Category Archives: P3 Hospitals

Expensive systems — privatization in other public sectors should be a warning for health care

Health care is not the only public service to experience reckless ventures into private delivery of key components.

The Auditor General of Ontario (AG) raises numerous questions about costly private delivery of public services in his recent review of Metrolinx, the regional transportation planning body in the Greater Toronto Area.

Among the findings in Jim McCarter’s 2012 annual report –

  • Metrolinx’s Presto Card is among the most expensive transit fare card systems in the world, yet it does little more than substitute as a fare purse.
  • The airport-downtown rail link was delayed after the private partner in the public-private partnership (P3) had to pull out due to questions raised by its financial backers over optimistic ridership projections. The projected high cost of fares is anticipated to weaken ridership. The P3 was eventually abandoned.
  • Cost have dramatically increased on the Union Station revitalization project – the construction being handled by Vanbots, a division of Carillion Construction, one of the consortium partners presently bidding on the new Kingston hospital to replace that city’s aging mental health facilities.
  • Metrolinx is using the P3 model for a three kilometre spur line that connects to the GO line from the airport. The auditor notes that the P3 option was $22 million more expensive, justified by the now familiar “risk” calculation of $42 million on a $128.6 million project. Like the William Osler Hospital, the auditor raises questions about the methodology used to calculate such risk and justify the more costly option.
  • The consulting firm used to evaluate the risk on the spur line project won the bid to provide engineering and technical advisory services to support planning and procurement for the project.

By now this mess is all beginning to sound very familiar.  

Dalton McGuinty initially ran an election in opposition to Tory plans to build two P3 hospitals in Brampton and Ottawa. In power, he not only signed off on those deals with only superficial changes, but he embarked on more than 30 more such projects in the hospital sector alone. Ontario now represents more than half of all P3 projects in Canada.

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Report identifies cost of Ontario P3s: 16 per cent more

Ontario has moved much faster than other provinces in establishing private contracts to design, build, finance, maintain and sometimes operate public infrastructure projects. Despite many warnings, the province appears to have dismissed evidence that shows these kinds of arrangements can be poor value for the public purse.

Now researchers at the University of Toronto have put a price on what the average public-private partnership (P3) costs compared to traditional public procurement – 16 per cent more.

The new research, highlighted in Sunday’s Globe and Mail Report on Business (ROB), looks specifically at 28 Ontario P3 projects worth more than $7 billion. At a 16 per cent premium, that means the projects in the study would have been about $1.12 billion less had the government tendered these contracts under traditional procurement rules. Or about what it would cost to build three Peterborough hospitals.

Most of this additional expense is based on the higher cost of borrowing for the private sector, although about 3 per cent is additional transaction costs, one of the reasons why so many law firms belong to the Canadian Council for Public Private Partnerships.

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Could it happen here? P3 hospital costs leading to meltdown of health care in the UK

If you wanted to see the future of Ontario’s health care, there used to be a time when you could simply fly to Tony Blair’s Britain and have a look.

Blair couldn’t privatize fast enough, creating more than 200 PFI projects – private finance initiatives – to replace aging infrastructure.

It really was the ‘no money down’ miracle. Hospitals, schools and roads were all built using private money. These facilities would be run by the private consortia for periods typically between 25-30 years, although some for as long as 60 years.

Typically no money down usually translates into whopping high borrowing costs, costs that will have to be paid back some day.

Now the PFI party is over in Britain, the country is experiencing one helluva hangover.

Ontario has initiated more than 30 hospital projects under similar schemes, the most notorious being the William Osler Health System in Brampton. The Osler public-private partnership (P3) has been well documented as a costly blunder. The Ontario Auditor General highlighted almost $400 million in higher costs to develop Osler privately. This does not include the almost doubling of construction costs between the first estimates and the final contract sign off.

P3s are North America’s version of the PFI. In Ontario, just to add to the confusion, these are sometimes also called AFPs – alternative financing and procurement projects.

Like the UK, the more disastrous these deals looked, the more the government kept on signing new private deals.

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Health Systems: Why can’t we be less like the US and more like Denmark?

