I was slogging through Alberta Health Service’s Request For Proposals (RFP) for a 15 year $3 billion contract to provide lab services in the Edmonton area when the words of a former boss popped to mind…The world is divided into wolves and rabbits.
Wolves or rabbits? Care to guess what we are. Hint: we look really cute on Hallmark Easter cards.
There is no rationale for AHS’ decision to privatize all lab services in the Edmonton area. The “explanations” from AHS and Health Minister Horne boil down to this:
- The volume of tests is increasing 6% a year and patients need new sophisticated genomic and proteomic testing. This explains the need for a state-of-the-art lab but not why it must be privately built and managed.
- AHS’ contract with a private service provider (DynaLIFE) expires in Mar 2015. DynaLIFE provides 60% of lab services. What, the DynaLIFE contract can’t be renewed? AHS and Covenant provide the remaining 40% of lab services, they’re unaffected by the DynaLIFE contract, why can’t they continue?
- This is NOT about saving money. It’s all about improving quality and patient safety. Have you read the RFP???
At first glance, the RFP appears fraught with uncertainty, both financial and people related.
The bidder doesn’t know whether the Superlab will end up at the U of A or on the outskirts of Edmonton. This impacts the land calculation and whether the Public Health lab is in or out. He doesn’t know whether AHS will expand the services to include north-central Alberta. This impacts the size of the Superlab.
On the people side, the bidder must accept the unionized staff and their collective agreements but doesn’t know whether the Alberta Labour Relations Board will approve the transfer of the collective agreements or what it will cost to replace the employees’ LAPP pension plan.
Most importantly, the bidder doesn’t know whether he’ll reach an agreement with the medical and scientific staff (represented by the Pathology Practice Group). This one is a deal-breaker—without it the deal falls apart. That would make the Pathology Practice Group a wolf—somebody go tell them, OK?
Before we start feeling sorry for the bidder consider this: the inclusion of the Superlab in the so-called “services’ contract changes it to a property financing transaction that guarantees the bidder two profit streams.
First, the bidder puts up the financing for the land and the Superlab and Albertans will repay this with interest. And, if AHS doesn’t extend the contract at the end of the 15 year term, Albertans will pay a lump sum for the unamortized portion of the land and facility and buy back the equipment.
Think about this for a moment. Finance Minister Horner is adamant that the government should borrow for capital projects because it can get capital loans at the lowest interest rates on the planet. So why did AHS go to a private company, and not the government, to finance the Superlab? It’s like financing a car loan through GMAC instead of the bank.
Second, the RFP guarantees the bidder a “fair and reasonable return” on its operational investment and suggests a return of 8% without waiting for the bidders to work out their own profit margins. A wolf never tables his number first…why negotiate against yourself.
Third, the RFP includes a number of mechanisms like co-pay or user pay “utilization incentives” that allow the bidder to increase his profit.
Fourth, the Superlab will perform private sector and out of province testing.
It’s true that at any profits above the 8% threshold must be shared 50/50 with AHS, but a wolf (pardon me, savvy corporation) with a team of sharp accountants knows how to shift revenue to minimize profit and maximize bonuses and dividends.
Failure to perform
There is one flickering ray of hope. AHS has the power to terminate the contract, reduce its scope, impose financial penalties or take over if the bidder goes into default (eg goes bankrupt, undergoes a nasty change of control) or continually fails to meet key performance indicators (KPIs).
But there’s an alarming caveat—within six months of entering the contract the bidder can tell AHS the KPIs are unrealistic and AHS might revise them. A wolf will agree to almost anything to land a deal and then fight to change it once the ink is dry. Why make it easy for him?
Wolves and Rabbits
A cynic would see this as a $3 billion shell game designed to award 100% of the Edmonton and North/Central Alberta lab services to DynaLIFE (with DynaLIFE awarding the Superlab construction contract to a friend of the government).
That would make DynaLIFE and Mr Construction Company wolves who’ll make a tidy profit on risk-free deals backstopped by the Alberta taxpayer.
The rest of us are rabbits. “Patient” rabbits depending on AHS to do the proper inspections and monitoring to ensure their safety, ”employee” rabbits hoping to recoup the value of their lost pensions and learning to cope in an super-centralized workplace and “taxpayer” rabbits paying for a facility and a service that may not be necessary.
Come 2016, let’s remember who put us on the wolf’s path and elect a government not wedded to a super-centralized privatized model of service delivery. Then let’s demand that the government investigate the feasibility of terminating the contract on 12 month’s notice.
Let’s be wolves!