Improve the public system instead of privatization: Solutions series part III
This is the third part of a series examining the policy barriers and solutions to reducing surgical wait times in Canada. The series has been adapted from a research paper by Andrew Longhurst. The complete paper with reference list for the footnotes is available here.
Canada’s limited success reducing wait times over the last two decades has given rise to calls for both private health care financing (also called two-tier health care) and private, for-profit surgical delivery (also called outsourcing). With many provinces now pursuing expanded private, for-profit surgical delivery, this series evaluates the evidence about the relationship between outsourcing and wait times.
Private, for-profit delivery of publicly funded procedures means that the government pays for these procedures but they are performed in facilities owned and operated in the private sector, often by groups of surgeons and investors. In response to the surgical backlog and the severe pressures placed on public health care systems, provinces are pursuing unprecedented private, for-profit delivery of publicly-funded surgeries and diagnostic tests:
- In BC, payments to private surgical and medical imaging clinics totaled $393.9 million between 2015/16 and 2020/21 and public funding increased from $47.9 million in 2015/16 to $75.4 million in 2020/21 – an increase of 57 per cent. This includes payments to at least two private facilities that have been found to have engaged in unlawful extra-billing in contravention of the Canada Health Act. Although there has been a significant investment in public sector capacity, outsourcing of surgeries and diagnostic imaging remains part of the province’s pandemic backlog response.
- In Alberta in 2020, the province announced the Alberta Surgical Initiative, with a plan to double the total share of outsourced surgeries from 15 to 30 per cent. The province also created a new legislative framework that would allow “chartered surgical facilities” to operate like private hospitals performing more complex surgeries with overnight stays. In April 2022, plans were announced to outsource 35,000 cataract surgeries to chartered surgical facilities – a 25 per cent increase from the previous contract of 28,000 per year. Then in June 2022, Alberta government revealed a new agreement with Surgical Centres Inc. and Enoch Cree First Nation to outsource 3,000 hip and knee replacement surgeries per year. Also in June 2022, details were revealed that the province plans to send patients to a BC private surgery clinic.
- In Saskatchewan in June 2022, the province announced plans to outsource hip and knee procedures to a private clinic, in addition to an existing contract with Surgical Centres Inc. which received more than $10 million in 2021. In July 2022, plans were finalized to issue a request for proposal for a private company to build a new private surgical centre.
- In Ontario in February 2022, the government announced plans to allow private surgical providers to operate private hospitals, which are currently prohibited under Ontario legislation. In January 2023, the Ontario government announced a phased strategy of greater for-profit sector involvement that includes expansion of the number and types of surgeries and diagnostics performed in private facilities.
- In Quebec, between 2020 and 2021, the province signed around 20 new contracts with private clinics to increase outsourced volumes, with contracts that exceed $100 million.
- In Nova Scotia in March 2022, provincial government suggested it would look to outsource surgeries to private clinics to work down the backlog.
The research shows that private, for-profit delivery of surgical services does not reduce wait times in the public system over the long-term. For-profit delivery involves higher costs than in the public system, can result in lower quality care and unnecessary surgeries, and risks increasing wait times in the public system by destabilizing the public hospital workforce.
- Read more of the Solutions Series: Andrew Longhurst presents an 11-part series on ways to reduce surgical wait times in Canada
More expensive than not-for-profit delivery
For-profit providers are more expensive as a result of higher administrative costs, the requirement to return profits to investors, and additional costs for government associated with creating and enforcing quality and safety regulations.
Evidence from the US evidence shows that private, for-profit facilities have higher administrative costs due to more complex systems for billing and securing funds for capital expansion, and have higher compensation rates for senior administrators. The very nature of for-profit delivery pushes costs upwards as investors require a profitable return. One study found that investors typically require a 10-15 per cent return from for-profit facilities—a requirement that does not exist for public and non-profit facilities. Another study found that US for-profit hospitals are 20 per cent more expensive than hospitals operated by non-profit organizations.
Costs per procedure are often higher in for-profit facilities than in the public system. In England, the Department of Health acknowledged that procedures purchased from private surgical centres cost, on average, 11.2 per cent more than the English National Health Service (NHS) equivalent in the public system. The actual costs could be even higher since these contracts are subject to commercial confidentiality and have not been released publicly.
