Thursday, October 27, 2005

Unhealthy decisions

Yesterday, the Tyee covered the issue of public-private parnerships generally. Today, Murray Dobbin examines the role of P3s in the medical system in particular. And it's not a pretty picture:
The mix of profits and hospitals is deadly and costly, as revealed by McMaster University studies published in the Canadian Medical Association Journal. "Canadian governments would pay an extra $7.2 billion in annual health care costs if Canada switched to investor-owned private for-profit hospitals," reported the study. According to Dr. P.J. Devereaux, the lead author of the study, "With for-profit care, you end up paying with your money, and your life." He based his statement on a previous study by the group that showed the switch to for-profit hospitals would result in an additional 2,200 unnecessary deaths every year.

It could also result in massive fraud, as it has in the US. In the mid-1990s, health-care fraud by U.S. corporate giants was estimated as high as $100 billion annually. Washington actually started catching up with some of these crooks by 1994 -- the year that National Medical Enterprises paid a then-record $379 million in fines and restitution for fraud in psychiatric services. In 1997, the mega-giant Tenet Healthcare Corp. agreed to pay $100 million to settle claims that patients were kept in psychiatric hospitals simply to maximize insurance payments. Columbia/HCA Health Corp., America's largest hospital company, agreed to pay $745 million to settle civil fraud charges for systematically ripping off Medicare.

As models worth following go...well, this isn't one of them.

But then, the U.S. system is a more private-based one where there probably isn't as much government input into the initial costs. Surely there must be some record of success elsewhere, whether in Canada or abroad, to explain the provincial move toward P3s?
The record of P3 hospitals in Britain is so appalling that the Labour government (still inexplicably committed to the model) has said it may have to raise taxes to pay for the huge additional costs attributed to the P3s. The P3 promise of cost-saving has been debunked so thoroughly that most advocates no longer even make the claim. The P3 contractor not only pays a higher interest rate for financing but also extracts a return on investment averaging 16 percent. Add to that the astronomical executive pay packages and you can see why costs skyrocket. The only course left to "save" money is to decrease staff and downgrade their qualifications. In Britain, after almost fifteen years of P3s, the number of nurse managers was down 35 percent, registered nurses down 14 percent and untrained staff was up 24 percent.

The P3 hospital in Brampton, Ontario provides a good example of how costs get out of control. The original price was set at $350 million. But then the government sat down and negotiated with the overall contractor and all the individual service providers. By the end of this process the price was $550 million. The Abbotsford example is just as telling. Before the 35-year contract was even signed, the payments to lawyers and consultants were a staggering $24 million. The total cost went from $210 to $355 million; the cost of the yearly operating contract went from $20 million to $41 million.

It should be fairly obvious that reduced services for a higher price means a bad deal for the taxpayer. But in fairness, the immediate political benefits of a low cost estimate can make such a move appealing to a government. The essence of a P3 is to lock the government into an inefficient long-term commitment solely for the sake of being able to present an artifically low current cost number...but that lower number undoubtedly looks nicer on the current balance sheet. And if the costs under the contract soar under a subsequent government, that's all the better politically for the party which first signed the deal.

In order to prevent that sort of political calculation, we need to remind our elected officials that the long-term costs of P3s will come due eventually...and that they'll be held responsible for imposing those costs on us. We know the dangers of deficit spending; we shouldn't be fooled into what amounts to a less efficient, more dangerous way of accomplishing the same thing.

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