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Privatization and Accountability
We are pleased that the Law Amendments Committee is reviewing hospital corporation accountability. This is one of the ways that the democratic system works: through inviting public scrutiny and debate. Increasing democracy in the governance of public hospitals is an important and useful goal. However, whatever improvements to hospital accountability that may be achieved through this process may be offset by privatization of public hospital services. Unaccountability and undemocracy are quietly slipping in the back door via privatization and it is, we believe, most important to deal with this problem first. For us, the key problem is to stop the erosion of accountability through privatization.
Contracting-out and privatization undermine the accountability of public hospital corporations to the citizens they serve. When services are operated by the public hospital, local residents know they can approach the local hospital board or the provincial government if they have a complaint.
This is no longer the case where services are privatized. When a private contractor takes over, local residents may not always know who is ultimately responsible for the public service (or even that it is a public service). The public knows that a public authority (like a hospital board) has a responsibility to deal with their problems, but private companies are not perceived as being under a similar obligation. Residents may not realize that if they complain to the contractor, it is still possible to approach the public authorities.
This is serious when you see some of the problems. In Sussex sandwiches are delivered from the backseat of a car, with no refrigeration, no date and no ingredients list. Floors in the hospital kitchen are not cleaned as often because of the extra workload created by the “new and improved” food system introduced and managed by the private sector. Once the kitchen floors were not been cleaned for three weeks because of all the extra work created by the new private sector system! Equally as bad, food sometimes molds in the fridge because overworked staff do not have time to rotate it as required under the new private sector food regime. Food taken to the local nursing home is sometimes brought back and sold in the hospital cafeteria the next day.
Worse, when complaints are voiced to public officials, the public officials are not always in a position to ensure their staff implement required changes. Instead, they must attempt to get the contractor to comply – a task which is not always easy. Indeed, the fact that work is contracted out can be used as an excuse for not dealing with complaints, weakening accountability even more. Public officials can simply say that they do not control the actions of the contractor and can do nothing until the contract comes up for renewal.
Indeed in the school board system, public sector managers have sometimes found it easier to simply wait for the contract to expire and find a new contractor rather than try to get the contractor to comply with the needed requirements. In effect, with privatization the public sector mangers found it easier not to manage than to do anything about the deficiencies. They abdicated their responsibility to manage.
Long term contracts are often seen as advisable on commercial grounds. By tying the public authority to long term financial commitments, such contracts make public authorities less responsive to the needs and wishes of the public. For example, new board members may be powerless to alter past decisions which have resulted in poor quality services or which are unreasonably expensive. On the basis of a study on the amount of bio-medical waste, a ten year contract was established with a private contractor, Mr Shredding, to dispose of waste in Region 1 (Moncton area), Region 2 (Saint John area), Region 6 (Chaleur area) and Region 7 (Miramichi area). However, after the study was completed the hospitals re-evaluated what was truly bio-medical waste, reducing the amount of materials that had to be incinerated by the private contractor. As a result, the hospital system had to start paying the private contractor to ship in waste from another hospital (Dr. Everett Chalmers Hospital in Fredericton) to meet the contract quota. But the Fredericton hospital has its own publicly run incinerator that can burn waste more cheaply than the private contractor and without the problems of transporting such materials over our public roads. Management flexibility was lost and accountability eroded.
The public realm requires public disclosure but private firms have fewer obligations to conduct open proceedings, or to make known their reasons for their decisions. For example, how often do we see private corporations hold public hearings like the Law Amendment Committee hearings, where the public is asked to comment and debate on the accountability of the hospital corporations? This, of course, rarely happens precisely because business corporations are not accountable to the public – they are accountable to their owners.
While we are sometimes critical of public policies, we at least have the right, even the duty to comment on those policies, and hold the public authority accountable. In contrast, private interests view their policies as a private matter. This is perhaps as it should be – but it is inconsistent with accountability to the public. And the fact remains, it is still the public’s money that is being spent.
And of course, private firms have reason to be secretive. Competition requires secrecy. But commercial secrecy undermines accountability to the public. If you have to keep secrets from your competitors, you can hardly reveal details to the public. And indeed, even contracts between public authorities and private operators may be kept secret. How can a public body be accountable if the public cannot even see the terms of a contract for a public service? Further, real public accountability most go far beyond simple contract information. It requires reliable information on the internal operations of the body providing the service and the ability to affect timely changes in those operations.
There is also the possibility of a conflict of interest. And when strict checks are lacking, conflicts of interest or the appearance of conflicts of interest may increase. Baxter Foods won the bid for supplying milk to the Region 4 Hospital Corporation in the Madawaska area. According to press reports, Baxter Foods bid a little more than $8,200 higher than the lowest bidder. But Baxter also reportedly gave $9,500 to the local Hospital, presumably through the hospital foundation. The taxpayer appears to be paying for a higher bid. What’s more, donations to foundations usually provide tax breaks to the corporate or individual donor. So it is even possible that the taxpayer will be dinged twice, providing a tax break as well as paying for the higher bid. Without strict checks on the roles that private corporations play in our hospitals and hospital foundations, soothing these concerns will be difficult. Indeed, we are sceptical that any system of checks will keep ahead of creative accounting methods.
A democratic policy does not simply register preferences as the market is alleged to do. A democratic policy subjects preferences to public discussion. Deliberation creates opportunities for criticism and mutual persuasion, for interest to confront interest (and sometimes to discover common ground). The whole point of a democratic system is to set in motion these processes. Democratic politics, unlike the market, is an arena for explicitly articulating, criticizing and adapting preferences; it pushes participants to make a case for interests larger than their own. Privatization diminishes this public sphere – the sphere of public information, deliberation, and accountability. Compounding this problem, as decisions are removed from the public arena, the individual incentive for community participation is diminished.