To get private providers to enter the market, governments often guarantee them payment regardless of the actual volume of services they provide. In England, as a result of “volume guarantees”, close to £500 million of public funds were paid to private surgery centres for procedures that never occurred. In addition, the government had to buy back some of the private centres at the end of the contracts.
Available evidence shows that procedures performed in for-profit clinics in Canada are also more expensive than in public hospitals:
In BC, the workers’ compensation system (WorkSafeBC) often uses private clinics for expedited surgeries. A 2011 study published in Healthcare Policy found that WorkSafeBC paid almost four times more (375 per cent) for an expedited knee surgery in a private clinic ($3,222) than it would have cost for a non-expedited surgery in a public hospital ($859), despite worse return-to-work outcomes for patients receiving private-sector surgery. In 2011, the Vancouver Island Health Authority abandoned plans for private MRI delivery because it determined the public sector was more cost-effective. At the time, it was estimated MRIs cost around for $250 each, while the private sector charged four times that rate. Again, in February 2016, the Vancouver Island Health Authority paid for-profit clinics nearly twice the per-scan price ($550) for MRIs than the cost to perform them in the public system ($300).
In Alberta, the provincial government ended contracts with the for-profit Health Resource Centre in Calgary for publicly funded surgical services in 2010 because their services were more expensive than the public sector (and the company went bankrupt).
In Quebec in 2014, the provincial government ended contracts with two private surgical centres (Rockland MD and the Eye Institute of the Laurentians) because the per case costs were lower in the public system. After the public sector repatriated surgeries from the Rockland MD clinic, the waitlist for day surgeries in the public system decreased. However, the Quebec government has since returned to outsourcing surgeries at private centres, including Rockland MD.
The private delivery of publicly funded surgeries and diagnostic tests is a form of public-private partnership (P3). In their review of the Canadian and international evidence on the cost efficiency of P3s, professors Anthony Boardman (University of British Columbia), Matti Siemiatycki (University of Toronto) and Aidan Vining (Simon Fraser University) identify the following disadvantages of P3s in terms of value for money for taxpayers: P3s have higher financing costs and higher private-sector transaction costs and risks; private-sector profit margins are built into contracts and are a cost to government; and significant (and often unaccounted for) “transaction costs” are borne by government to initiate, negotiate and manage the P3 relationship over the life of the contract.
But unlike other P3 arrangements where government assumes ownership over the capital asset at the end of the contract term, provinces’ model of outsourcing surgeries and diagnostics means that the public has helped pay for the health facility and equipment, but the private sector owns it. Thus, the benefits of asset ownership (including increased property value) are exclusively realized by the private sector. Furthermore, this P3 model means provincial governments have no guarantee that these assets—paid for through funding from the public sector—will remain available to the health system should other revenue streams become more lucrative (like medical tourism or private-pay patients).
Rather than using public resources to regulate the private sector, the public sector should focus on directly providing high quality and cost-effective care.
Lower quality care and safety risks
Evidence from Canada and internationally shows that private, for-profit health care delivery is generally less safe and provides lower-quality care. Much of the research comes from the US and England, where for-profit clinics, surgery centres, and hospitals are widespread. There remains a lack of peer-reviewed research in Canada due to the much smaller volume of total procedures outsourced to for-profit facilities. However, as many provinces increase the private delivery of surgical and diagnostic procedures, evidence from other jurisdictions and media reports caution against outsourcing due to lower quality and greater safety risks.
When health care facilities are profit-motivated, they must find ways to reduce costs and return profits to investors. The primary strategy among for-profit hospitals in the US is to employ fewer highly-skilled personnel per bed. In turn, hospitals with fewer skilled personnel per hospital bed are associated with higher hospital mortality rates. Patient safety may be sacrificed in order to generate profits for investors. A study by Devereaux and colleagues compared mortality rates for 26,000 for-profit and non-profit hospitals, serving 38 million patients in the US, and concluded that “private for-profit ownership of hospitals, in comparison with private not-for-profit ownership, results in a higher risk of death for patients.” The authors raise concerns about the potential negative health outcomes if governments open the door to private, for-profit hospital care in Canada.
Another review of eight studies comparing the mortality rates between for-profit and non-profit dialysis facilities found that for-profit hemodialysis facilities were associated with a higher risk of mortality compared to non-profit facilities, with 2,500 excessive premature deaths in US for-profit dialysis centres in the US each year. Most recently, a 2021 systematic review and meta-analysis of nine studies confirmed the 2002 findings of Devereaux and colleagues, finding higher risk-adjusted mortality at US for-profit facilities compared to non-profit facilities.
