Shouldice Hospital sale should be rejected

Last week, the family that owns Shouldice Hospital announced that it would like to sell its facility to Centric Health, a for-profit company traded on the Toronto Stock Exchange.

Shouldice, a facility renowned for its care of patients with hernias, was founded by a surgeon in the 1940s and allowed to continue as a private hospital when Medicare was established in the 1960s. Under the Private Hospitals Act, however, the transfer of its license to another company cannot occur without the approval of Ontario’s Minister of Health and Long-Term Care.

Centric Health is a rapidly growing corporation that most Ontarians have probably never heard of. Its revenue tripled from 2010 to 2011 as it embarked on an ambitious series of acquisitions, purchasing pharmacies and physiotherapy clinics, as well as surgical centres that operate primarily outside provincial health insurance plans. Some of these surgical centres focus primarily on cosmetic procedures, and others take advantage of a loophole in our public health care system that allows workers’ compensations boards to purchase expedited care for injured workers.

Shouldice would be a very different kind of purchase, since the Ontario Health Insurance Plan pays for most of its hernia repairs. One day, Shouldice would be a small family-owned hospital with a reputation for excellence. The next day, it would be part of a large corporation with a responsibility to maximize shareholder return.

Allowing for-profit companies like Centric to provide public services makes sense if they provide better quality and access at the same or lower cost than non-profit providers. In some instances, such as the manufacture of pharmaceuticals or the provision of laboratory services, for-profit companies frequently do a better job than non-profits or crown corporations.

But when it comes to providing more complicated services, such as medical and surgical care that must be customized for each individual patient, non-profits are generally better. P.J. Devereaux and his colleagues at McMaster University have reviewed the best available evidence from the United States as it pertains to hospitals, dialysis facilities and nursing homes. Each time, they have found that non-profit providers provide superior care. They have also found that non-profit providers are less expensive.

One reason why for-profit hospitals cost more is that they sometimes bend the rules to maximize their revenue. Sometimes they also skimp on care. For example, last month the New York Times reported that the Hospital Corporation of America, a large hospital chain in the United States, has been turning away unprofitable patients from its emergency departments. At the same time, the company has been figuring out how to creatively classify patients that it does treat so as to extract the maximum amount of money possible from the US federal government.

Let’s be clear that Shouldice is no Hospital Corporation of America. Shouldice has a very good reputation in the medical community and continues to be owned and operated by close relatives of its founding physician. Because of Shouldice’s focus and volume – its surgeons perform more than 7000 hernia operations each year – it is quite possible that Shouldice does a better job than hospitals in the public system.

Yet what guarantees would there be that quality would be maintained if ownership were transferred to a large for-profit company? What if Centric decided that it wanted Shouldice to start doing more expensive and complex surgical procedures? How would the Ministry ensure that Centric operated the hospital efficiently?

Even now, in terms of total cost per patient, it is likely that Shouldice is considerably more expensive than public hospitals. Much of this cost is for a hospital stay of about three nights, part of which is paid for by government and part of which is paid for by the patient. For all the talk of inefficiency in the public system, it is worth noting that outside Shouldice, most patients in Ontario with straightforward hernias are admitted and discharged on the day of their operation.

The apparently mandatory hospital stay at Shouldice might also mean that patients who cannot afford to pay for their stay have to wait for their operation at a public hospital, while patients who have private insurance or deep pockets receive publicly funded medical and surgical care at Shouldice. This is the kind of situation that can easily lead to public funds being used to subsidize expedited access for wealthier patients, a scenario that most Canadians would find objectionable.

If the descendants of Dr. Earle Shouldice no longer wish to operate his namesake hospital, the Minister of Health should consider converting it to a non-profit facility. Shouldice could be operated as a satellite of a major hospital, like the Holland Centre, which is part of the Sunnybrook Health Sciences Centre and performs more than 2000 knee and hip replacements each year. Alternatively, Shouldice could be operated as an independent non-profit facility like the Kensington Eye Institute.

