HEALTH

A toehold for profit-making hospitals

Ann Kerr February 21 1983
HEALTH

A toehold for profit-making hospitals

Ann Kerr February 21 1983

A toehold for profit-making hospitals

HEALTH

Ann Kerr

The move was scarcely noticed by patients and staff in the corridors of the Hawkesbury and District General Hospital. But when a troubleshooting new administrator representing a private U.S.-based management corporation set up shop in the hospital last month, the effects spread far beyond the 116-bed institution near Ottawa. AMI (Canada) Ltd., a subsidiary of American Medical International in Los Angeles, is the first private company to acquire operating control of a public hospital in Canada.

Now, many observers who believe that Canadian health care should not be viewed as a profit-making business are expressing strong opposition to the company’s prescription of staff cutbacks and fee-for-service clinics for the financially troubled hospital. With other profit-oriented hospital management firms waiting in the wings, Ontario Liberal MPP and party health critic Sheila Copps says, “We see this as the wedge in the door for private enterprise.”

Since the start of public hospital and medical insurance in the 1950s and universal medicare in 1968, Canadians have grown comfortable with the existing system of government-controlled health care. Although there are still 61 private hospitals operating in Canada, virtually all of the remaining 1,152 are publicly funded and managed as nonprofit operations either by independent boards of directors or boards responsible to provincial health ministries. But rising health expenses have begun to create doubts about the efficiency of Canada’s vast health care system. The total cost of all health institutions in Canada from 1976 to 1981 soared 75 per cent—from $8 billion to about $14 billion. The costs, combined with complaints about long hospital waiting lists and bed cutbacks, have led politicians to trumpet the need for more streamlined hospital management. As a result, the Ontario health ministry, for one, recently urged hospitals to initiate such fund-raising programs as fitness classes and to raise additional money by

renting any available retail space. In that spirit, Kingston General Hospital now serves four-course gourmet meals to patients for a hefty $20 a plate. The Ontario ministry also approved AMl’s Hawkesbury bid.

But, while AMI has been given broad financial powers, it must still report to the hospital’s board of governors, and, as with other hospitals, the Ontario government will oversee its operations. For its part, AMI plans to provide the hospital with access to cost-saving international purchasing agreements for supplies and equipment as a means of easing the institution’s financial problems. It has already brought in a full-time administrator, John McLaughlin, former executive director of a New Brunswick hospital, and three consultants from the head office of American Medical International, which last year had profits of $78 million for

operations in 12 countries from Saudi Arabia to Australia. Not the least of AMI’S inducements to the Hawkesbury board was an agreement to arrange a $6million loan needed for a planned new 110-bed hospital. “On our own no bank was willing to lend us the money,” said board Chairman Laurent Cayen. AMI will also try to reduce the hospital’s annual operating budget of $7.5 million by $750,000 a year within three years and eliminate the yearly $200,000 deficit. In return, AMI receives $300,000 a year in fees and half of all savings beyond $750,000. That arrangement, however, is not likely to produce large profits, said McLaughlin. “We are going to need at least one more hospital to break even,” he added. “There must be 10 or 15 hospitals in the country whose boards have all kinds of trouble. Now they have an alternative,” said McLaughlin.

So far, no other AMI hospital contracts are pending, though the company says it is discussing the possibilities with a number of hospitals in Ontario and Alberta. Still, AMI’S plans have raised public concern. The Ontario Health Coalition and the Medical Reform Group of Ontario, which represents 200 doctors and interns, are alarmed by the company’s plans to cut staff at Hawkesbury by 10 per cent through attrition and to charge fees for such community services as a weight-loss clinic. “Privatization is a creeping menace,” says Dr. Debby Copes, a reform group member. “Private hospitals in the United States charge patients for cotton balls, BandAids and drugs, and the concern is that this could happen insidiously here.” The Canadian Union of Public Employees has also expressed fears that staff cutbacks would intensify an existing problem of hospital understaffing. “I think the Canadian instinct is right to be suspicious of the profit-making motive,” says University of British Columbia health economist Robert Evans. “If the hospitals have trouble meeting debt payments, you could get them pushing up lab rates and therapeutic charges to make more money.” Indeed, at one AMI hospital in Rock Hill, S.C., last year in-

patient charges rose 35 per cent.

Concerns about the health care consequences of such companies as AMI have been highlighted by an antitrust case before the U.S. Federal Trade Commission. The FTC is trying to determine whether AMI, which already owns two hospitals in San Luis Obispo County, Calif., created the danger of a monopoly by buying a third one in the same area SV2 years ago. “Our complaint alleges that higher prices and lower quality of care could result,” says Art Lerner, assistant director of the FTC’s bureau of competition.

Ontario Health Minister Larry Grossman does not see a danger in opening the door to AMI. “That FTC charge is only relevant in a jurisdiction that believes in competition between hospitals,” says Grossman. “If this [Hawkesbury] experiment shows taxpayers will be saving $1 million a year without affecting patient care, it may be something to look at in other institutions.” Grossman’s support of the profit motive is not surprising. Ontario’s hospital deficit grew from $12 million in 1980 to $100 million in 1982. Both Ontario and British Columbia have announced they will no longer bail out the institutions automatically every year.

The private sector’s biggest opportunities may be found in financing, constructing and operating new hospitals. Queensway General Hospital, a medium-sized institution in a west-end Toronto suburb, is now negotiating an agreement with Extendicare Ltd., a Toronto-based company that owns and operates nursing homes. Under the deal, the first of its kind in Canada, Extendicare would manage a proposed new 120bed chronic-care wing of the hospital and also share in the financing.

At least one other multinational subsidiary, Edmonton-based AMG Healthcare Canada Ltd., part of United Medical Enterprises of London, England, has entered the fray. AMG is currently discussing management proposals with several hospitals in Ontario, British Columbia and Alberta.

Health experts say the reasons for soaring hospital costs include the spiralling price of medical supplies, excessive hospital bureaucracy and waste caused by long-standing easy access to government purses. Paul Brown, executive vice-president of the Canadian Hospital Association, which represents 10 provincial hospital associations, recognizes that the Canadian health establishment makes a tempting target. He warns that if public hospitals want to escape the threat of being turned into private ones, they must develop their own money-making techniques and computerized management systems. Otherwise, it seems, the Hawkesbury experiment will only be the first,