Proposed sale of Shouldice Clinic triggers privatization concerns

A privately run, for-profit hospital in Canada has recently waded into the private-public debate in Canada and the outcome may influence the future direction of the Canadian health system. We should look towards not only Canadian and US health systems to inform this debate, but also towards high performing systems where for-profit providers are a part of the care delivery mix, such as the Netherlands.

The Shouldice Clinic is a privately owned, for-profit hospital in Ontario, Canada specializing in hernia repair operations. shouldiceThe Shouldice Clinic is an aberration in a health system where the vast majority of healthcare providers are not-for-profit and the Canada Health Act explicitly forbids charging patients more than the government run health insurance system pays for the same procedure. The Shouldice Clinic exists only because it was established prior to Medicare and has been allowed to continue as a private hospital in family ownership.

This tenuous relationship with the government has now been jeopardized by the wishes of the Shouldice family to sell the hospital… To another for-profit company no less! In September the Shouldice family reported a proposed sale to Centric Health for $14 million. The responses to this proposal tell us a lot about the Canadian psyche regarding privatization in healthcare, and unfortunately the signs are not all positive.

Reputation for high quality at Shouldice Clinic

It is worthwhile noting that the quality of care that the Shouldice Clinic provides is not in question. They are recognized around the world as providing high quality care for a competitive price, and serve as an example of the advantages of specialization and high volume care delivery. This is evident because the Ministry of Health and Long-Term Care in Ontario pays for many of the operations that are completed by Shouldice, which it presumably would not do if the quality were lower or the costs higher.

Implications of the sale

So what’s changed? Well, on the one hand not much. In September the Shouldice family announced plans to sell their business to another for-profit Canadian healthcare provider called Centric Health. Centric Health operates health clinics around Canada and has been rapidly growing with a tripling of revenue between 2010 to 2011. The government of Ontario would presumably continue to contract with the for-profit Centric for hernia repairs, just as it has with the for-profit Shouldice, as long as quality and costs remain advantageous compared to alternative not-for-profit hospitals.

On the other hand, many perceive a significant change. The purchase means that the Shouldice Clinic would be owned by a publicly-traded instead of privately-held company (1). Others raise concerns that despite the fact that Centric is a Canadian company, the majority owner is Global Healthcare Investments and Solutions which is a US-based venture capital firm (2). Centric has traditionally provided services that are not covered by provincial health insurance plans. For Centric, the Shouldice Clinic is an opportunity to compete directly with existing non-profit hospitals for publicly insured business. Non-profit providers in Canada have generally been shielded from significant competition, although Centric states that Shouldice would continue to operate for at least 4 years in its current format.

In typical Canadian style, many are looking south of the border to the US and raising the alarm; south to one of the lowest performing and most expensive healthcare systems in the world. Many for-profit healthcare providers in the United States under-perform compared to their non-profit competitors (3). Potential reasons for this include a more competitive environment and a lack of appropriate regulation. In a health system that does not rigorously measure quality there are incentives to compete on price instead of quality. A competitive environment places additional pressure on a for-profit that is expected to produce a positive margin.

Not all privatization has led to disaster

But if underperformance is inevitable in for-profit hospitals, how can we explain the success of the for-profit Shouldice Clinic, which despite these potential pitfalls has been providing a high quality and low cost service to patients in Ontario since it was founded in the 1940s? And we should not forget the fact that the majority of physicians in Canada are incorporated as for-profit businesses, yet despite this the sky has not fallen.

For another example of for-profit healthcare we can look to The Netherlands which is regarded as having the one of the best performing healthcare systems in the world (4).CommonwealthFund_HealthSystemRanking But rather than exclusively finding examples of the dangers of for-profit healthcare, the Dutch have developed a system where for-profit and not-for-profit hospitals successfully compete to deliver healthcare (5). In fact, for-profit providers are rapidly transforming the healthcare landscape as they specialize in high-volume care delivered outside of expensive hospital settings. In many cases these independent treatment centres are setting the standards for cost and quality (6), while several non-profit hospitals have experienced major quality problems (7,8) and others have gone bankrupt (9). Strict regulation and a mature quality measurement system provide a framework for healthy competition. The Shouldice Clinic would be right at home.

The public-private debate continues… But are the best interests of patients properly represented?

Unfortunately for the debate, it now looks unlikely that the sale will proceed. In November Centric Health announced that it will not proceed with the purchase. They quote recent political developments in Ontario as playing a role in this decision (10). This likely refers to the recent prorogation of parliament, although the Ontario Health Minister’s stated preference for non-profit providers also raises the political risk of the transaction.

So what does the proposed purchase of the Shouldice Clinic tell us about the future of healthcare? In my opinion, not much new. It appears that for-profit and not-for-profit healthcare providers can successfully compete with one another on both quality and cost. There are obvious potential pitfalls if the quality of services that are provided cannot be compared. And not-for profit providers appear to have little to fear, unless they are so inefficient that they cannot match the prices of a competitor with a similar cost-base and the additional burden of creating a profit for shareholders. It does not appear inevitable that for-profit healthcare leads to low quality or high costs. The negative rhetoric about privatization continues and unfortunately the sale of the Shouldice Clinic will not provide any new answers to our concerns about privatization if it doesn’t proceed.

The negative responses of many to the proposed purchase are concerning. If we are unable to even consider increasing the role of private providers in our health system then we risk missing the potential benefits that private business has shown it can deliver in almost every other industry. As Andre Picard of the Globe and Mail succinctly put it (11):

“Patients with a hernia, or in need of hip repair or cataract surgery, don’t care who owns the health-care facilities where they are treated; what matters is that they get high-quality care that is accessible and affordable. … We have to stop behaving as if, in health care, private is poison and public is magic. Good care requires qualified health professionals, specialization, standards, oversight and regulation.”

Can the Netherlands provide an example for Canada?

It sounds to me like Mr. Picard is advocating for a health system that looks a lot more like the Netherlands than the US. Considering the Netherlands’ higher ranking than either Canada or the US in comparisons of international health systems, maybe we should be looking east instead of south for new ideas. And maybe we shouldn’t oppose for-profit healthcare on principle, but rather ensure that we purchase the highest quality care at the best price, regardless of who provides it.

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(11) Andre Picard. Private-public debate erupts anew over sale of Shouldice Hospital. The Globe and Mail. Published Sep. 17 2012. Available at: