before paying the liquid oxygen rate. That's why in September 1996 we came up with a special rate for people who could use conserving devices with cylinders as an alternative to liquid. That was our response to those two recommendations.
Ms Martel: I think the auditor has also made it clear that he thought this was going to go further than that. Clearly he has talked about cost of equipment, service cost; it was in the document. Especially with respect to number 1, it wasn't just a situation of moving to a single rate; it was a situation of trying to get a better handle on what the actual costs are so we could understand clearly whether we were getting value for money.
My concern is that that work hasn't been done. I know you're saying to us that you feel we've got the best deal possible, and I'm not even going to deal with whether we should go to tender. I'm not convinced that is the case because I don't have any information about what some of these cost breakdowns are and it doesn't sound like you do. How do we get that? And why was not a more serious effort, concentrated effort, however you want to describe it, made before the ministry actually entered into yet another agreement that will go another three years with this industry?
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Mr Cox: I hope I didn't say that I feel we got the best price possible.
Ms Martel: You said you thought we had a good deal because the industry was unhappy.
Mr Cox: I think we have a good deal compared to what we had before.
Mr Pouliot: You don't know that. You have no basis of --
Mr Cox: I know we got a better deal than what we had before, because we've reduced the liquid rate by more than we've increased the concentrated rate, so we've ensured that the average won't go above $425. Under the old system it could easily have gone above $425 a month.
Mr Derwyn Shea (High Park-Swansea): A number of the questions that have been appropriately raised today are ones that I wanted to get at, and I'm glad other members are picking up on it. It strikes me as though one of the most important responses given so far was the response to an inquiry made by Mr Beaubien. I obviously will want to have some time to read the transcripts of today because a lot of information has been transmitted before the committee. That's the problem of not having written submissions ahead of time so I can pore over them. I will pore over them in retrospect and then have some other questions.
It strikes me as though at the heart of this is the issue of confidence in a process, confidence in a process which asks the question, whether you're using RFPs or whether you're using tender: Are you able to withstand any public scrutiny where a question might be raised about the integrity of the process to ensure that you are able to provide this committee and anyone else -- the legislators, agents such as Provincial Auditor -- that the best practices are being employed, that we are getting the best value for dollar, and that everything that is being done is being done within all the bounds of protocols established by the government and by the assembly and is ethical?
That's the essence of the concerns of this committee. Can you respond to that? You're in a difficult spot in terms of RFPs. The impression I'm getting is that this is not new. This isn't something you were doing just this year, nor last year, nor the year before. I gather RFPs have been going on for some time in terms of the suppliers. Is that true?
Mr Quirt: No, the request for proposals is not used in selecting -- or a tendering process is not used in selecting the 46 suppliers. As Mr Cox pointed out --
Mr Shea: Excuse me. Let's be very clear. You seem to mix the two together: RFPs and tenders. In your mind, are they the same?
Mr Quirt: Normally the tendering process would call on companies to submit a tender or a bid on delivering a particular service at a particular price. I would see tendering as pretty close to the request-for-proposal process. I'm not sure of the distinction you draw, but --
Mr Shea: I'm glad you raise that. Let me back up, then, just to make sure we're singing from the same hymn sheet, so to speak. RFPs, for me, are significantly different from tenders. RFPs are in fact almost open-ended. They give a very general, broad setting of what you're looking for in terms of service. You allow anybody to respond and you may pick and choose. You have a lot of leeway in how you respond to that, and you're not bound by what are considered the normal conventions of tendering.
On the other hand, tendering means you develop the criteria; you establish the groundwork; you make it very clear that within this box this is the service and these are the standards and so forth. Everybody has to respond exactly to that. Now, they may come back and tell you, "We can do all of this except for this or that." But you're actually comparing apples to apples, as opposed to an RFP, which could be apricots and plums. They may all be fruit, but there's a broad spectrum within that. Do I give the distinction for you to respond to?
Mr Quirt: You've described your distinction. With the several RFPs I've been involved in, we've specified very clearly precisely what we want to get back in the bids when we've requested the proposals.
Mr Shea: So you have, as a ministry official, approached RFPs as though they were tenders.
