MINI-EP: Surgery Privatization: Public Risk, Private Profit

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Alberta’s UCP government recently announced a plan to reduce surgical wait times: farming out 80,000 surgeries to private, for-profit providers. Ricardo Acuna, Executive Director of the Parkland Institute, joins Team Advantage to discuss the legacy of private for-profit health service delivery in Alberta. Has it ever worked? Does it produce any beneficial results? What does it do to our public health care system?
Read Ricardo’s Parkland Institute blog post.
Follow Ricardo at @RicAcuna, and follow the Parkland Institute’s work at parklandinstitute.ca and @ParklandInst.

Kate:                Hello, and welcome to the Alberta Advantage. My name is Kate Jacobson, and I will be hosting today’s episode, and joining me today over the phone is Ricardo Acuña, the Executive Director of the Parkland Institute.

Ricardo, welcome, and thank you for joining me.

Ricardo:           Hi, Kate. Thanks for having me.

Kate:                So Alberta’s UCP government recently announced a new plan to reduce surgical wait times by expanding its agreements with private facilities, a move that many have called a step towards “two-tier, American-style healthcare.” The government claims that this move will fund an additional 80,000 surgeries over the next four years. This move was announced in Jason Kenney’s campaign in the run-up to the April 2019 provincial election, which you did actually take the time to fact check in a Parkland Institute blog post.

Ricardo, to start off with, could you clarify a bit for our listeners what kinds of surgeries are going to be contracted out to private for-profit clinics?

Ricardo:           Well, I mean, in very typical fashion, the government’s press release had actually very little information. They don’t talk about the total cost of this, how much money is going to be invested, which clinics they’re going to use, or any of that. But what they do make very clear is that they want to target some of the what they call “routine” or “low-risk” surgeries, so you’re talking hip surgeries, knee surgeries, cataracts.

But even within that realm, they’re not talking about the complicated ones – anything that might require a hospital stay, anything that might require further intervention or is high risk. These are largely the in-and-out, get a hip surgery done or a knee surgery or cataract and you’re done. The more – anything that’s more complex that carries any risks, that requires greater medical intervention than just the small surgical team, those’ll get left to the public system and to the hospital.

There – and, you know, there’s clinics out there that are doing these. There’s already some contracting out going out. Like, the provincial government has been doing this for a long time – contracting out – to surgeries. Currently, private nonhospital surgical facilities are performing about 15% of the surgeries performed under AHS, so this is already happening. What the UCP is proposing is just increasing how many get farmed out to the private clinics.

Kate:                Right. So I just kind of want to understand this business model a bit better. So what I see is that some investors start a private for-profit health clinic; they pay doctors and surgeons and nurses and technicians; and then they get paid public funds from the government for the easy-to-do surgeries that they deliver. The surgeries get performed; doctors and surgeons and nurses and technicians get paid; and investors make a return on their investment all from these publicly funded contracts. And this is supposed to somehow, like, save the healthcare system money – like, am I missing a piece of the puzzle? Where are the savings supposed to be coming from here?

Ricardo:           Well, the big savings, I mean, typically, from these kind of ventures is they’re claiming they’re saving money because they’re not having to invest in the public infrastructure. Right? So instead of having to build public capacity, public clinics, to conduct these kind of surgeries, they’re just tossing money over to the private sector.

Of course, it makes no sense, because the private sector has to charge a profit margin. They’ve got investors; they need to create at least, you know, 10 to 12% return on investment for their investors, so things are going to be more expensive. They claim they’re lower cost because, like I said, they’re doing the routine low-risk surgeries which don’t have complications. If something goes wrong in the midst of one of those routine surgeries and they need extra medical help, they get bussed into a public hospital where, you know, all of a sudden it’s costing the healthcare system money again. So there is no actual cost savings overall. What’s happened is that they’re just choosing to invest the money to fund private infrastructure instead of investing the money in public infrastructure.

And, you know, Ralph Klein used to be quite – quite forthright and honest about this, saying, “I don’t care if it costs more. Let’s just get the wait lists down, and we’re prepared to give the private sector money to do that.” Jason Kenney’s been a little less forthright about that and keeps insisting that it costs less, but they haven’t actually provided any evidence of why they think it costs less.

Janice MacKinnon of Blue Ribbon Panel also suggested that these private clinics are offering surgeries for less without offering any evidence of it. The only thing that I can see is that the reason they’re less expensive is because they’re cherry picking the easiest, lowest-risk, lowest-cost surgeries to perform.

Kate:                Right. So clearly, doing 80,000 more surgeries in Alberta is going to cost a lot of money. How is the government proposing to pay for this?

Ricardo:           What they said in their election platform, and what they said again in this  press release, is, you know, they’re in the process of doing this big review of AHS where they’re convinced that they’re going to find all sorts of administrative waste, and they’re going to take all of that money they are able to save by doing this administrative review of AHS, and that’s what they’re going to use to reduce wait times, is what they say.

The problem is that they’re not likely – I mean, you can always find a little bit of administrative savings here and there, but the big challenge is that the magnitude of money that they need is just not there. Alberta has already been reducing administrative expenses of health delivery way significantly for the last five years. We’ve already got some of the lowest administration expenses of any health system across the country, and they continue to drop.

