Surgery on demand
 
As more monied patients pony up for expensive medical services, questions are raised about the impact of private clinics on medicare Published: Report on Business Magazine, November, 1995 By Deborah Jones When health problems trouble Hans or Dorothy Gawenda, the Vancouver area couple don't waste a moment pondering whether Canada should have both private and public medical care. The Gawendas simply spend whatever money it takes to get back on their feet. So far this year, they've shelled out $500 on fees at a private imaging clinic to aid chiropractic treatment of a disc problem in Hans Gawenda's back, and $10,000 at a Seattle hospital for surgery on Dorothy Gawenda's injured shoulder. Both services are available under B.C.'s government medical-care plan, but access is limited. Hans's sore back was not deemed urgent enough by his doctor for a scan at one of B.C.'s few public magnetic resonance imaging (MRI) facilities, and Dorothy would have been required to wait several months for a booking in one of B.C.'s busy public operating rooms. To obtain quick treatment, the couple is prepared to support Canada's growing industry in private health-care clinics-or leave the country for service, if need be. - Health-care entrepreneurs are betting that there are plenty of customers like the Gawendas, people unwilling to accept the increasing limitations of the publicly funded health-care system and who have the means to bypass them. Of course, whether Canada should have two-tiered medicine-the public medicare system co-existing with private services available only to those who can afford to pay-is one of the hottest issues of the day. Obscured by the high-pitched debate, however, is the fact that widespread privatization is a fait accompli. More than a quarter of total health-care spending, on everything from tooth fillings to drugs to face lifts, comes out of patient's pockets, not government coffers. A great many doctors, lab technicians, pharmacists and other health-care providers work in privately owned clinics. And people with money have always had the option of seeking the services they want in other countries. Some of these services, notably much cosmetic surgery, have always been excluded from medicare. What's new is that services traditionally covered by medicare, like Dorothy Gawenda's surgery to repair a torn shoulder muscle and her husband's use of the latest imaging technology, are increasingly being offered, for a fee, in private facilities. While private health centres in the United States offer a wide range of services, their Canadian counterparts still shy away from the more complex treatments, such as cancer surgery, and likely will never provide emergency medicine. Instead, they focus on relatively simple products now rationed under medicare by means of waiting lists and the refusal of governments to buy as much of the latest technology as some doctors and patients want. Hans Gawenda, whose international business selling surgical instruments for medical research provides his family with ample money to pay for private care, is defiant in his support of private health services. "I will avail myself of them," he says. "I think it's wrong for the government to reduce health care to the lowest common denominator of service." There's some confusion about just what constitutes a private clinic, and there's no precise number of how many private facilities are found in Canada. Still, Dr. Brian Day, head of a new association of private clinic owners in British Columbia, estimates there may be as many as 300 facilities throughout Canada, charging fees and covering treatments from eye surgery to in-vitro fertilization. These exclude private facilities such as abortion clinics that are an integral part of health systems in some provinces, and whose "facility fees" and doctor's charges are fully funded through provincial medical insurance plans. In British Columbia there are some 30 private facilities, about half of which offer cosmetic and dental surgery, paid for entirely out of patients' pockets. Many of the rest are newly opened multipurpose clinics. The treatments they offer are performed by doctors who-at least until the government stops them - bill through B.C.'s medical insurance plan, while patients are asked to pay an extra facility fee. A handful of these clinics specialize in eye surgery, there are two private MRI clinics and one fertility clinic. Day heads a small private "hospital" now under construction. With 11 beds, Day's Cambie Surgery Centre will expand the offerings of private medicine further than ever before in British Columbia by engaging in complex procedures that until now have required lengthy hospitalization, such as gall bladder operations, hip replacements and shoulder surgery. Private clinics exist throughout Canada, but the trend is most pronounced-and polarized-in the West. The Alberta government, whose advocacy of private services has embroiled it in a high-profile battle with Ottawa, is Canada's most vociferous supporter of private clinics as part of the public health-care system. Next door in British Columbia, the government is Canada's most vehement opponent of private care's inroads, while the British Columbia Medical Association has taken the most pro- privatization stance among doctors' groups in the country. Feared cutbacks in Canada's byzantine system of medicare and lineups for some services are only part of what's driving growth in private health care. Another factor is the emergence of entrepreneurs who see a chance to open a business in a $72-billion-a-year industry that Canadians have come, incorrectly, to regard as untouched by the taint of lucre. But much more important to the privatization movement is the development of expensive new technologies such as magnetic resonance imaging that are not adopted by the public system as quickly as some would like. Whatever drives it, the trend toward privatization will have significant consequences for doctors, patients and the business community. Canadian business has long enjoyed a competitive advantage relative to U.S. industry thanks to government subsidization of health care, but has been strangely silent on the issue-perhaps confused by concern over losing its competitive edge and yet not wanting to oppose a freer market in a large industry. Through his office window, in a strip mall off a busy North Vancouver street, Richard Dalon watches as a customer parks his Cadillac out front. The elderly man walks stiffly into Dalon's newly opened Capilano Magnetic Resonance Centre to have a scan of his sore back done by