Mr Quirt: Yes, I think that's fair to say. When we've called for proposals for particular purposes, we've laid out in detail what's expected of the organization or individual that's responding to the request for proposals. We've had meetings with the people interested in responding to the request for proposals to make very clear what it is we're expecting people to bid on in their response to our request for their proposal.
Mr Shea: That's a very helpful response for me. Maybe we've got some terminology problems here.
Mr Quirt: I would agree, yes.
Mr Shea: If you're talking about RFPs versus -- the way you've just described it, you've described tendering. You have said, "Here's what we've said we want," you've laid that before the industry and you've said, "All right, do you want to respond to this?" Am I correct?
Mr Quirt: Yes, depending on the product. One might call it an RFP if one was asking for proposals from a particular consultant to do a piece of work for you. If it's one of our long-term-care facilities, for example, and we're calling for proposals from people who were going to do the plumbing, we might call it a tendering process. But I think the principle, of the purchaser specifying what it is he or she wants to get in return for their money and allowing people to understand what you're bidding on completely, would apply whether you called it a tendering process or a request for proposal process.
Mr Shea: Mr Quirt, I will accept that for the moment. I have some concerns about that in terms of phraseology and definitions and descriptions, and we may want to deal with that with the auditor as well. I would just caution you that RFPs, unless I misunderstand in other government settings, are significantly different from tenders. I'll come back to this at another time, but I would ask to perhaps reflect upon that. If you are saying they are very akin to tendering in your mind, then you may have resolved an awful lot of my concerns that may flow from that. But we may have a little distance to go yet.
To come back to the essential question I raised, if I still have a difficulty with your description of RFP versus tendering, how do you give me comfort that the process is so transparent that I can be absolutely certain (a) I'm getting absolutely best value for the tax dollar, and (b) there is no untoward influence taking place in the decision-making? How can you give me that assurance?
Mr Quirt: I don't think we can give the committee the assurance that we're absolutely sure we're getting the best value for the taxpayers' money here. We've described to the committee the efforts we've made to reduce the costs in the program, which have involved being more careful in who's determined eligible for the program and in attempting to shift the usage for eligible customers from high-cost to lower-cost alternatives.
It's been recognized and pointed out that we do not either call for proposals in an RFP process or have a tendering process whereby companies respond with bids on the provision of these services, and it's been noted by a number of members of the committee that this may well be an additional measure the program needs to take to further reduce the cost. It's been our response to that to say, "Yes, in our opinion that would reduce the cost," but so would concentrating our efforts on establishing an independent assessment process as noted and recommended by the Provincial Auditor.
It's a question of which goes first and what's the best use of our time and the next legitimate step to take. It's also been pointed out by members of the committee that we can't tell you precisely where every penny goes. When we pay $425 we don't know precisely what is supplies on average, what is liquid cost on average and so on. It's a legitimate point to say that had the government done that, it might have been in a better position to manage the program.
We're saying to you that with the three or four initiatives we've introduced, we have brought the cost down or headed in the right direction and we're happy to consider those other suggestions for additional measures.
Mr Shea: In terms of the total budget, we understand that is a reflection not only of getting better deals with the industry; it's also a number of people who are leaving the program and being changed. It's not all just cost-effectiveness; it's also some program management or we may have found other ways to reduce the number of people on the program. I'm heartened to hear you say that you are now taking back to the minister the issues of eligibility and the whole issue of RFP versus the tendering or whatever is involved in that. It may be, from what you've told me, that in your mind you're doing the same thing; RFP and tendering may be the same thing.
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The Vice-Chair: Mr Shea, the auditor has a comment for you related to one of your concerns and I wondered if you would entertain that at this point.
Mr Shea: Please, yes.
Mr Peters: Mr Shea, it's just a quick comment on RFP. That abbreviation is actually used for two processes. There's one meaning that is request for proponent and there's another meaning which is request for proposal. If I may clarify, the first one, request for proponent, is more akin to what you seem to have in mind where you generally say, "We want to do a certain thing and who is out there who could provide a service?" That is generally describing to people out there what the government wants and getting responses back as to people who may be interested in getting involved in that particular process of providing that particular service.