But of the options available to the Minister, simply approving the sale of Shouldice to Centric would be the worst.

Irfan Dhalla is a member of the board of Canadian Doctors for Medicare.

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  1. Catherine Richards

    Irfan, thank you for posting this article. It is a subject I hear very little about in general – the sale and transfer of license from one healthcare facility to another – and the process is overseen and decided upon by the MOHLTC.

    My late mother’s nursing home was in bankruptcy. It owed millions of taxpayer dollars to the government for overfunding of beds which were not actually filled. It is my understanding that this situation went on for a number of years before the MOHLTC noticed, or if they did notice, before they acknowledged the situation.

    Last November, 2011, it became known that the Home’s Receiver had an offer of purchase on the property.The new owner is a for-profit company and the for-profit management company that was appointed to manage the Home while in bankruptcy will be the new owners’ chosen management company if the sale and license transfer is approved by the MOHLTC.

    I and others attended a public meeting on June 6th to discuss the issues surrounding the MOHLTC decision to transfer the Home’s license to the new owners. During the meeting the new owners were present but the MOHLTC moderator of the meeting would not permit them to answer directly our questions about their plans for the future, comment on past situations, or discuss with us their policies and care philosophies that would affect residents and families. I am on the record as having stated that I believed that the decision to approve the sale and licensing of the nursing home to the new owners had already been made by the MOHLTC and that the meeting was simply a formality as per the required protocol. Cynical? Yes, and based upon my experience when dealing with those at the MOHLTC. Some of the public meeting attendees followed up with letters to the ministry, as did I, wherein I reiterated my objection to the sale and transfer of the license to the new owners for a number of valid reasons.

    Weeks later I received a copy of the preliminary report from the MOHLTC about the meeting and to my great dismay it stated that no one in attendance at the meeting had objected to the transfer of the license to the new owners! Later, in further correspondence with the MOHLTC Licensing department, I revealed that I had actually taped the meeting and could prove what was and what was not said. I am still awaiting a follow up response from them.

    My point is this: What is the point of the MOHLTC reviewing these sale and transfer issues if they will essentially dismiss the public’s concerns and any legitimate objections made? I believe there must be a public meeting held about the Shouldice sale and license transfer as well, Irfan. Of course at this point there is only an intention to sell and it is not a done deal, but if and when a purchase offer is accepted the licensing process will begin. Is there any point to raising one’s voice to the MOHLTC to object to such a sale if we cannot trust that the Ministry will even listen, and if they do listen, that they will report accurately about objections and respond accordingly? They should, but that doesn’t mean they will.

  2. Ron

    If you are not aware, your comment triggered a column by Andre Picard.

    In it, Mr. Picard holds up Shouldice as example of how private for-profit facilities can improve Canada’s health care system. He fails to recognize that due to unique historical circumstances, Shouldice is somewhat of a pleasant “outlier”, and extreme caution is required when trying to make the case that it can be scaled up and generalized across the health care system at large.

    By way of analogy, using Shouldice as a “model” is like holding up Splendido restaurant for example when the comprehensive evidence on corporate health care suggests reality will be more like Burger King.

  3. Mark MacLeod

    I would suggest selling it, but not pay any money for overnight stays. If you want the cushy treatment as a patient, you can but out of your own pocket. If you don’t, you would stay in the public sector. It clearly sets the question for the patient and the challenge for the provider. The payer for the procedure does not become the funder of unnecessary stays.

  4. BigDuke6

    The sale price is only $13Million. That’s basically the cost of the land and the building, suggesting everything else about the institution was seen as having very little value. And that goes with the Shouldice’s business model; they must make much more from the hotel part of the operation – 3 day stays for a simple OR done as same-day surgery elsewhere – than the medical operations.