So the reality that somehow, you know, AHS is spending all this money on administration and it just takes the UCP to get rid of it and all that money will flow into it is a myth. That money’s not there, and they have not, again, identified in their press release how much money they’re going to spend on this, how much this is going to cost. So it’s another one of these things where they’re hiding the numbers and they don’t really know what’s going to come of it and how it will be funded in the end if they can’t find the administrative savings they’re looking for.

Kate:                So your earlier blog post that I mentioned talked about how this initiative from Jason Kenney’s government follows a 2010 initiative in Saskatchewan which saw that government allow private for-profit clinics to perform publicly funded surgeries. Could you tell me a little bit about how that project fared in Saskatchewan?

Ricardo:           Well, it started out really, really strongly. I mean, they reduced wait times; they started to meet their targets; they cleared the backlog in the queue. But then they decided, in 2014, to just stop funding it, because it was too expensive. They were not – they did not, at that point, invest in reforming the system and restructuring the Saskatchewan health system to better deliver surgeries. They just threw money at private clinics to perform more surgeries. So once they decided to stop spending the money, the wait lists started growing again, and Saskatchewan’s current wait lists for surgeries since 2015 have been growing as quickly or more quickly than Alberta’s.

So it’s, again, really highlighted the fact that just throwing money at the private sector may stall the queues, the lineups, in the short term; but in the long term, if you don’t invest the resources in fixing the administration and how these surgeries are supported and building infrastructure in the public system, the throwing the money will not help in the long term, because at some point you have to stop throwing the money at the private system.

Kate:                Mm-hmm. So one thing I’m curious about it is that really long wait times are not kind of an inherent feature of public healthcare. There are public health care systems in the world that don’t have the very long wait times that we see in Canada. Is there a way for our public healthcare system to be funded or administered in a way that would reduce the wait times that many people see?

Ricardo:           Yeah, absolutely. And it requires – I mean, the challenge of why these governments don’t want to do it is because it requires upfront investment. The most expensive part of our healthcare system in Alberta is our hospitals, so, you know, in the sense – in that sense, they’re right that using hospitals to carry out the very simple in-and-out surgical procedures is not an efficient use of the most effective part of our system. So what we need to do is build up healthcare infrastructure outside of hospitals – community-based clinics, primary care centers – where these surgeries can be conducted by the public system.

Where the actual impact comes is from how you administer the information; how professionals in the system share information with each other; coordination of surgery schedules across the province so that people can access the first-available surgeon for their surgery; the kind of wraparound services that prepare people for surgery, see them through the surgery, and then support rehabilitation after surgery – those are the critical pieces that we need to be getting right to make the system work, and we’ve seen that.

We saw that in the Saskatchewan example. BC has been expanding how they deal with surgeries through their public system over the course of the last year as well, and again, they’re seeing success by providing and funding that infrastructure and those wraparound services and information sharing. Throwing money at the private sector to fix this is not going to help. It’s just going to increase costs.

Kate:                So returning a little bit to that Saskatchewan initiative, you wrote that the Saskatchewan initiative was itself largely based on a previous project from Alberta, the 2004 Alberta Hip and Knee Replacement Project, which also had a role for private for-profit providers. Could you tell our listeners a bit about what happened with that project?

Ricardo:           Sure, yeah. This was Ralph Klein, again, deciding that we desperately needed to get wait times down, particularly for hip and knee replacements in Alberta, so the government funded this pilot project starting in 2004, and it had a mix of providers. So the surgeries in Calgary were largely provided by what was called the Calgary’s Health Resource Centre, which had taken up space in a formerly public hospital after Ralph Klein closed it; and the surgeries in Edmonton were provided by a public facility. So, again, the results were fantastic, because it was accompanied by these kind of wraparound services, information sharing, coordination of efforts, accompaniment of patients from beginning to end – all of that, right?

But the project was instructive, because it gave us a basis for comparison, and one of the things that it really highlights is that every single procedure performed by the private facility in Calgary versus the public facility in Edmonton cost more. On average, procedures cost about $500 more in the private clinic than the public one, with the cost for one particular procedure, a foot and ankle procedure, costing $1800 more – that’s about 32% more – to deliver it through HRC than it did through the Alberta Health Services model.

So that provided – I mean, sure, the project helped reduce wait lines, but it also provided us key comparisons to highlight the degree to which the private centers and services cost way more than the public ones.

Kate:                So why was it so much more expensive in the private sector than in the public sector? Was it an economies of scale thing? Were they paying their staff more? What was going on?

Ricardo:           It really is an economy – well, there’s two things. One is economies of scale, right? A small clinic has to build up administrative infrastructure, scheduling infrastructure, all of these things, even the purchasing of equipment and supplies and everything, for their own small, private clinic, right? Whereas a provincial-wide health service can centralize administration costs, can centralize scheduling, can centralize purchasing, and save a lot more money in that way, because they’re – again, those economies of scale.

The other factor, of course, is that 10 to 12% profit margin that Alberta Health Services doesn’t have to worry about.