Then a discussion takes place with the proponents as to, "Yes, you can," or "No, you can't," because they have the capability to provide the service or not. Once that is sorted out, then there is a request for proposal sent out in which the government actually specifies exactly what services it wants to tender for, what it has in mind, quality of service standards and all that sort of thing. I hope that helps a little bit, because the abbreviation RFP may have two meanings.
Mr Shea: Yes, it does, and it further muddies the water and I'm glad you've added to that confusion, because it may be this is leading to other depths in other areas that need to be clarified. The second part of your answer led us right into what could also be construed as tendering.
Mr Peters: That's correct. That's what I had in mind.
Mr Shea: Well, you just made my point, and that's the point I'm trying to raise on behalf of the deputants as well. I'm prepared to go into all kinds of deep waters. I just want to make sure we're all using the same oar and it appears to me at this point we are not. That's what concerns me in this questioning, that there may be some confusion and some misunderstanding.
How long has this approach been taken by the ministry? Is it just in the last year or two, or has it been an approach going on for the last five years, 10 years, 50 years?
Mr Quirt: The request for proposal process is used very frequently to select providers of particular services.
Mr Shea: My question was, how long has this process been going with the ministry? Is it just this year you've approached this in terms of, say, the oxygen?
Mr Quirt: We do not have a request for proposal or a tendering process for the 46 oxygen suppliers. As we've said earlier, what we do is somewhat of a request for proponents process, if I might use the Provincial Auditor's process, in that we have criteria that have to be met by anybody who wishes to be delivering oxygen through the home oxygen program. Those criteria I did mention earlier and they are on the record. They include being reasonably accessible to the public in a store-front operation during regular business hours, having a 24-hour emergency response and --
Mr Shea: I understand all that. I'm more interested in coming back, first of all, to the history just for a moment. How long has that process been going on?
Mr Quirt: Mark, how long have we been pre-qualifying, so to speak, making sure that suppliers meet criteria?
Mr Cox: Since 1993 we've had contracts with the individual suppliers.
Mr Lalonde: I know you mentioned it at the beginning of your presentation, but could you tell us again the percentage of users who are using liquid oxygen versus the other two?
Mr Cox: The percentage of users is about 40%.
Mr Lalonde: That's 40%.
Mr Cox: Liquid, yes, the users, and about 51% of expenditures, something like that.
Mr Lalonde: And the concentrators?
Mr Cox: The rest, the reverse: 60% of users and 48% of expenditures. There's this new category we introduced in the fall, but there are just a couple of hundred people on it so it would be at 1% maybe. That's the people on the conserving devices.
Mr Pouliot: I have one question, which I feel has some relevancy. Page 163 of the auditor's report, recommendation:
"To reduce oxygen expenditures, the ministry should:
"Review at the earliest opportunity the costs relating to oxygen concentrators and liquid oxygen; and
"Consider more cost-effective alternatives before paying the liquid oxygen rate."
Fairly simple stuff. Then I look at the official report of debate, Hansard, Thursday, and this is what you say, "I'm optimistic that we'll soon have access to the information we need to make that distinction between equipment costs versus servicing costs."
When the question was posed to you, you answered that you had a single rate and this was to suffice. I go back to Hansard again. You say you're optimistic that you will soon have that information, but in the meantime you extend a contract to the year 2000. If you were optimistic that you would in short order get the information to me, the recommendation, the directive from the auditor and this committee, wouldn't it make much more sense to wait to sign the agreement? The auditor felt that information was vital.
Mr Cox: It's going to take us a long time, several weeks, to get that information. As I indicated, the agreement can be cancelled at any time. It goes to the year 2000 but the ministry can unilaterally cancel that agreement and introduce some new price if it wants to.
As Mr Quirt indicated in his opening comments, what he was giving was the preliminary report from the ministry on that wide range of information that the committee asked for on February 13. In our final report back to the committee, you can be sure we're going to have some costing information that we've obtained from industry. It won't be independently cost-analysed but it will be industry's figures to us on what it costs to serve a concentrator versus a liquid.
