BUSINESS/ECONOMY

Privatizing public care

Michael Salter February 25 1985
BUSINESS/ECONOMY

Privatizing public care

Michael Salter February 25 1985

Privatizing public care

BUSINESS/ECONOMY

Michael Salter

It is an unlikely setting for the latest incursion by private enterprise into Canada’s public health care system. Still, the 235-bed hospital in the sleepy town of Wetaskiwin, Alta. — population 10,022—now occupies a significant place on the medical map. Last December a 15-bed alcohol and drug addiction treatment unit opened in a converted nurses’ residence on the grounds of Wetaskiwin’s General Hospital. The operator of the pilot project—Vancouverbased Comprehensive Care Corp. (Canada) Ltd.—is a subsidiary of California-based Comprehensive Care Corp., which owns or manages 150 profit-making alcohol and drug treatment centres in the United States and which in 1983 had revenues of $115 million (U.S.). CompCare is only the second private U.S health services firm to enter Canada. But other giant American firms are now preparing to move north from a country renowned as a bastion of private health care.

Traditionally, the boards of directors of Canada’s 1,117 public general hospitals refused to emulate the U.S. system of private hospitals. Many critics say that as a result of having profit as a goal, the United States now has a twotier hospital system, with private institutions for the rich and public ones for the poor. Now, Canadian hospitals are squeezed by shrinking health care budgets and increasing hospital operating costs, which in 1982 accounted for $12.5 billion of Canada’s $30-billion health care bill. Chronically short of funds for expansion and often beset by costly administrative inefficiencies, hospitals are desperately searching for ways to control costs and raise money. And one method that many boards are now considering is hiring big private firms to take over the hospitals’ management.

Private firms offering health care services say that they can manage hospitals using public money more efficiently—and still make a profit. The executives of private health care companies, who point out that patients do not pay extra for their firms’ services, say that their bulk buying power and computerized administrative systems are the key to saving hospitals money. But critics say that the creeping privatization of health care is a dangerous trend. They insist that hiring private firms for

hospital management and patient treatment is a procedure that must be examined by provincial governments, who are responsible for the public health care system. Christa Freiler, program director for the Social Planning Council of Metro Toronto and author of a 1984 report titled “Caring for Profit,” con-

tended, “We risk selling out our health care system to the private sector by default.”

Officials at Wetaskiwin General Hospital, which is located about 60 km south of Edmonton, said that they decided to hire CompCare because of its extensive experience in alcohol and drug addiction treatment. Peter Langelle, the hospital’s executive director, said, “It would have taken us at least two years to set up our own program from scratch.” The estimated cost of the Wetaskiwin pilot

project —between $200,000 and $400,000—will be shared by the hospital and CompCare. The company will not earn a profit on the venture, but it will use the project to sell its firm throughout Canada.

In Canada the only instance of a U.S. firm taking over the management of an

entire hospital is found in the Ottawa Valley town of Hawkesbury. Two years ago the board of directors at the Hawkesbury and District General Hospital enlisted the help of a private sector firm to help it obtain funds. The hospital wanted to build a new, 110-bed, $16million facility. Two-thirds of the money was to be provided by government, with the hospital responsible for the rest. But with the hospital operating at a deficit, the board found itself unable to secure a loan. Eventually, the board

turned to American Medical International (Canada) Ltd., a subsidiary of California-based AMI Corp., which runs 160 hospitals in 13 countries and last year earned $155 million (U.S.) on revenues of $2.4 billion. In negotiations with the Bank of Montreal, AMI Canada secured the hospital’s loan and guaranteed the bank that the company would do business with it in the future.

In late 1982 the hospital’s board turned over the institution’s management to AMI Canada, granting the company a 12-year contract at $300,000 per year, as well as half of any surplus profit over $750,000. AMI delivered on its commitment to efficient management. The company eliminated the hospital’s $350,000 deficit and earned profits of $369,000 in 1983.

The growing interest in private management firms created by AMI’S success at Hawkesbury and CompCare’s new contract at Wetaskiwin has convinced other profit-making health care companies in the United States to make a major sales effort in Canada. One company that is preparing to do business is Tennessee-based Hospital Corp. of America, the largest private hospital firm in the world. With 389 hospitals in the United States, 26 hospitals overseas and revenues of $4.2 billion (U.S.) in 1984, the company received approval from the federal Foreign Investment Review Agency last November to engage in hospital management and construction in Canada.

Gregory Brough, vice-president finance and administration in Hospital Corp.’s international division,told Maclean's that company executives have already visited government officials in British Columbia, Alberta and Ontario and they plan a second trip this month to meet key hospital personnel. Said Brough: “Within 10 years there will be a crying need for private investment because Canada is not spending enough public money to renovate its hospitals, let alone build new facilities.”

Another company that has already made its move to Canada is Pasadena, Calif.-based Beverly Enterprises. Operating 102,000 beds in 906 nursing homes and with 1984 earnings of $46.9 million on revenue of $1.4 billion (U.S.), Beverly is the largest private operator of nursing homes in North America. Last December Beverly bought Toronto-based Bestview Holdings Ltd., which owns or operates 10 nursing and retirement homes in Ontario. Bestview is currently negotiating to build a $60-million combined nursing home and condominium project for the elderly on the grounds of the Ottawa Civic Hospital. And in 1986 Beverly will begin managing a 100-bed nursing home built on the grounds of Central Hospital in downtown Toronto.

So far, there are no Canadian hospital

management firms similar to those in the United States. But Canada’s largest nursing home operator, Toronto-based Extendicare Health Services Inc., is moving quickly to convince hospitals to let it manage their chronic care facilities. Extendicare has already scored a major success. The company provided $4.2 million of the $5.9-million cost of a new 120-bed chronic care wing, which opened last December at Toronto’s Queensway General Hospital. In exchange for the money, Extendicare was granted a 20-year management contract. To operate the wing Extendicare receives from the government $131.24 per patient per day, from which it covers costs, takes its management fee and intends to recover its capital investment. Gary Chatfield, president of Extendicare Hospital Management and Development Ltd.—a subsidiary formed to manage the wing and to pursue contracts—insists that the company “has not created a private, parallel health system at Queensway.”

Private companies are also encouraged by the new Conservative government’s attitude toward the private sector’s interest in health care.

Last fall federal Health Minister Jake Epp appointed Bud Sherman, a former Manitoba health minister and now a health care consultant, to conduct a four-month study on ways of increasing the involvement of private companies in health care management and building projects. Said Epp: “We will be suggesting ways the provincial governments can move forward in this area.”

But hospitals are not likely to embrace the private sector too quickly, experts say, partly because of their traditional conservatism and partly out of fear of losing control of their institutions.

Said Jean-Claude Martin, president of the Ottawa-based Canadian Hospital Association:

“The trend to privatization is not yet significant, but it poses a significant number of

problems.” Among those problems, Martin noted, is the charge that private U.S. hospitals favor profitable, technology-intensive treatments, ignoring time-consuming, labor-intensive care that generates less money.

The hesitancy of hospital boards is reflected in the relative lack of success of the U.S. firms currently active in

Canada. Despite AMI’S glowing record at Hawkesbury, the company has not yet won any other contracts.

CompCare Canada has had its problems too. Operating in Canada since 1982, the company had no revenues until late in 1984, when it landed a contract to operate the Royal Bank of Canada’s Access program, a counselling service for employees. Declared Charles Bell, program manager of We -taskiwin’s new Care Unit: “It is not that sim5 pie. First, this project must be successful. Then, s it is going to take a lot I of selling.”

Suzanne Zwarun