    Centric gets at best a license to operate a facility in Ontario which could be leveraged into more. Ontario’s economy continues to scrape bottom and when things fall apart Centric will be in a good position to expand.

    Shouldice’s time has come and gone. There’s no reason taxpayers should pay for hospitalization for three days after simple surgery like a hernia repair. My patients often ask for referral to that institution. Patient demand is not always rational and certainly does not involve cost-effectiveness calculations.

    • Mr. A

      I don’t think they are buying the land or the bldg, just the operating assets. I imagine much of the cost is the brand and the people.

  5. Tom Closson

    Implementing “quality based funding” is the solution here rather than focusing on whether a facility is public or private. Government should fund hernia procedures at a consistent rate regardless of where they are preformed with the exception possibly of funding at a higher rate for centers that are teaching centers to account for their loss of efficiency. There should also be financial incentives for achieving good outcomes (e.g., low infection rates) and the outcomes should be publicly posted on the internet to enable consumers to decide where they will go to get the procedure done. These are directions that will lead to greater value for money which is the goal we should have.

  6. Mr. A

    This is a biased article. Not for profit does not mean operate at a loss. Does it makes logical sense to accept unprofitable patients? The funding NFPs receive may come from sources that HCA cannot obtain, which means that it’s possible an NFPs can operate at a loss b/c some organization will pick up the slack; and that organization is likely the govt which means your tax dollars are going to an inefficiently run operation.

    Also, to think NFPs don’t bend rules is foolish. To bash corporations in support of NFP model is not good given your limited resources. You cite one example, HCA, and suggest overall that publicly held companies are sketchy. Perhaps you can further your research into a very well run publicly traded health care company and a very poorly run, rule bending NFP?

    Shouldice has a reputation and Centric must realize this. It would make no business logic for Centric to buy Shouldice and destroy its brand by charging more or offering unneeded services. Shouldice would not sell to Centric if they thought the brand would be lessened.

    This article obviously favors keeping health care in the hands of govt, and uses examples of for profit companies turning down patients, skimping on costs, twisting numbers to look more profitable, etc. My main concern is two fold. First the author does not consider any benefits that a for profit corporation could bring to the table, efficiency, better paid and thus more hard working staff, flexibility, etc. Second the author alludes to corporations acting in a less than acceptable manner in order to boost profits.

    Corporations do not act in one way or another, management teams do. As such, citizens should take a hard look at who is behind Centric. Is the management team known for poor activity? If yes then beware, but if no then there is no reason to assume poor actions in the future. The Centric team could easily bring very good things to Canada.

    • abel leung

      The big problem is that once Shouldice is sold to a foreign company, Ontario governmnet will lose its control over its management.

      Just look at the reacent example, where US car companies got Canadadian subsidies during 2008 financial crisis with an understanding that the action will save Canada autoworkers jobs years down the raod. However, once these car comapnies get over its breath, they now want to close some plants in Canada in the name of cutting costs, and move the productions to US. Ontario and federal governments can do nothing to those plant closures, because the subsidies have no bidding conditions to ensure the original understanding is enforced.

      So the big worry is that the sale of Shouldice will go meet with similar fate, that is our governments will lose control of the parent company’s desire to expand Shouldice services in ordor to maximize its overall profit (which you could say that maximizing profit by a health company is good for Canadians, but this is another point for debate).

  7. Ritika

    Thanks for this piece, Irfan. I think a key distinction you are making which is getting lost in much of the discussion around this sale is the difference between a small for-profit company and an investor-owned shareholder for-profit company. The sale does not just represent going from one for-profit model to another, but a major shift in accountability – from being to the public at large, to a small group of people that want profits maximized. When the goal starts to be profits for a small group rather than public welfare at large, we have a problem.