Ms Martel: The point we're trying to make is that the existing pricing agreement was not due to expire until March 1998. You've just finished telling the committee it will be several weeks before you could get some of the pricing information that has been requested. Why did the ministry enter into a new agreement -- no matter that you can cancel it at any point -- a full year before you had to, without having that pricing information in place? Regardless of whether or not you have some concerns about whether the information is legitimate, at least you would have had it in front of you, because as I understand it now you operate in a vacuum.
For the life of me I cannot understand why a full year before you had to renegotiate you would have not waited, got that information and been a little more convinced that what you were looking at in terms of trying to set your own prices might realistically reflect some of the actual costs.
Mr Cox: The simple answer is: Because it's a better deal than what we had and it frees up the staff resources that are now spending all their time -- this program is run by two people. Those two people are spending all their time adjudicating modality. They'll now be able to get these independent assessment pilots up and running, which we figure will save us multimillions compared to the couple of million more that we might have got if we'd spent several more months negotiating a price.
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Ms Martel: I don't know that it would have taken several more months; that's the first problem. The second problem I've had is that you've told this committee already that you're not going to be running the pilots. They're going to be run on behalf of the ministry, so maybe I'm having a problem understanding who is going to do what here.
Maybe you can explain to me the major cost savings that you see when the assessments are not going to be done by ministry staff anyway. They're going to be done outside; they're not going to be done by the ministry staff. Why is there such a problem in terms of redirecting that work which is going to be done outside anyway, and at the same time trying to get some of this information which would have led, I think, the ministry to get a better price at the end of the day?
Mr Cox: You're right. Most of the work in terms of this independent assessment is going to be done by people who are paid for by the ministry on a fee-for-service contract, but we still need someone back at the main branch monitoring the project. Someone's got to get the pilots up and going and analyse the pilots to see if they are cost-effective. I'm just saying that by not having to spend our staff time adjudicating modality, we're now free to get those pilots going and to monitor them.
Ms Martel: Do you think that's a better way to do things right now rather than trying to get that information as quickly as possible, before you started to negotiate, and actually be in a better position to negotiate on some rates that might have been transparent for everyone?
Mr Cox: Yes, that's what I'm saying.
Ms Martel: I look at it and I say that the auditor made a pretty clear request, I think, and it was a matter of trying to get some information that clearly no one has had up to this point. What I disagree with is that it seems the auditor's recommendation around that issue was in some way, shape or form dismissed -- I don't know a better way to phrase it -- and the ministry proceeded on a different path, which may well get you some money. I'm sure it will if you can do independent assessments and get your eligibility criteria up and running. But I really think that his recommendation around pricing was dismissed, and it was an important one.
It was an important one in terms of people being assured that they're going to get some value for money, and for the time that it may have taken, and I don't know if that would have been a month longer or two months longer to negotiate, I think we would have been in a much better position.
What I'm worried about is, if the ministry gets some new pricing information in the next number of weeks, how realistic is it that the ministry is then unilaterally going to go in and change the terms and conditions of this contract when you've got a contract that's supposed to go into effect as of April 1? Is that realistically going to happen when you get some new information now?
Mr Cox: This contract isn't going into place April 1. It's just an extension of the existing contract.
Ms Martel: The new costs.
Mr Cox: There's a new rate that's going into effect April 1. There was a new rate that went into effect last September. There could be a new rate a month from now. The agreement is with the association and it's on much more than just pricing. All those things I listed in the record -- making sure we work together to ensure that the program is managed within budget, all those good things -- are part of the agreement with the association. That's just one part of it.
Ms Martel: You're confident that if two weeks from now or three weeks from now you bring back to this committee or this committee gets some actual figures that talk about the different costs, it would be a minor matter if this committee felt we didn't get value for money, that you could go back and negotiate with the association a different pricing structure. Are you confident that can happen and it will be fairly straightforward, fairly simple, can be done at any time?
Mr Cox: Yes, but we'd have to seek direction of course from the minister on what he wants to do. I'm just the administrator of the program. That's a decision the minister would have to make on whether he wants to change the price, whether he wants to go to tender, that sort of thing.
Mr Quirt: If your suggestion is that information would become available to the minister or the government over the next few months that would indicate that, even though our costs are going down in the program and even though our costs compare favourably with other jurisdictions, we're paying too much on behalf of the public for this service, then obviously, yes, we'd be interested in opening the arrangement. We'd expect at that point cooperation from our providers in negotiating a lower, fairer rate, if that's what the data proved.
