I don’t like bullies. I don’t like it when government bureaucrats with nothing better to do kick around honest farmers. In the same vein, I don’t like it when private companies trying to maintain high profit margins kick around honest health-care practitioners.
I’ve been witness to this latest phenomenon in a complex affair involving a prominent supplement and herb producer, Standard Process, out of Palmyra, Wisconsin.
This is a special company, with a special history. The story of its founder, Royal Lee, sounds something like the story of Weston A. Price. Lee was a dentist who believed in the power of whole food nutrition. He started Standard Process in 1929 to create nutritional supplements made from whole foods, and in the 1940s actually purchased farmland so the company would be able to grow its own organic crops to use for making many of its supplements. The company continues today to grow many of the vegetables and herbs used to make its supplements.
Holistic practitioners love its products. I have taken a number of its products, on the recommendation of a nutritionist. But I am going to find an alternative, based on its recent behavior.
In a BusinessWeek.com article, I describe how it terminated a Long Island holistic health center, Northport Wellness, as a re-seller to patients because Standard Process suspected the center was supplying an online company on Long Island with Standard Process products. Standard Process has a strict policy against sales of its product online. If you read the article, you’ll see that there’s a good case to make that the Long Island health center wasn’t supplying the online seller.
But when you are put on trial by a private company, there isn’t necessarily the same kind of appeals process we’re accustomed to in our courts. The Long Island center didn’t even have a chance to present a defense—it was just terminated because of Standard Process’ suspicions.
The situation is actually worse than what I describe in the BusinessWeek.com article. Because of space limitations, I couldn’t get into the fact that two other supplement manufacturers, Thorne Research and Designs for Health, also cut off Northport Wellness as a re-seller because of similar suspicions–that it was among several Long Island practitioners supplying the same online company. Like Standard Process, they don’t want to have their products sold on the Internet. (An official from Thorne told me, however, that it may have made an error in cutting off Northport Wellness, so presumably Thorne could reinstate the center.)
The cutoff of these supplements affects hundreds of patients, including 350 children who are autistic or "on the spectrum" and are patients of Northport Wellness, says Mariahel Sammis, a naturopath at Northport. "Once children on this spectrum are introduced to products, it is difficult to stop or change since some of these children…become dependent on them."
In my judgment, Standard Process’ real goal here is two-fold:
First, and most immediately, Standard Process wants to set an example of Mariahel and Northpoint Wellness, in case any other practitioners should get crazy ideas about re-selling their supplements to places like the online seller. We’re talking about intimidation, pure and simple, much the same as the Michigan Department of Agriculture wanted to use Richard Hebron as an example to warn other farmers against pursuing the growing raw milk market.
Second, and longer term, it wants to keep its products off the Internet. The Internet represents price competition, and Standard Process will do everything in its power to avoid such competition in pricing of Standard Process products.
Wouldn’t the Internet offer Standard Process the opportunity to expand its sales? you ask. Yes, certainly, but Standard Process cares much less about increasing sales than it does about maintaining the high prices and attractive margins it currently enjoys.
I know all the rhetoric about making sure that Standard Process products are recommended by practitioners, about avoiding patients self prescribing. That’s not what this current episode is about. What we’re talking here is business hardball, associated with keeping prices and margins as high as possible. It’s not unlike what Big Pharma does.
You might say, Well, this is a free market. Why doesn’t Northport Wellness just buy its supplements somewhere else? It will do that, but transitioning to new supplements isn’t so simple for patients who grow accustomed to certain formulas, as Mariahel described earlier in this commentary.
Will Standard Process’ thousands of committed practitioners let the company sacrifice a few equally committed practitioners and their patients to set an example? Much as I would love to be proven wrong and see practitioners exit Standard Process in protest, I suspect they will stay, because they want to maintain their own high margins as much as the company wants to maintain its margins. It’s part of the dynamic of health care in America.
However, I do understand why Standard Process only allows sale through practitioners. Another company, Mayway, produces Chinese herbal formulas and only sells directly to practitioners (though it is possible to find their products on the internet). They do this because it is very easy to misuse their products. When people misuse products like these we end up with legislation like the prohibition of ephedra. Likewise, the products get a bad reputation because the results of using them are poor.