    • Mr. A

      You make a good point in terms of profit models. Another point I think many are missing is the misinterpretation of the model for a publicly traded company. No group, large or small, can maximize profit by cutting corners, over billing, or playing accounting games. A health care company must serve the best interests of its clients or patients will go elsewhere. Publicly traded companies have an additional accountability to those who fund it/own it, and for this reason they must act in an efficient manner. This benefits society at large because resources are not wasted. Good management is the foundation of a company that, regardless of whether public or private, will serve the interests of the public. As I noted in my previous post, analyzing the management team, not the business model, is crucial.

  8. Gerald I. Goldlist, MD

    As one who lives near Shouldice and has watched the area grow over the last 35 years, I would not be surprised if the property is eventually developed as condos. The land must be worth much more than the hospital. It would be great if Shouldice remained a centre of excellence known around the world but if the license is not transferred to the new corporation there is practically no chance of its remaining a hospital. The government of Ontario can’t afford to provide state-of-the-art medicine as shown by its recent imposition of regulations. There is no way it can afford to buy Shouldice.

  9. Jan Normandale

    I’m a two time Shouldice patient. Two separate hernia operations and both successful after 25 years. The clinic does not require patients to stay 3 days. They have more than enough demand to keep beds full at the hospital. I checked out after 2 days and there was no problem. The bed had a waiting patient.

    The patient base comes from all over North America and some from Europe. These people pay more than Ontario residents as far as I know. They come because of the success ratio of the method. Many are there due to failure of the first operation at another location and they need to have a ‘repair’.

    Clearly the land at the hospital is valuable one merely looks at adjacent high rise condo development to know that. I would suggest a Trust be created to purchase the hospital business and run it ‘as is’ as a not for profit entity at a new location and permit the continued services in an uninterrupted way for the future. This would enable the current owners to take their proceeds from the sale of the land for development and proceeds for the business while ensuring the legacy of Earle Shouldice continues into the future at a new location with a lower land cost base and current facilities.

  10. Jan Normandale

    Gerry, this is a topic that’s better not discussed in a public forum, I’m sure you would understand.
    Quick question, Gerry Goldlist… are you “Gerald I. Goldlist, MD” who is in this same thread or is this a coincidence of names? If you are one the same, my next question is are you associated with the Shouldice clinic or are you a real estate developer?

    Let me know and I’ll post my email address then you’re free to contact me.

    • Gerry Goldlist

      RE:”Jan Normandale
      Posted November 28, 2012 at 12:25 PM
      Gerry, this is a topic that’s better not discussed in a public forum, I’m sure you would understand.
      Quick question, Gerry Goldlist… are you “Gerald I. Goldlist, MD” who is in this same thread or is this a coincidence of names? If you are one the same, my next question is are you associated with the Shouldice clinic or are you a real estate developer?”

      —-I don’t know what you mean? I have made a couple of points on Healthy Debate about Shouldice.

      1. You suggested a Trust to buy the Shouldice and I asked you who would fund it. I assumed you meant the government or some charitable organization. The govt can’t fund health care as it is and to buy land is not possible financially.

      2. My information about the Shouldice is what a wrote a few months ago. I drive by it every day and know the neighbourhood. It looks like that area will be redeveloped…. Not by me. I am a physician only, not a developer.

      • Jan Normandale

        Gerry Goldlist… if you want to discuss this further you can contact me directly at the email below. I’m not certain what your interests are or who you represent so it might be helpful to background me before I set off on detailed discussions about this. This is substantially beyond my original observation and understandably I don’t want to step into out of bounds territory or conflict situations.

        regards, Jan Normandale

        • Gerald I. Goldlist, MD

          I don’t know what you are talking about. Can we get back to the topic at hand and not real estate.

          I post on this blog as a physician. Your posts are a total distortion of what I am talking about. Let it go.

          • Jan Normandale

            Dr Goldlist, I agree with your observation.

            regards, Jan Normandale

  11. Reba Evans

    Can someone please tell me if Shouldice Hospital was sold to or taken over by Centric Health as was anticipated in 2012. I am looking for updated information on the status of the facility.

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