Mr Beaubien: Just to follow up on Ms Martel's comment, the public accountant's recommendation was:
"To reduce oxygen expenditures, the ministry should:
"review at the earliest opportunity the costs relating to oxygen concentrators and liquid oxygen; and
"consider more cost-effective alternatives before paying the liquid oxygen rate."
The ministry's response was, "The ministry will initiate a review of the concentrator and liquid oxygen rates in preparation for negotiations to replace the existing pricing agreement when it expires in March 1998."
This is what I cannot get straight in my mind, and I think this is the problem Ms Martel has also, that the ministry said one thing but did something else. The question is, why? I can't rationalize that. Basically you went and extended the period of the contract for another two years, yet in your response to the public accountants you said that you would initiate a review of the concentrator and the liquid oxygen costs, but you just extended it. I find that bewildering.
Mr Cox: I guess our response is, quickly, we came up with a better rate structure than we had.
Mr Beaubien: So it's just based on costs, without reviewing. Because you got a better deal, you just went along.
Mr Cox: To do a review of concentrator and liquid oxygen costs is going to require an independent cost analysis, which is going to mean we're going to have to go to tender and get someone to bid on it and then award the contract. It's going to require the companies to open up their books. It's going to take some time. If the ministry does that and, as Mr Quirt indicated, it shows that our pricing is way off, then certainly we're going to want to go back to the industry and say: "We've got to lower the price again. Here's the new price."
What we've put in place is something we saw as an unexpected opportunity, when the industry approached us wanting to open up the agreement, to bring in a single rate, which we've been trying to get in place for a long time, and so has the OHA, and at the same time to remove that incentive to put people on liquid. So we feel we accomplished that, and as I said, we freed up the staff time to start doing independent assessments.
Mr Pouliot: On a point of clarification: I would like to know, when did the auditor make this recommendation? We sense a reluctance not only to avoid but to dispense with the recommendation from the auditor here, and we're not buying it, to tell you frankly. There was a recommendation from the committee. The committee is the government in the context of value for money. If you don't want to do it, don't then surround -- if the auditor asks you to do it and if the committee's not satisfied with your answer, you come back with a better answer. It's as simple as that.
Mr Cox: Sir, we would never ignore a recommendation from the Provincial Auditor. What we thought was that we were fulfilling the intent of that recommendation by doing what we did with the new single rate. That's not the end of it. We're going to be looking continuously -- there's a history of price reductions that's quite constant over the last four years. It's a matter of how quickly you want to do it. Do you want to wipe out the industry completely in the province? That's not going to help the consumer too much. So our process is to do it gradually. As I say, we got a 30% reduction in expenditures in four years. There are not too many government programs that have accomplished that.
Mrs Pupatello: I just think we might be getting away from an issue here. Number one, I think you should have a value for the amount of administrative savings to not go through that process. I have asked since for that, because I do think that's valuable to know, that you can in fact have a significant, substantial amount of saving by streamlining the process. I know the government members would agree with that. It's a matter of knowing what that was and juxtaposing that to the eventual cost of the product based on that.
I think it would be important for the ministry officials dealing with this program to know from the company perspective the actual profit margin on each type of oxygen. When you're in the business of delivering that, which you are, it probably would be a good idea to know which has a better profit margin for companies. That seems an obvious thing to know and I think it's probably easy to find that out.
I think we're missing a significant point: 30% of the savings is simply because fewer people are now meeting the criteria. I don't think there's suddenly a complete change of atmosphere or health condition that says people no longer need oxygen. It is simply because the viewing of the eligibility criteria is different today than it was. So the 30% of the savings has nothing to do with the tendering process, nothing to do with admin savings, but simply to do with 2,400 people who used to get oxygen who now don't.
I don't know how long this has been going on and I can only go by what I've experienced in my own constituency, but under whose mandate did you start heavily screening those who are eligible, and why? Did you honestly feel that we have 2,400 people who were abusing the system? What was the sense that made you look at that so you could in effect find 30% of savings, because people now don't meet the criteria but met the criteria the six-month period before?