one of the two magnetic resonance imagers that Dalon and fellow investors have installed in B.C.'s Lower Mainland. The businesses are essentially high-tech photo studios, costing a minimum of $1 million (U.S.) each to set up. The services they sell are pictures of the insides of bodies, taken by huge "cameras" that use subatomic particles, magnets and radio waves to create images, rather than the light beams, sound waves or radiation used in conventional imaging technologies. Among the investors in the clinics is former provincial Social Credit health minister Jim Nielsen. But it's Dalon, who has no background in health care, who represents the new breed of businessman in medicine. He has ensured that the Capilano MRI facility, in common with most private clinics, caters to customer comfort and convenience, items that often are placed low on the priority list in the hard-pressed public system. There are no waiting lists, and staff offer prompt, cheerful service. "The most important thing for us, other than getting the good images, is making patients comfortable," says Dalon, sounding more like the operator of a resort spa than a medical clinic. For the MRI images-and a radiologist's interpretation of them-Dalon's customer will pay $750. The patient's alternatives were waiting in line several months for a scan in a public hospital covered by medicare, or travelling to a private clinic in the United States. Comparing costs among clinics is difficult, because each claims to have the best MRI system, and procedures ordered by doctors may differ. Fees at Dalon's clinics are lower than those charged at St. Joseph's Hospital in Bellingham, just across the border in Washington state, which attracts about 60 Canadian MRI customers per year. The back scan of Dalon's patient at Capilano would likely cost $1,150 (U.S.) in Bellingham, and the Canadian patient would also bear travelling and accommodation costs and suffer from the currency exchange rate. Each of Dalon's clinics can handle up to 20 patients a day, and will require 6.5 patients a day to break even. In the months since the Capilano clinic opened in January, it has been handling only two patients a day. Dalon's start-up costs at Capilano include monthly payments on a five-year lease of a $2.3-million (Canadian) Japanese-made Shimadzu MRI system, payments on a loan of more than $2 million and rental of 3,000 square feet of space on the ground floor of a mall in a semi-industrial area. While he's unable to forecast revenues with precision, Dalon figures he will eventually obtain a 60% return for investors, who put in a total of almost $1.7 million in equity. When Dalon first heard the term MRI he didn't know how to spell it out. Dalon was at a crossroads in his career. An academic and former university lecturer with a masters in philosophy, he had worked in the public service in Ottawa and Victoria, most recently as deputy minister of B.C.'s environment ministry. Seeking a career change, he researched MRI technology, which produces stunning images of internal tissues. When Dalon learned that Canada has only one MRI machine per 700,000 to 800,000 people-compared with one per 90,000 people in the United States-he decided this was the business opportunity for him. Finding investors and setting up the business has proved easier for Dalon than marketing the MRI service. Selling private for-fee medicine requires specialized education, says Dalon, who believes he must first convince doctors new to the technology that MRI images will improve their patient's diagnoses. That claim is true in some cases, but critics of expensive new technology point out that the value of MRI scanning is still unproved for many ailments. And doctors who are convinced of the technology's merits must then persuade their patients to pay for private scans at Capilano, rather than lining up for them in public hospitals. To pursue his "education" campaign, Dalon sends brochures and personally calls on physicians throughout British Columbia. He's also contemplating a marketing campaign aimed at Americans. Aside from the obvious pull of the supply and demand equation, the business of health appealed to Dalon as a former public servant. With almost missionary zeal he argues that private health clinics are good for Canada's beleaguered health-care system, removing wealthier patients from wait-lists and breaking the logjam of patients waiting for services. One Canadian who agrees is Prof. Raphael Amit, director of the Maurice Young Entrepreneurship and Venture Capital Research Centre at the University of British Columbia. Amit believes more private health providers are inevitable in Canada's financially strained medical-care system. "And as a consumer I want the option to choose the level of health care that I am going to get," Amit says. "I can decide to spend less money on a vacation. Or I can decide to maintain my health by paying to see a doctor privately." The chief response of those opposed to private clinics is that as middle-class and wealthy patients increasingly opt for private services, they will resent paying taxes to support a universal medicare system that they no longer use. That, in turn, would result in spending cuts and cause an erosion of the public health system, which already costs governments more than $2,507 per Canadian per year. "A private system would quickly skim the best physicians and equipment from the public system," Dr. Ruth Collins-Nakai of Edmonton said in a debate on two-tier health systems at the Canadian Medical Association annual meeting last summer. Critics also charge that a new private tier of medicine will increase total health-care spending in Canada, a country that already spends more money per capita on medical services than any other country except the United States. The costly U.S. model shows that replacing government managers with multiple layers of private bureaucracy, from insurance companies to private clinic administrators, will be less efficient than Canada's government-dominated system, even with the existing bureaucratic flaws, says Dr. Sam Sheps, head of the department of health care and epidemiology at the University of British Columbia. Sheps also says a money grab is the real motive for doctors and entrepreneurs who promote privatization. "Ultimately what will happen is more money will be spent-which is precisely what most of these professionals want." And Guy Bujold of Health Canada in Ottawa is puzzled that Canada's business community has not yet spoken out on private health care. Bujold believes that if private clinics proliferate, employees will