Public-private university hospitals: the dice were loaded from the beginning
December 18, 2018 | As local president for the APTS unit at the Centre hospitalier universitaire de Montréal (CHUM), Sandra Étienne is all too familiar with the situation. The union team is shocked at the difficulties they’ve encountered in trying to reduce the noise generated by a magnetic resonance device or fix the fire doors that were abnormally difficult to open. With the P3 model, all work must be approved and inspected by the private partner, even if the hospitals find that the cost estimates given by private consortiums are too onerous and prefer to give the contract to another firm.
This is only one small example of the aberrations connected with these obscure P3 contracts. In late November, Le Journal de Montréal and TVA revealed the exorbitant costs ultimately paid by taxpayers for the maintenance of the McGill University Hospital Centre (MUHC) and the CHUM. At the MUHC, the installation of electrical outlets for two freezers cost more than $8,000, while roughly $35,000 was paid to remodel the director general’s office and install an additional door. At the CHUM, the installation of automatic teller machines was billed at $40,000, and another $4,000 was charged to paint the floor of the morgue. This is due to the fact that the private partners can include management costs and profits (of 8% to 20%) on the bill, as well as the subcontractors’ costs. This could jack up the costs by 26%, just because it’s a P3.
Additional hidden costs like these are an integral part of the P3 management model. Private contractors don’t have to factor in unexpected costs when preparing their quotes, and can just bill for every bit of unforeseen work as if it were a new service.
On top of everything, the hospital can’t call for tenders because the private contractor has an exclusive maintenance contract. With no competitors, the latter is free to inflate the price.
In Britain, the situation was very similar. In their P3 hospitals, it cost up to $500 to change a light bulb, $91 to replace a key, and $590 to install an electrical outlet. This example is relevant because it was there that the P3 model was born and first developed. It’s not surprising to see the same thing happening here. Faced with this kind of financial hemorrhaging, the British have now decided to buy back a number of private-public contracts.
Buy back the contracts?
A study conducted in 2014 by IRIS, a socio-economic information and research institute, showed that a buyback of the two P3s (at the CHUM and the MUHC) could generate several hundred million dollars in savings, based on the most conservative estimates, and as much as four billion dollars, using the most realistic estimates. Unfortunately, due to the extreme lack of transparency of these contracts, we can only offer certain hypotheses.
The government would be all the more justified in cancelling the contract with the MUHC, given that it was obtained fraudulently. The institution’s former assistant director pleaded guilty on November 26, 2018 to charges of fraud to the tune of $20 million. This case is considered to be “the greatest corruption fraud in Canadian history.” SNC-Lavalin’s former CEO and president of its construction division paid bribes of $22.5 million to two senior executives of the MUHC (Yanaï Elbaz and Arthur Porter, who died in 2015) to win the $1.34-billion contract to build the MUHC as a private-public partnership.
Today, the MUHC acknowledges that SNC-Lavalin’s costs are exorbitant and is refusing to pay them in full. The lack of transparency of such contracts (which the APTS and our partners in the Coalition des CHUs sans PPP denounced when these projects began) has now been confirmed, as have our fears: the work that’s actually needed over time doesn’t necessarily correspond to what is initially planned.
Responding in January 2018 to the Québec government’s $233 million payment to settle disputes over cost overruns for construction of the CHUM and the MUHC, the Québec doctors’ coalition, Médecins québécois pour un régime public, demanded that the contracts with these consortiums be made public and that serious consideration be given to cancelling at least the maintenance contracts. “Not only did the decision to build these hospitals under a public-private partnership cost us more, it also removed our control over the construction and maintenance processes.” The coalition characterized these P3s as a “bottomless pit of legal costs” – for every problem detected, there’s a legal battle “to see who has to pay rather than simply remedying the situation.”
The Liberal government had adamantly refused to disclose any information about the contracts, expenses and commitments made by the government and its representatives in public-private university hospitals. In an interview with a Montréal radio station on November 28, health and social services minister Danielle McCann promised a transparent approach on the issue and responsible management of public funds. While acknowledging outright that the P3 format is not appropriate for hospitals, she didn’t go so far as to call into question the contracts binding the Québec government to the consortiums for 25 more years. Are we really going to continue throwing money out the window until 2044?