Quite honestly I don’t think price competition is a concern. As the distributor of the product, Standard Process would keep the margins the same whether or not they distribute to many online distributors (barring volume discounts and such).
It sound to me like Standard Process is more concerned about maintaining the quality of their product and their public image than about profit.
I think the point you’re missing regarding price competition is that the profit margin of Standard Process (SP) is indeed threatened, albeit indirectly.
If Internet Discounter, Inc., starts to resell SP products at significantly less than the 100% mark-up recommended by SP, SP’s other customers would have to either follow suit and reduce their profit margin or else see their customers flock to Internet Discounter, Inc., where the customers get a much better deal.
If SP products don’t make a reseller enough money because they have to discount them agressively to compete with Internet shops, they’re not going to be buying near as much from SP or look for another product altogether that’s still protected from price competition. And that’s when SP’s own margins begin to suffer.
This is by no means an uncommon scenario. There are a few different types of sales models for supplement makers, and 2 main ones are (1) sales through the retail channel and (2) sales through professionals (practitioners). For instance Solgar and Carlson (and many others) can be bought at health food retail outlets by anyone. Standard Process and Designs for Health (and many others) are distributed by makers only to practitioners, who then sell to clients. Some makers do both, and some have separate lines for each channel (eg Enzymatic Therapy for retail, Integrative Therapeutics for practitioners).
Makers going through professionals tend to claim their products are higher-quality in general, it seems, but I have no idea and have never seen data on it. (Anyone???) Part of their appeal to professionals is that the client cant simply go to the store or Internet and buy what the professional recommended for cheaper.
Like any other manufacturer going through an exclusive distribution channel, conflicts arise as a matter of course. Professional lines want to protect the integrity of the channel, and not let products seep out into other channels (eg internet sales), as it dilutes the brand equity of the line, and upsets their distributors (professionals). Internet sellers want to get their hands on such products, as they can undercut price and make money. (Designs for Health just contacted those of us with accounts with them telling us of their efforts to shut out internet sellers, and it was definitely couched, and likely received by all except the internet sellers and their sources, as a positive development.) So the manufacturers fight to protect the channel.
From the practitioners perspective, there are benefits to such a policy. If they carry Standard Process, and recommend it to their clients, and then those clients go out and purchase the recommended supplements on the Internet, that is a loss to the practitioner. (Gets to issues of business of selling supplements, and how it has become a big part of many practioners business model, in part due to poor or no insurance reimbursement for services, but thats a whole other debate.)
The makers also have some other rather important reasons for wanting to restrict access to their products, including liability. If individual users can only access the supplements through registered SP providers, they are theoretically less likely to self-medicate. For instance, an individual on their own ordering over the internet might load up on zinc since he read that zinc is good for you, and might end up with a massive zinc-copper imbalance that results in a neurological condition. SP can legitimately fear being implicated in litigation, and certainly fear the impact of negative publicity.
I guess Im somewhat agnostic on the issue. I dont have a problem with manufacturers who choose the professional distribution model and enforce it through any legal means. They are free to do so it’s legal in general if they feel it is their best strategy. I dont know how feasible the model will be going forward, however. The Internet has changed the ground rules for so many businesses through disintermediation, it will only become stronger in its challenge to exclusive business models.
I don’t know the specifics of the situation at hand, in terms of this Long Island wellness center. If they truly violated the terms of their agreement with SP, then I suppose SP has the right to cut them off. If they have not, they should fight for their rights and I would hope they would prevail.
There are so many underlying complexities in a doctor/patient or healer/client relationship. How can we be sure of the practitioners motivations and that the clients are not experiencing subtle (and not so subtle) pressure to buy from their practitioner?
And we’re not talking about small amounts of money — many clients walk out from what was supposed to be a $50 consult with over $100 of suggested vitamins and supplements.
Here is an elephant in the living room. And not making enough money because we’re out of the insurance net doesn’t justify exposing clients to another monetary stream that benefits the practitioner without offering other options and ways to defend against the pressure to buy.
Almost none of the practitioners selling products let the consumer know in advance that they will also be expected to spend money suporting a store or multi level marketing business so that the practitioner can make money in addition to the fe for service.
Imagine an MD ordering a series of tests and then sending their patient to a lab in which they have a financial interest. That is a clear ethical breech. Why not hold alternative practitioners toat least equally high standards?