begin to demand increased levels of health insurance as part of their benefits packages, thus increasing the overall cost of doing business in Canada. Company health-care benefits already cover many private medical costs, such as dental work, private hospital rooms and over-the-counter drugs. Should private clinics become widespread, employees can be expected to demand similar coverage of their services. For more than three decades Canada's commitment to universal access has meant that "medically necessary" treatments have been done at public facilities available to everyone. Yet discontent among patients like the Gawendas and among doctors who perform non-emergency treatments is growing, despite the arguments of those who see private clinics as a threat to medicare. Says Day,"If there were no waiting lists in the public sector there would be no need for private facilities. While Canadian politicians have promised the public a complete smorgasbord of health care and no limits on expenditures, in the 1990s that is a promise they cannot fulfill." The federal government has warned it will cut payments to provinces that do not abide by the five principles of the Canada Health Act: accessibility, universality, comprehensiveness, portability and public administration. But Ottawa is increasingly restricted to moral suasion in its efforts to preserve medicare, because it can't afford the ever- increasing transfer payments to the provinces that would be required to fully fund health care. Indeed, transfer payments are being cut. And while profit is the major incentive for opening private clinics, a strong contributing motive is the drive to give doctors access to operating rooms. That was the reason why Day, a Vancouver orthopedic surgeon, initially plunged into the controversy over private medicine. As a specialist who works mostly on non-emergency cases, Day finds his operating room time has been sharply reduced. Day's access to surgical facilities at the hospital where he has privileges is restricted to just one day a week because of operating room shortages. He has watched Canadian colleagues move south to salaried jobs in the United States, attracted by the greater availability of facilities and modern equipment. Similar frustration among doctors was the spur for a private clinic that opened in Nanaimo, B.C., this year. Developer Bob Wall noticed that many of his physician clients were complaining about reduced access to hospital facilities due to budget cutbacks. Wall, who has a U.S. friend who developed private health centres financed and used by physician- investors, decided to experiment with a similar concept in Nanaimo. Wall brought together a group of 25 shareholders, including physicians from several specialties and the nursing administrator and the engineer from the local hospital, which is just across the street from the new clinic. Each investor owns an equal block of shares, although a class of non-voting stock was created for physicians with a potential conflict of interest. The non-voting provision is an attempt to deal with concerns that doctors would have a profit motive to persuade their patients to pay fees to have procedures performed at the private clinic rather than at a public hospital. The resulting company, Seafield Surgical Centre Ltd., built a $3- million medical centre, which opened in February. The building houses a private outpatient surgical clinic, two full-size operating rooms and recovery rooms for day surgery. Wall says the centre will pay its own costs if it's used just 21/2 days a week. At Seafield, physicians can book operating room time whenever they wish, provided that their patients are willing to pay a facility fee of $200 to $1,000 up front. Since Seafield opened, doctors performing publicly insured services have used the operating room and billed the provincial medical services plan for their work. Following the June introduction of proposed B.C. legislation that would ban such extra- billing, Seafield and other clinics have been lobbying the government to cover at least some of the facility fees at private clinics. Given the uncertainty of how long B.C. doctors will be able to work in his clinic, Day is surprisingly self-assured about his ambitious 11-bed hospital in Vancouver, scheduled to open next spring. He's counting on consumer demand for immediate access to override government attempts to deny the service. The powerful appeal to patients, says Day, is the centre's promise to provide without delay "the kinds of surgical procedures that usually get put at the bottom of the waiting lists." Day says shareholders will see a return on investment within three years-at least if his Cambie hospital's projections, based on the experience of clinics in the United States, are not undone by Canada's highly charged political and regulatory environment. For the first year, Day expects revenues to total $1.3 million, with a pretax profit of about $400,000. "These figures are speculative, though," Day admits. "It could be a lot less or a lot more. Every investor who put up money knew this was a high-risk venture." Day feels Canada is losing out on an opportunity by not selling services to Americans, who generally pay much higher doctor's and hospital fees at home because U.S. surgeons are paid higher fees than Canadian surgeons. "We're in a situation in this country where we could be selling health care to the Americans, creating a tax base here and jobs." Like it or not, Canada's health-care system is under pressure to change. Naturally, Canadians aren't about to tolerate a new system in which a wealthy few can obtain better and faster private care while the majority of people are denied. Yet there's also no getting around the fact that information about how to preserve the existing system is desperately lacking on almost every front-from the broad question of how medicare funding reductions will affect Canada's economic competitiveness to whether Canadians really need more MRI machines. The debate on health care won't produce more light than heat until there is a widespread acknowledgment that private health care already exists. And that trying to stifle demand for it, without addressing the reasons for that demand and offering palatable alternatives, is a futile remedy. Copyright Deborah Jones 1995 About this website: Text and photos by Deborah Jones except where otherwise noted. Please contact me for reprint rights. All material copyrighted ../About.htmlshapeimage_1_link_0
Can medicare withstand the onslaught of private clinics
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