In England, the British Medical Association has also found significant issues with the quality, safety and continuity of care in the country’s private surgical sector. Two-thirds of clinical directors surveyed across three specialty areas reported patients who developed complications following treatment in private clinics and who required readmission to public hospitals—not only a safety concern but an additional cost burden to the public system. Half of the clinical directors surveyed were “concerned about the general quality of care provided […] particularly by […] [private surgical centres]. Concerns centre[d] around the quality of specialist care provided by the treatment centres, the loss of continuity in medical provision and the lack of long term patient care.” An estimated 82 for-profit hospitals in England offloaded £250 million to the public system over three years as patients were transferred to public hospitals due to complications in private hospitals. The lack of comparable high-quality clinical outcomes data makes it difficult to comprehensively assess the quality of care provided by the for-profit sector.
Furthermore, a new study by University of Oxford researchers published in the Lancet Public Health journal concluded that “private sector outsourcing [in England] corresponded with significantly increased rates of treatable mortality, potentially as a result of a decline in the quality of health-care services.”
In Canada, concerns about patient safety and the care quality in for-profit facilities have also come to light. An investigation by the Toronto Star in 2014 found significant problems with Ontario’s for-profit medical clinics. Some of these clinics performed day procedures that did not meet provincial inspection standards; clinics failed inspections and some were given conditional passes even two or three times; and some clinics didn’t fail inspections even though patients developed serious infections, including meningitis and hepatitis C. While regulatory changes have since been made, it took the Toronto Star investigation to reveal serious infection control issues in Ontario.
The variation between provinces in the public reporting of inspections and clinical outcomes in private facilities is a quality and safety concern. There are no minimum standards regarding what data from for-profit facilities must be reported in each province as regulatory regimes vary widely. Some provinces do not have legislation that explicitly governs for-profit surgical and diagnostic facilities. Many provinces—including BC, Alberta, Saskatchewan, and Ontario—delegate inspection and accreditation of for-profit facilities to provincial colleges of physicians and surgeons. This leads to significant variation in regulatory oversight since colleges establish their own bylaws. These bylaws do not carry the weight of provincial laws. Potential conflicts of interest also arise if physicians and surgeons who sit on college boards or accreditation committees are investors or work in private facilities. The Ontario College of Physicians and Surgeons publicly posts inspection reports with limited information. The BC College of Physicians and Surgeons, on the other hand, does not publicly disclose any information beyond the names of accredited private facilities and medical directors.
Inappropriate surgeries and upselling
Medical decision-making in for-profit clinics is much more susceptible to conflicts of interest, especially when it comes to scheduled surgeries. For-profit providers have a financial incentive to selectively offer and perform more profitable procedures even if they are clinically inappropriate. Surgeries are inappropriate if they do not provide a health benefit to the patient, are risky or result in deterioration in a patient’s health status. Governments may face increased costs when they outsource to for-profit clinics that perform inappropriate surgeries and diagnostics.
Initiatives such as Choosing Wisely Canada support clinicians by providing treatment guidelines and appropriateness checklists based on the best available clinical evidence. However, private clinics have a financial incentive to prefer healthier patients and simpler, lower cost surgeries in order to increase their profits. This practice is known as “cream skimming” or “cherry picking.” US and international studies have found a significant relationship between physician ownership of surgery centres and increased use of surgeries to treat patients. In one US study, physicians who were board members of surgery centres “steered patients from hospitals to their affiliate [private surgery centres].” On average, physician board membership in the US, “led to a 27 per cent increase in a physician’s procedure volume and a 16 per cent increase in a physician’s colonoscopy volume.”
There are no reporting systems in place to address inappropriate surgeries in the for-profit sector. The operations of for-profit clinics are shrouded in secrecy. As noted earlier, a 2012 BC government audit uncovered evidence of extra-billing at Cambie Surgery Centre, but the clinic refused to fully disclose its financial statements and contracts with physicians.
