Alberta’s bid to privatize lab services wasted more than $100 million: Auditor General

A new report from Alberta’s Auditor General details the provincial government’s attempt to privatize community laboratory services that failed to generate cost savings and ultimately cost the province millions of dollars to buy out a private company.

The report released Wednesday details a lack of due diligence by the provincial health ministry and Alberta Health Services in relation to a 2022 contract with DynaLife – which was a major provider of laboratory services in Edmonton and northern Alberta at the time – to handle laboratory services for the entire province.

Auditor General Doug Wylie’s report highlights a number of issues that emerged during the investigation, including a lack of co-operation from key officials, the withholding of information by AHS and the province, and the destruction of evidence sought by the Auditor General.

“This should not be a cause for concern for Albertans,” said Rebecca Graff-McRae, research manager at the Parkland Institute at the University of Alberta.

The provincial government said the DynaLife contract would save millions of dollars per year, but it was canceled less than a year later after a number of issues with service delivery and DynaLife’s own financial problems.

The province ultimately purchased Dynalife for approximately $100 million in 2023 and absorbed it into the public provider, Alberta Precision Laboratories (APL).

key findings

Key findings of the report include:

• Minimal records were kept of important discussions between AHS officials, the Minister and the Department of Health – in which important decisions were taken.
• Neither AHS nor the Department followed their own procedures to prepare a business case for outsourcing community laboratory services.
• Despite knowing that the cost savings goal was probably unattainable, AHS continued with the purchase. AHS did not evaluate the assumptions and accuracy of Dynalife’s financial proposals.
• Between 2013 and 2023, Alberta taxpayers paid $125 million in incremental costs for government-initiated laboratory purchases that were either abandoned or failed.

Wylie’s investigation found that the province and AHS did not prepare a business plan for Dynalife outsourcing, relying on a 2019 report by Ernst & Young. That report, which estimated annual savings from outsourcing at $102 million, was later found by AHS to contain a “calculation error” that reduced the savings estimate to $77 million.

That estimate was reduced to a range of $18 million to $36 million following analysis by AHS and APL – the same amount that would be saved if APL provided all services across the province.

The Auditor General’s report said this showed that savings were “due to a single organization providing all services rather than outsourcing to a private provider.”

“I think in this case, it’s really problematic that there were issues around basic measures of accountability like proper recordkeeping,” said Lorien Hardcastle, an assistant professor of health law at the University of Calgary.

In a statement from a spokesperson for Primary and Preventive Health Services, the Alberta government said it has identified Dynalife’s inability to deliver adequate services in 2023 “shortly after the general election.”

“That’s why in June 2023, we directed that the agreement with Dynalife be terminated and services transferred to Alberta Precision Labs, resulting in significant improvements in wait times across the province.”

However, CBC News first reported The province was aware of Dynalife’s issues even before the election in May 2023, including a formal notification of the company’s bankruptcy status in March 2023.

a long history

The Government of Alberta has a long history with Dynalife.

The company had been providing lab services in Edmonton and northern Alberta for years when in 2014 the Progressive Conservative government awarded a $3 billion contract to an Australian firm, Sonic Healthcare, to replace Dynalife and hospital labs run by AHS and Covenant Health.

Dynalife appealed that decision, but when the NDP formed government in 2015, it canceled the deal with Sonic.

The NDP then decided to buy Dynalife, incorporating its for-profit operations into the public sector in a plan estimated to cost $65 million—about $30 million less than the amount the UCP would pay in 2023. The government also planned a “superlab” in Edmonton, which would house all laboratory processing under one roof.

But following Jason Kenney’s 2019 election victory, his United Conservative Party government scrapped those plans and ordered a review of the AHS to explore efficiencies and cost savings.

That report, completed in 2020 by Ernst & Young, recommended that AHS “further leverage private contracts” for laboratory services, “with an initial focus on community-based testing.” It is estimated that doing so could save up to $102 million annually.

AHS later conducted its own analysis and revised that estimate to between $18 million and $36 million per year.

Although the Ernst & Young report’s recommendations ultimately led to the Dynalife contract, the Auditor General said AHS identified a calculation error that resulted in overestimated estimated savings by millions of dollars.

The Auditor General’s report did not specify the nature of the calculation error. Ernst & Young declined to comment on the report.

Challenges

The Auditor General’s report noted a number of challenges faced during the investigation, particularly the lack of cooperation from key officials and difficulty accessing evidence.

“Our access to information was restricted by AHS and this restriction was supported by the Ministry of Health,” the report said.

AHS claimed privilege on many documents “in some instances, without clear argument or evidence” and had a team of lawyers conduct a line-by-line review of thousands of documents sought by the Auditor General.

In a statement provided to CBC News, an AHS spokesperson said the organization has “new leadership at every level” and is “committed to ensuring that our procurement processes are accountable and transparent.”

The report also said that “records were password-protected and inaccessible, were missing, or were destroyed when key employees were terminated,” referring to a particular instance when AHS destroyed related notebooks. Former CEO Mauro Chiese “Despite our requests to preserve the evidence.”

“This really goes to the core of what keeps our democracy democratic, and prevents it from being a free-for-all, where elected officials can say once they’re voted in, ‘I have the ability to do whatever I want,’” Graff-McRae said.

Asked whether destroying evidence was a violation of the law, Wylie said, “I don’t have an answer for you on that.”

A government spokesperson issued a statement regarding the concerns raised in the report.

“While we cannot speak in favor of Alberta Health Services’ conduct in this matter, in fact, the government has co-operated fully with the Auditor General’s investigation and any suggestion to the contrary is false.”

taxpayer dollars

Wylie’s report found that between 2013 and 2023, Alberta “spent $125 million on government-initiated laboratory procurements that were abandoned or failed.”

This included $90 million for outsourcing community laboratory services, as well as $35 million for the NDP’s purchase of the superlab building and its subsequent cancellation by the UCP.

Hardcastle said he believed the government’s move to privatize community laboratory services was not based on a lack of goodwill numbers.

“I don’t think it was really a business decision,” he said. “I think it was an ideological decision.”