November 2000 Fraser Forum: Canadian Hospitals:
How Do I Profit From Thee? Let Me Count the Ways
During the debate over Alberta’s Bill 11, now passed into law as the Health Care Protection Act, much of the debate focused on the morality of private clinics driven by the profit motive. Some observers were concerned that such clinics would be able to sell extra products or services to patients beyond those covered by provincial health insurance. According to these analysts, the profit motive is wholly contrary to the values of Canadian health care (Evans et al., 2000). My colleague, Martin Zelder, argued convincingly that private hospitals could improve health care in Canada (Zelder, 2000). I threw my two cents worth in, claiming that the profit motive was a useful handmaid to efficient capital investment (Graham, 2000).
However, I never thought to ask whether publicly-financed Canadian hospitals could also be profit-seeking. Surely there is clear blue sky between privately- financed, for-profit hospitals and publicly-financed non-profit ones which operate within the scope of provincial health laws, right? So I thought, until I ruptured my Achilles tendon, and hobbled into the emergency ward of the Vancouver Hospital.
My experience there reminded me that the profit motive is endemic to human nature, and it pops up even in places where some do not welcome it. No law, not even the utopian Canada Health Act, can prevent it. For my Achilles tendon repair, the profit motive showed itself through a $129 user fee.
How did that happen? Well, first the emergency room handed me a pair of crutches, which cost $31. A couple of weeks after the operation, my cast was cut off and I was fitted with a plastic walker with velcro straps. This cost $98.
These were not items that the doctor said I needed and then sent me out to buy from a medical supply shop. They were sold directly by the hospital. Since private businesses sell these items for similar prices, I believe that Vancouver Hospital earned a profit from them.
Where else do we see the profit motive in this Canadian hospital? Well, I went to the hospital’s Laurel Pavilion for physiotherapy. Actually, that’s the Jimmy Pattison Pavilion. This profit-oriented gentleman gave $20 million to the hospital’s capital campaign. A display inside the pavilion honours dozens of entrepreneurs and corporations who made significant financial contributions. The pavilion would not have been built if not for the fruits of profit.
Of course, that’s not the same as the hospital itself making a profit, like it did on my crutches and walker. However, in the hospital’s lobby, one can enjoy a coffee and danish in the distinctly un-clinical Cafe Ami. The barrista told me that the cafe was owned by the same interests who owned two cafes outside the hospital. The cafe’s rent contributes to the hospital’s profits. There’s also a gift shop, operated by hospital auxiliary, whose profits support the volunteers’ efforts. While wandering through the offices, I noticed a nameplate for Vancouver Hospital Enterprises.
I was interested in learning more about the role of profits at Vancouver Hospital, so I decided to look at its financial statement. The hospital’s website has no mention of it, but after few phone calls, I learned that I could get it for five dollars (Vancouver Hospital, 1999). When I picked up the report, which weighs in at over half a kilogram, I anticipated learning a lot about its revenue generating activities. That was not the case. Three entries on the income statement can be interpreted as potentially profit-related: in-patient and out-patient charges ($45 million) and other revenues ($17 million). I wonder where my crutches and walker fit in?
On the other hand, the report goes into agonizing detail about expenses. All income statements have an item related to wages, but the hospital lists the remuneration of about 2,000 employees: everyone who earned more than $50,000. It also lists every supplier who invoiced more than $10,000. These amounts are listed to the penny! I learned that one of my closest friends earned $98,528.64 in 1999. I’ll be sure to bring that up at a dinner party. I’m all in favour of disclosure, but surely only the most nit-picking taxpayer cares that Vancouver Hospital paid $10,251.55 to Smartset Mobile Hairdressers last year.
Rather than shunning the profit motive, we should recognize its role in providing health care. If the hospital had not been allowed to sell me crutches and a walker, I would have had a pretty difficult time getting around. In any case, the $129 they cost me is a small fraction of the amount I had already paid for the operation through my taxes.
Bibliography
Evans, R.G., M.I. Barer, S. Lewis, M. Rachlis, and G.L. Stoddard (2000). Private Highway, One-Way Street: The Deklein and Fall or Canadian Medicare? Vancouver: University of British Columbia Health Policy Research Unit, March. Discussion Paper HPRU: 2000: 3D.
Graham, John R. (2000). "The 'Deklein' of Policy Analysis" Fraser Forum, April.
Vancouver Hospital and Health Sciences Centre (1999). Statement of Financial Information for the Year Ended March 31, 1999. Vancouver: Vancouver Hospital and Health Sciences Centre.
Zelder, Martin (2000). How Private Hospital Competition Can Improve Canadian Health Care. Public Policy Source No. 35. Vancouver: The Fraser Institute.
John R. Graham (johng@fraserinstitute.ca) is Senior Analyst and Acting Director of the Pharmaceutical Policy Research Centre at the Fraser Institute. He has an MBA from the London Business School, University of London.
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