The basic issue here is whether it is in the long term interests of New Brunswick for key public services to be controlled and operated by corporate executives who live in Houston, Toronto, or Chicago. In our view, local people who are accountable to local communities will do a better job than some corporate boss in a boardroom far away.
For example, the Bitove corporation has recently started to manage food services in the Region 2 Hospital Corporation. But there have been problems with Bitove in its home base in Toronto. The Canadian government took Bitove to court when Bitove did not pay any rent to Transport Canada for three years for the food services it provides at Lester B. Pearson Airport in Toronto. On September 15, 1995, Judge Sydney Lederman ruled that Bitove must pay $7.1 million in rent for the period between 1991 and 1994 and more for the remainder of the lease, expiring in 1999. Judge Lederman noted that the company’s chairperson created extreme political pressure after he called the then Prime Minister, Brian Mulroney, about the lease negotiations. Mr. John Bitove Sr. was a significant fundraiser for the Conservative Party. In court, Bitove argued that it was actually owed $4.2 million in rent credits. Bitove wanted this rent credit for the privilege of making $21.7 million in profit at the facility!
A second example is MDS. They, like Bitove, are part of the so-called Alliance Group of corporations that recently met with New Brunswick hospital CEO’s to discuss privatizing a wholesale variety of hospital services. MDS Health Group was incorporated in 1969 under the name Medical Data Sciences Limited. The company is headquartered in Etobicoke, Ontario and has dozens of subsidiaries. About 1/3 of the company’s revenue comes from government. Restrictions on health care expenditures in the provinces has prompted the company to “assist” hospitals and other public institutions by providing materials procurement, laboratory management, automation, and information systems. MDS is now negotiating with hospital authorities to set up central labs for hospital groups.
CUPE Local 1252, representing New Brunswick Hospital Workers, met with MDS on May 15. We were told by MDS that they will do a study of the laboratory system in the province – we are betting the MDS study will conclude that privatization is required! The privatized MDS lab system would likely include only one or two main labs in the province, with small feeder labs in some areas. MDS would manage the facility, own the equipment and likely (but not necessarily) employ the staff. MDS offered us no assurances regarding the maintenance of wages, the maintenance of jobs in the province or the maintenance of jobs within the regions of the province. They did, however, appear confident that they will take over lab work in the province. We have reason to believe that MDS may try to sweeten the pot by offering to place a call centre in New Brunswick, creating about 65 jobs. We presume this would be part of the sales pitch to the public by the government and MDS. For this, we may lose employment in the province and in the regions of the province. Worse, the expertise will go outside of the province. And once again the regional hospital corporation would lose direct control over the lab, even if MDS choose to place a lab in an area covered by the hospital corporation.
The Consequences of Privatization – the Case of the United States
Of course, corporations play a much larger role in health care and hospitals in the United States than in Canada. So it is, perhaps, relevant to note what has happened there, where health care privatization has been taken furthest. Most importantly, 40 million Americans, including millions of children, have no health care insurance at all, and another 30 million are grossly underinsured. The system is full of co-payments, deductibles, exclusions, fine print, and loopholes that cause incredible aggravation and sorrow for many, many American families.
There is growing concentration of more and more hospitals, clinics, and doctors practices in the hands of giant insurance companies.
Not surprisingly, the heads of the huge health care conglomerates are enjoying huge increases in salaries, bonuses, and stock options. The top ten health care CEOs are making from $10 million to $20 million a year. Stock assets and other executive benefits swell their total annual compensation by a staggering $3 billion. This is an enormous concentration of wealth in a few hands that could be used to improve the quality and quantity of health care.
Under the giant corporations, nurses and doctors are being muzzled. Their contracts with the conglomerates that run the American health care system prohibit them from dissenting, from informing the public about bad conditions in the hospitals.
The Americans are paying an awful lot more for their privatized health care system. The well known Canadian health care expert Michael Rachlis, M.D., reports that a little over 9% of the Canadian Gross Domestic Product is predicted to be spent on health care in Canada in 1996. In sharp contrast, the U.S. will spend approximately 15% of its GDP on health care in 1996. And this is for a system that is full of exemptions and loopholes and which offers limited or no coverage to more than 70 million people! Canada’s administrative costs are about 10 to 11 cents on the dollar, while the American administrative costs are more than double that: 22 to 24 cents on the dollar. The U.S. General Accounting Office estimates that 10% of all health care money spent in the US is defrauded just from overbilling and abuse, never mind the billing for unnecessary operations.
The consequences for the efficiency of our economy are also scary. The differential between the health benefit cost for U.S. and Canadian autoworkers was recently found to be $8 an hour (Canadian) or nearly $10,000 per year, per worker. That is quite a burden to carry for a corporate run system.
Concluding Remarks
The Report of the Auditor General for the year ended March 31, 1995 concluded:
“As activities and programs are privatized, the government faces an additional challenge in developing mechanisms for ongoing monitoring and reporting. Accountability does not cease simply because an activity or program has been privatized.”
We think the problem that the Auditor General raises is a real conundrum. He recognises, as we do, that turning public services over to private enterprise raises problems of public accountability. But, unless the private corporations are thrown open to the public scrutiny and public control that we seek for our public bodies, we see no other result than a move away from public accountability and democracy.