Alberta government undermined health authority to push lab privatization deal, A-G report finds

The Alberta government compromised the independence of the province’s health authority as it worked to sign a deal with a private laboratory testing company in 2022 that was terminated just eight months after it was implemented, according to an investigation by Alberta’s Auditor-General.

Alberta’s Health Ministry asked Alberta Health Services to forge ahead with the deal despite repeated warnings from AHS about overstated cost savings, in its bid to hand community lab testing to Dynalife, the report published Wednesday by Auditor-General Doug Wylie said. Between 2019 and 2023, the Alberta government paid a combined $109-million to set up the system and eventually kill the deal.

The 43-page report details issues throughout the procurement process including miscalculated cost savings, failures to assess Dynalife’s financial vulnerabilities, along with technological issues that led to an increase in critical misdiagnoses for serious health conditions.

“When procurement governance and accountability break down, it’s always Albertans who pay the price,” Mr. Wylie said in an interview Wednesday.

Dynalife was selected in late 2022 in the government’s bid to lower the cost of community lab testing, which had previously operated under a public-private model. It was one of the largest procurements ever undertaken by AHS, Mr. Wylie said.

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Conditions quickly deteriorated when Alberta transitioned to provincewide service with the company, he wrote.

Waiting times for community lab tests increased from a few days to five weeks in some areas. There were also unusually high numbers of errors in pathology results. In the last three weeks of July, 2023, the report says, more than 600 patients had to retake tests because of a logistics issue AHS had discovered.

About six months after Dynalife took over, the company began asking for extra money, the report said. In early June, 2023, Dynalife’s owners said it was facing “potential financial collapse,” the report said, and asked for its contract to be terminated early. The Alberta government paid $32-million to bring lab testing back under the public umbrella.

Mr. Wylie’s report arrives as Premier Danielle Smith’s government continues to increase the province’s reliance on private providers. The government has also been dogged for months by allegations of political interference into other procurement contracts with AHS.

Mr. Wylie said the province’s procurement and accountability systems broke down in several instances when signing the laboratory deal.

“In some cases, it was unclear to us who was actually making the decision,” he said. “There was, in certain instances, a lack of documentation of meetings that were held between the minister, department executives, AHS executives.”

Mr. Wylie wrote there were “persistent issues” in governance and oversight throughout the procurement process. Neither AHS nor Alberta’s health department followed their processes to prepare a business case for outsourcing lab services, he wrote, and AHS continued with procurement “despite knowing that the main objective of cost savings was likely unattainable.”

Alberta’s then-minister of health also received numerous warnings as AHS began its due diligence on the $4.8-billion contract. For example, it found the contract with Dynalife would not achieve any cost savings, particularly since the company was the only proponent bidding on the process. The health minister asked AHS to work toward a deal with Dynalife despite some of these concerns. The Auditor-General did not name the minister serving at the time.

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“We saw the department and minister involvement in the operational-type decisions of procurement where normally one wouldn’t expect them to be doing that,” Mr. Wylie said.

Over all, the government paid $77-million between 2019 and 2023 in what Mr. Wylie called “non-value-added costs” to outsource community labs, plus $32-million to acquire Dynalife’s remaining assets and liabilities after the contract was terminated.

Mr. Wylie also described a “culture of silence” at AHS, with staff saying they hesitated to raise concerns with the Health Department out of fear of repercussions.

Access to key information in Mr. Wylie’s investigation was severely restricted, he said in the interview. Legal and cabinet privilege were claimed over a wide range of documents, many files were redacted, and some information was inaccessible or destroyed.

Alberta Precision Laboratories, a wholly owned subsidiary of AHS, took over provincial laboratory testing and returned Alberta to a fully public model. By December, 2023, patient waiting times were reduced by 76 per cent, Mr. Wylie wrote.