Destabilizes the public system and contributes to public sector staffing shortages
When surgeries and medical imaging are outsourced, the public and private sectors compete over a limited pool of human resources. The private sector may offer incentives to attract health care workers from the public system, such as reduced workloads, less complex patients, and higher pay. This leads to staffing shortages and longer waits in the public system. Staffing and overall costs may increase as the public sector must compete with the private sector to recruit staff. This can make in more difficult for the public sector to contain rising health care costs.
As well, for-profit facilities will need a guaranteed source of revenue. One way of achieving this is by “cream skimming” healthier patients and less complex procedures and offloading more complex patients and procedures to the public system. Over time, by relying on for-profit providers, the public system has less ability to negotiate prices with private clinics because they may lose the capacity to provide these services. This concern is borne out by the English experience with the for-profit surgical sector. The British Medical Association found “distorted case-mix, whereby the treatment centre has ‘cherry picked’ cases, [and] the loss of continuity of patient care and control of patient pathways.” As we know from the BC government’s experience with private clinics, the private sector’s tendency to maintain proprietary control over information makes it very difficult to monitor private clinic operations and cream skimming.
In conclusion, the Canadian and international evidence demonstrates that private, for-profit delivery of surgical and diagnostic services is more expensive than non-profit delivery, risks lower quality care and patient safety, can lead to clinically inappropriate use of surgeries and diagnostic tests, and destabilizes the public system by drawing on the same pool of limited health professionals.
Greater privatization continues to come at the expense of public sector innovation and improvement. When provinces pursue privatization initiatives, they tend to put little or no focus on public sector redesign initiatives because they are often operationally much more complex than signing contracts with private providers to increase volumes – a persistent problem discussed in the next section.
 For a discussion of private health care financing and public wait times, see Appendix A.
 Longhurst, 2022.
 Friends of Medicare, 2022a.
 Longhurst, 2020.
 Johnson, 2022.
 Bellefontaine, 2022.
 Friends of Medicare, 2022b.
 Vescera, 2022a.
 Vescera, 2022b.
 McQuaig, 2022.
 Cook & Hager, 2023.
 Boily & Gentile, 2021.
 Henderson, 2022.
 Canadian Foundation for Healthcare Improvement, 2004.
 Himmelstein et al., 2014; see also Woodhandler et al., 2003. Higher administrative costs are often associated with the higher costs and complexities of billing multiple insurance providers within the US health care context.
 Devereaux et al., 2002a, p. 1404.
 Devereaux et al., 2004.
 UK House of Commons Health Committee, 2006, pp. 37–38; Pollock and Godden, 2008; Player and Leys, 2008.
 Slater and Beckford, 2011.
 Koehoorn et al., 2011, p. 57.
 Hunter, 2011.
 Harnett, 2016.
 Gibson & Clements, 2012.
 Duchaine and Lacoursiere, 2014; Lacoursiere, 2014.
 Archambault, 2016.
 Boardman et al., 2016, 13.
 Modi et al., 2018; Vaillancourt & Linder, 2003.
 Devereaux et al., 2002a.
 Ibid., p. 1399.
 Devereaux et al., 2002b.
 Dickman et al., 2021.
 BMA Health Policy and Economic Research Unit, 2005.
 Ibid., p. 4
 Centre for Health and the Public Interest, 2017, p. 5.
 King’s Fund, 2009, p. 6; Centre for Health and the Public Interest, 2017, p. 6.
 Goodair and Reeves, 2022, p. E638.
 Boyle, 2014b.
 Boyle, 2014a.
 Allin et al., 2020.
 Allin et al., 2020, p. 5. This is in contrast to the large and growing public hospital data that is publicly reported by CIHI at https://yourhealthsystem.cihi.ca/hsp/?lang=en.
 Allin et al., 2020, p. 5.
 College of Physicians and Surgeons of Ontario website (https://clinics.cpso.on.ca/) reviewed June 14, 2020.
 College of Physicians and Surgeons of BC website (https://www.cpsbc.ca/programs/nhmsfap) reviewed June 14, 2020.
 Horwitz, 2005.
 Choosing Wisely Canada, https://choosingwiselycanada.org/.
 Kreindler, 2010, p. 16; Gonzalez, 2004.
 Hollingsworth et al., 2009; Mitchell, 2010; Yee, 2011.
 Yee, 2011, p. 904.
 BC Ministry of Health, 2012.
 Canadian Foundation for Healthcare Improvement, 2005.
 BMA Health Policy and Economic Research Unit, 2005, p. 4