Compared to the United States, Canada’s health care system appears to be the model of efficiency. The United States continues to be an outlier when it comes to health care. Americans spend a greater percentage of their overall economy on health care than in any other United Nations member state – except for East Timor. And yet many of their key outcome indicators are well below countries that spend far less.

According to international OECD data (Organization for Economic Cooperation and Development), in 2008 Canada spent $4,079 (US) per capita on both private and public health care. The US spent $7,538 (US).

What we often forget in these comparisons is about a third of our health care system is very much like the United States. Most of us do not pull out our OHIP card when we visit the dentist or the pharmacy. When Dalton McGuinty was first elected in 2004, he established a dedicated health care tax that brings in about $3 billion per year. He also delisted physiotherapy, eye exams and chiropractic care. Most now have to pay for these services through private insurance or out-of-pocket. Now we are seeing more Ontarians, tired of waiting for home care services, paying out-of-pocket to get service from the same agencies that are responsible for providing public care. According to the Ontario Home Care Association, 20 million hours – or about 40 per cent of home care – is purchased privately.

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Time for a review of Ontario’s P3 program

Dalton McGuinty fought the 2004 provincial election vowing to stop two public-private partnership hospital deals. After he got elected, he not only signed off on deals to build Brampton’s William Osler Health Care and the Royal Ottawa Mental Health Centre, but he opened the door wide to more than 30 additional privatization deals.

Using the private sector to design, finance, build, and operate public infrastructure has been controversial from day one.

In Britain, where they refer to P3s as Private Finance Initiatives (PFI), there has been considerable documentation into how these privatized hospitals have cost much more, distorted public priorities and inflated long-term debt obligations.

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Royal Ottawa: Is the private operator trying to push costs onto the public payroll?

Approaching its five-year anniversary, a new wrinkle has developed between the private developer and the public tenant over the cost of dieticians at the Royal Ottawa Health Centre.

The hospital has twice tried to advertise a position that should, under its contract, belong to Carillion, the P3 operator.

The blurring between public and private has been a continual problem at the mental health hospital.

Now the private consortium is trying to offload one of its costs – for an administrative dietician – on to the hospital payroll. The question is, if Carillion is supposed to be providing this service, why is the hospital being asked to essentially pay twice for the same service?

Having originally listed the position as an administrative dietician, the hospital corrected the situation by re-advertising for a charge dietician — a position that works directly with patients to recommend appropriate diets. However, the job description is still mostly that of an administrative dietician, which is responsible for working with food services in preparing the diets.

It appears the hospital and Carillion have simply changed the title to duck responsibility for the costs.

The Royal Ottawa has had continual food services problems since moving into the privatized facility in 2006. Part of the problem has been the lack of appropriately credentialed staff in food services, which is the responsibility of Carillion.

It is not the first time there has been a dispute over costs at the hospital, managers claiming after the first year that the lack of access to the services contract means they are continually asked to pay for costs our of their clinical budgets.

The Royal Ottawa Mental Health Centre opened October 27, 2006 claiming to be on time and on budget. However, staff quickly complained to the Ministry of Labour that they had been moved into the building prematurely and faced significant safety risks as construction continued around them.

After delays with the other P3 – Brampton’s William Osler Hospital – there was a significant push to validate the privatized option by showcasing the Royal Ottawa. There was also one other incentive to move in early – the private consortium would not be paid until the premises were occupied.

The ROMHC was originally designed to hold 284 beds at a cost of $95 million. It opened as a 188 bed hospital costing $146 million under the P3 arrangement.

In 2010 Carillion’s international operations posted almost $300 million Canadian in reported profit, an increase of 24 per cent over the previous year.

P3s deserve to be an election issue even if nobody wants to talk about it

“We have a responsibility to taxpayers … to build schools at a reasonable cost. That absolutely rules out P3s.” – Jane Purves, Nova Scotia Education Minister (PC) 2001 

As the coming Ontario election unfolds, it is unlikely the opposition parties will go after the dozens of public-private partnership (P3) deals signed by the McGuinty government.