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Mr Cox: Prior to 1991, all you required was a doctor's prescription. Starting in 1991, we applied internationally accepted medical criteria that said you had to have a blood gas test and you had to register below a certain level on that blood gas test before you qualified. That's why the numbers have dropped by 2,400, because we're now saying you have to have a medical need for oxygen. A doctor's prescription isn't enough. By ensuring only those who have a medical need for it, I think we're giving the taxpayers good value.
Mrs Pupatello: It is certainly just anecdotal, obviously -- I'm just one riding -- but with individuals who qualified previously who now don't qualify, the experience was that for a variety of reasons they preferred a certain type because it allowed them to be more mobile. If you didn't allow them the better system, their condition would deteriorate to the point where they would finally be eligible for the better system. I mentioned that earlier. There's a real conundrum for doctors and their patients. My experience has been that they certainly didn't qualify yet, but let's wait for their condition to deteriorate because then they will qualify. That is what happened with constituents of mine. Let's wait until they're so deteriorated that they cost the health system more in terms of hospital care, additional bed days, any number of things, as opposed to allowing them the service because they did used to meet the criteria, at some level of expense, and instead let's wait until the expense is huge.
That frankly defies logic, to me, and I still don't understand that. We have fought on this issue locally because it doesn't make sense in the long term. It will cost the Ministry of Health more to allow this deterioration. For some of the elderly it's a simple matter of the emotional drain, for people to understand that they now can't get oxygen that actually caused a further deterioration of their health state. This is a significant concern for the elderly. You know better than I that we're going to have many more of those people. I still haven't heard why. Did you feel the system was being abused so badly that you've now found 30% of savings by not providing people with oxygen?
Mr Cox: People who meet the criteria are being funded. I indicated in my earlier comments that there are still 4,000 people on the program who have never met criteria. We found it virtually impossible to wean them off the psychological dependency on oxygen. If someone comes up for their annual renewal and they don't meet the criteria but they did previously, then they're not being funded. Maybe two or three years afterwards, if they get sick again and they need the oxygen, they'll get back on the program, if they meet the medical criteria. If a physician finds that we've turned down someone on renewal, they can always appeal.
Ms Martel: Let me ask the auditor two things. When did you make this recommendation around pricing?
Mr Peters: It went up to the deputy minister level in May 1996.
Ms Martel: Second question: Do you feel that when that recommendation went forward there was some discussion or it was clear to the ministry what you meant by your review of the "costs relating to oxygen concentrators and liquid oxygen"? Did you give any instructions, any indication of what you meant by that?
Mr Peters: Yes, we did, and in fact it becomes evident from their own response. If you refer to page 164, they also came back and said, when we talked about the rate, that their plan was "to achieve its target of no more than 35% of expenditures and 20% of users on the liquid modality." I think they understood the dual pricing structure very clearly and the recommendation.
Mr Pouliot: I need your help again. When questioned vis-à-vis the recommendation and your failure to comply, you did mention that it would take on a complexity, that you might have to go to tender to get the information. Yet two weeks ago you said again, "I'm optimistic that we'll soon have access to the information we need...." This is a departure from what Hansard said. Those are your words. This is a matter of record. We will match what you said when answering the same question two weeks later, and I want to wish you well when we do that, sir.
Mr Cox: That was in the context of the issue of hospitals as suppliers and the whole issue that the industry has felt that hospitals shouldn't be paid as much as private sector suppliers because they don't pay taxes etc. At that time there was a proposal for an independent costing analysis to get to the bottom of that. Hospitals have shown signs that they want to become more active as vendors, and in response the industry is saying, "We want a lower price for hospital suppliers." We've said, "Okay, then we've got to do this independent costing analysis." That would give us this data that we need.
Mr Pouliot: That's fair and I'll accept that. Thank you.
Ms Martel: I still don't understand that. If that was going to give you the information you needed to allow the industry to look at differentials between hospital expenditures and their own, wouldn't that same information also be used for pricing purposes, for the ministry to set a price with respect to what they were going to offer suppliers? Wouldn't you need exactly the same information?