Kate:                It sounds in general like this wasn’t the greatest deal for the public, but hopefully at least the investors in these private for-profit providers presumably got a great return on their investment.

How do we evaluate this project on its own terms?

Ricardo:           Well, there’s – I mean, that whole notion of providers getting a great return on the investment was great at first, but then it kind of fell apart. They were making a healthy profit margin, and they started getting other contracts from friends in government, so workers’ compensation was sending patients to these private clinics and all of that, but the company ultimately went broke in 2010. But because we had already committed and were dependent on them for such a high proportion of the province’s orthopedic surgeries, Alberta Health Services was actually forced to intervene to maintain the volume of services.

What this means is that the province paid for the receiver; the province purchased all of Health Resource Centre’s debt and security and actually propped them up to keep them going in providing the volume of surgeries. So not only did those surgeries at the private provider cost more, by including the provider it actually resulted in extra cost being borne by Albertans once the provider went broke, because we’d become dependent on this private provider.

So in terms of – in terms of the model of accompaniment of wraparound services, wraparound care, for people in the surgeries, it highlighted that you can reduce wait lists over the long term by investing in those things. In terms of the feasibility of including private providers, it was a complete disaster and highlighted the extra costs and the risk involved to the public purse of including private providers to reduce surgical wait lists.

Kate:                That sounds to me like a textbook example of private profit, but public risk.

Ricardo:           Yeah, exactly. Exactly.

Kate:                I’d love to talk a little bit more about kind of the privatization of these types of routine surgeries in a bit of a broader context. So Kenney’s government is cutting funding to Alberta Health Services. Their budget does not match the increases that exist in our province due to inflation and population growth.

And on top of that, Alberta Health Services is also going to be eliminating hundreds – in some cases, even thousands – of full-time equivalent positions in nursing and in health techs, as well as contracting out food services, environmental services, linen and laundry, those types of things. What are the consequences to the public system to have funding allocated to private for-profit care, instead of funding those positions and those jobs that I just spoke about being contracted out?

Ricardo:           Well, you know, it’s quite textbook, and it’s amusing, almost, in the sense that the government press release said that their focus is patient care and that they’re going to be nonideological about it, which is why they feel safe sending money to the private sector, right? That they’re not being ideological. But they’re being exactly ideological. It’s textbook.

And the process here is you starve the public sector of resources, so you absolutely scale it back and channel those funds to the private sector, so what that does is it just – it guts the public sector; it makes it ineffective; it makes it inefficient; it makes it not be able to perform. But because you’ve been funding the private sector to do these things, all of a sudden that capacity has shifted from the public sector to the private sector and they’re the ones that get to build up their infrastructure and their systems and higher positions and do all of that.

Ultimately at some point the government is going to stop providing those funds for the private sector, as they did in Saskatchewan in 2014, and what you’re left with at that point is a gutted public sector that can’t provide the services and can’t meet the needs of Albertans, and a private sector that’s well-positioned to step in and take it over. And that’s textbook for privatizing public services: First you starve the public service of money; next, you build up an alternative parallel system that’s a for-profit-based system, and then you just let them go at it, right?

And that’s textbook. I mean, this is – they’re doing it for public healthcare, and we’re also seeing this government very interested in doing it with the education system today. And those are attractive for investors, because they’re the last two significant public-sector monopolies left where they haven’t been able to step in in Canada and make a shit-ton of money by, you know, doing something that should be done by the public sector, so … And this government is playing textbook in terms of how to wreck a public system and prop up a private system in both those areas.

Kate:                Absolutely. Why do you think the public healthcare system in particular is such a target for privatization efforts by this government and by other conservative governments?

Ricardo:           It’s big money. It’s ideological – the healthcare system is kind of at the core of the modern welfare state, the modern public state. It is ideological because the healthcare system is the source of many of the public-sector unions that Jason Kenny just absolutely despises exclusively on an ideological basis. But it’s also a nod to their rich friends. This is the last – as I said, the last monopoly area where there is a ton of money to get made.

And if you look at a country like the U.S. or a country like Australia or even Ireland, which has gone way farther down this privatization route than we have, you can see the ridiculous amounts of money being made by private investors in a privatized healthcare system. And so it’s a nod to wealthy friends to say, “We’re going to give you more stuff to invest in in this province.” So it’s – they see it as an easy target. It’s also the most expensive part of our public sector, so they see it as an easy target and easy to justify.

You know, everything – Saskatchewan example, the Alberta example – all of this highlights that the important thing here is how we coordinate and how we provide for surgeries and support for surgeries; that the key to reducing costs and reducing wait lines is increased coordination, better planning, better collaboration by the players within the public system, and not padding the profit margins of private providers. That just actually has the opposite result.

Kate:                I couldn’t agree more.

Ricardo, thank you so much for joining us on the Alberta Advantage. If listeners want to follow up with your work at the Parkland Institute, where can they look?

Ricardo:           They can look on our website at parklandinstitute.ca. They can follow us on Twitter and Facebook, and they can follow me on Twitter as well. I’m @ricacuna on Twitter.

Kate:                Perfect. Once again, thank you so much for joining us.

Ricardo:           Thank you, Kate. [end]

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