The darling of governments of all stripes who want to move debt off-book, P3s have been a costly boondoggle across Canada. At a time when the public is bracing for cuts to public services, the lack of debate over the squandering of billions on such enterprises is sadly missing.

The Maritime Provinces were early adopters of so-called “public-private partnerships” to build and operate public infrastructure.

The Confederation Bridge betweenPrince Edward Island and New Brunswick was one of the first mega projects developed under the model, while Nova Scotia embarked on an ambitious program to privately build and operate public schools.

The Nova Scotia government of Russell McLellan lost an election over the P3 issue after the news media jumped all over scandals involving costly public schools built and operated under such contracts.

Secrecy, or what the corporations like to call “proprietary information,” has kept watch dogs and even government itself from prying too closely into these deals.

Remarkably, Rosalind Penfound, Nova Scotia’s deputy minister of education said of the deals in 2010: “The P3 contracts don’t allow us the ability to audit some of the provisions of the contract, so that significantly hampers some of the monitoring that we can do.”

In PEI the Federal government put strict conditions on the privatization of the Confederation Bridge project. The Federal subsidy was not to exceed the cost of its support to the former ferry service, and that tolls to the public must not exceed charges from the former ferry crossing. These rules did allow for toll adjustments based on 75 per cent of the consumer price index, and the Federal subsidy was also indexed.

In 1988 the auditor estimated the ferry subsidy amounted to between $26.7 million and $36.9 million. The subsidy to the P3 consortium was set at the high end of that scale — $35.3 million annually. In addition the Federal government also incurred direct costs: $41 million for highway improvements leading to and from the bridge, $46 million for project development, and $15 million for regional development in PEI and New Brunswick.

While P3 promoters boast they bring projects in on time and on budget, it took 10 years to discover there was a $330 million cost overrun on the $1 billion bridge.

That overrun, combined with higher than expected maintenance costs, may mean that the rules may change, a bailout may have to take place, or the Federal government may have to assume ownership – and related financial obligations — of the bridge.

The bond ratings agencies lowered Strait Crossing Ltd – the P3 operator – to a BBB (lower medium grade) in 2010.

This is what the Dominion Bond Rating Agency had to say a year ago: “Limited operating flexibility is left to weather potential future shocks or a protracted period of soft economic conditions, which prevents DBRS from restoring the stable trend on the rating prior to its discontinuation.”

Discontinuation? Yes, the company actually asked to be taken off the bond rating service.

Two major projects, two major failures.

Ontarians deserve to know what’s in all the McGuinty P3 deals for hospitals, court houses and other infrastructure development. The Ontario Health Coalition and a consortium of  unions  – including OPSEU – spent more than two years in court to get most of the details of the William Osler Hospital deal– the first privatized general hospital to open in Canada.

What we found was a terrible deal for the public. The Ontario auditor later confirmed what we already knew – the Osler cost nearly $500 million more than had the project been undertaken as a traditional public procurement.

With impending delays and high costs associated with the Osler, the government decided to make a showcase of the Royal Ottawa Hospital when it opened as a P3 in October 2006.

The project was touted as on time and on budget, but neither was true.

The hospital was originally scheduled to open in July, not October. Even in October the Royal Ottawa wasn’t ready. Fire alarms didn’t work. The wireless environment was so dysfunctional the hospital later spent $1 million hard wiring the building. Magnetic doors failed. Personal alarms were absent, putting staff at risk. To make a point about the efficiency of P3s, the hospital was occupied anyway.

The Royal Ottawa was originally planned in 2004 as a 284-bed facility at a cost of $95 million. Instead it opened as a 188 bed facility that cost $146 million.

This election, politicians of all stripes should be asked about these privatization deals.

The auditor has already warned us that health care is facing considerable austerity under the Liberal plan. The Tories are offering even less in funding.

Can we really afford to squander billions more on these boondoggles while our hospitals and community-based health providers struggle? The William Osler and Royal Ottawa are only two out of more than 150 hospital corporations in Ontario. There are more than 30 hospital P3 projects in various stages of development. And that’s just health care.

This needs to be an election issue, even if all three parties are reluctant to talk about it.