Mr Cox: You're right. As I said earlier, we don't have any legislative authority to make the companies open up their books to us that I'm aware of. If we do, great, I'm glad to hear it, but until we have this lever of saying, "If you think the hospitals should have a lower rate, open up your books, and hospitals will open up their books, the OHA has agreed," then we'll get that costing information. If we have that legislative authority now -- maybe the auditor can respond -- great, then we'll ask industry to provide it.
Ms Martel: But if I might, not more than 10 minutes ago you told this committee that to get that information it would require some kind of independent assessment and a request for proposals and on and on. Unless I'm mistaken, you've contradicted yourself. Either it's information that you were going to readily obtain, which is what you told this committee on February 13, or it's not. I'm having some great difficulty understanding, number one, are you going to get that information soon, because that's what you told this committee, and is it really necessary, in order to use that information in some way to set pricing, that you then have to go to some independent assessment and have it all looked at, or could you have waited a couple of weeks, got the information and used it in a way that I think the auditor said to use it, which was to make some better determination about what prices you should be offering suppliers?
Mr Cox: We can't get independent costing information unless we have some lever. We have to have the association and the companies agreeing to give it to us. One way of doing that is either to go to a tender and force it out that way or by saying, "If you want us to consider a lower price for hospitals, then you've got to give us access to your books." It was in that context that I was making reference to hoping to have that information soon, because I said hospitals have shown interest in wanting to be suppliers, and in response industry has said, "Then we want a lower rate for hospitals." I'm not trying to contradict myself, I'm just trying to say we don't seem to have the levers that we need to get that information from the industry that I'm aware of.
Ms Martel: Regardless of whether or not you had the leverage, you told the committee that you thought you'd have access to the information we need to make that distinction between equipment cost versus servicing cost. For me, the whole issue of your pricing hinges on that. I go back to the point I made earlier and that I think Mr Beaubien followed up on: You didn't have to renegotiate this deal now. The auditor told the ministry to look at this issue in May 1996. You told the committee that you felt you were going to have the information in a few weeks because the industry was more interested in opening its books because of this hospital issue. Why was that information not obtained before the ministry went back and made an agreement to continue the pricing, even the new fixed rate, on to the year 2000? You didn't have to do that for another year.
The argument we're trying to make is that some of us believe if you had that, we probably would be in the process of getting a bang for our buck if that had been done first. I'm not convinced that if the new information comes in in short order, the ministry is actually going to go back and renegotiate a new price with the association. I think the association's going to say: "Get out of here. We just finished negotiations with you. We don't want to change this and we're not very happy again in working with you." I think that's what's going to happen.
Mr Cox: As I said earlier, the association doesn't have its contracts. We have contracts with suppliers. The ministry is free to unilaterally change the price whenever it wants. We didn't need detailed costing information to get that single rate in place. Yes, we're going to need that detailed costing information if we're going to have solid grounds for lowering the price further. I don't know what more to say in response.
The Vice-Chair: It's now a little after 12. The committee is free to continue or we can call it a day. We've had an exhaustive session this morning and we are to come back on the 3rd to look at property management, section 3.17. Does the committee wish to pursue this section further at that time or at another time?
Mr Shea: I would recommend that we carry on with our schedule, but I think all of us would probably like an opportunity to read the transcripts and then reserve options for the future. But let's carry on at this point.
The Vice-Chair: Yes, in the report-writing phase we'll have a chance to revisit some of these sections in terms of recommendations or in terms of comments.
Mr Shea: Of course. I'm conscious of the secretary reminding us of our schedule, and I don't want to see that getting out of tilt, but on the other hand there may be questions, undoubtedly, that will grow from the report that's coming forward from the minister. When we've had a chance to read the transcript and I've had a chance to reflect on things such as the timing of the opening of tenders and how they were opened and so forth, we'll have a chance to review this. I'm sure the auditor will have a chance to reflect upon some of the responses as well and give the committee some attention.
Mr Pouliot: We are of the opinion that this will suffice at this time. We want to wish you well with the requests from the committee. We'll be looking forward to your findings and will read them with interest. Best wishes indeed, and may we see one another under different circumstances.
The Vice-Chair: Mr Cox and Ms Lindberg, thank you kindly for being with us today. We appreciate your spending time with us.
The committee is adjourned.
The committee adjourned at 1203.