Faith in privatization creates bigger provincial debts

Ricardo Acuña / ualberta.ca/parkland

In 1994 Ralph Klein's Minister of Municipal Affairs, Dr Steve West, made the following statement in the Alberta Legislature:

"I'll make this boldest of statements: There isn't a government operation, a government business, a Crown corporation that is as efficient as the private sector, and indeed they're 20 – 40 percent less efficient. You don't have to do a study. You can guarantee it because of the structure in the way they run their economics."

In many ways, that short statement perfectly encapsulated the attitude of the entire Klein government, and subsequently the Stelmach government, towards privatization of public services—they didn't care what the evidence said, they didn't care what examples from other jurisdictions demonstrated, they simply believed with all their hearts that the private sector was more efficient than the public sector, and as far as they were concerned, that made it so.

It was this faith-based policy making that ultimately led Ralph Klein's government to try to privatize everything in sight during the '90s:  from liquor stores to private registries to hospitals and surgical facilities. It's important to remember that in those days Ed Stelmach led the pro-privatization anti-spending choir as a member of the "Deep Six," a group of rookie MLAs that daily urged Klein to cut deeper and privatize more.

It was within the context of this fundamentalist fervour that the provincial government and the Calgary Health Region decided to make health care in Calgary "more efficient" by shutting down three of the city’s seven hospitals—despite the waiting lists that already existed and the city’s looming population boom. If it couldn't be sold off to private providers, it was blown up.

In 1996 Calgary's Grace Hospital, which then specialized in women's health programs, was sold off to a company operating as Health Resource Centre (HRC), a private, for-profit surgical corporation that set up shop selling hip and knee replacements in the formerly public hospital.

HRC proceeded to become a corner-stone of the Alberta government's pilot project to reduce wait times for hip and knee replacements in the province's major centres (the Edmonton facilities that were part of this project were all still public). Essentially, the province would buy hip and knee replacements from HRC and give them to Albertans who needed them—public funding, private delivery. This program yielded positive results in terms of reduced wait times, and the government and their acolytes celebrated this as an example of how the government and the private sector could effectively work together to ensure that everyone in the health care system wins—the private companies get their profits, waiting lists get shorter and the whole system is more efficient and costs less.

Except that it didn't. Because there were still public facilities offering hip and knee replacements, it was very easy to track the comparative costs and advantages to each of the two delivery methods. And those advantages were crystal clear:  surgeries at the private clinic were costing, on average, 10 percent more than the same surgeries at public facilities. Had the Premier and the cabinet bothered, at any time since 1994, to look up from their song-books, they would have quickly realized that their mantra of private system efficiency was seriously flawed, and could have taken steps to reverse these privatizations.

If they did look up they refused to believe what they saw, because the government continued to present the relationship with HRC as an unmitigated success, and continued to look for ways to bring even more private service providers into the system.

If the higher costs were not enough proof that private delivery of healthcare costs more and is less efficient, at the end of April Albertans received another dose of reality as Alberta Health Services announced publicly that HRC's parent company was in the midst of bankruptcy proceedings, and the AHS would have to step in to make sure services didn’t suffer.

So how does a government that ostensibly believes in the power of the unfettered free market step into a situation like this? Well, by asking the courts to appoint a receiver and by forking out millions of taxpayer dollars to ensure that financial insolvency does not limit the private clinic's ability to make money off Albertans with broken hips and knees.

By the time all is said and done, just keeping the facility operational through the period of receivership will cost Albertans at least $3 million, and possibly more. That, of course, is in addition to the cost of the surgeries conducted there during the receivership: surgeries that will still cost us at least 10 percent more than those same surgeries at public facilities.

The challenge is that because the government got rid of so many of its public facilities in Calgary in the '90s, there is now no capacity left for the public system to re-absorb the surgeries being done by HRC. The Alberta government's only two choices are to keep paying a ridiculous overhead to provide services at a company that is broke, or build new facilities so that the public system can go back to providing these services.
Ralph Klein and Steve West were fond of labeling groups like the Parkland Institute, who challenged their gospel of privatization with real facts and figures, as fear-mongers who were against innovation and improvement. Today, Albertans are literally paying the price for their government's fundamental fanaticism with privatization despite all the evidence to the contrary. The problems with this should be evident to all Albertans.  Now we just need to pass it on to the ones making the decisions.

Ricardo Acuña is Executive Director for the Parkland Institute, a non-partisan public policy research institute housed at the University of Alberta.

This article was published in Vue Weekly on May 21, 2010. Read the full article on the VueWeekly.com website.