A new report from Alberta’s auditor general details the provincial government’s attempt to privatize community lab services that failed to produce cost savings and ultimately saw the province spend tens of millions of dollars to buy a private company.
The report, released Wednesday, details a lack of due diligence by the provincial health ministry and Alberta Health Services regarding the 2022 contract with DynaLife — at the time a major provider of lab services in Edmonton and northern Alberta — to take over lab services for the entire province.
The report from Auditor General Doug Wylie highlights many issues faced during the investigation, including a lack of co-operation from key officials, obstruction of information by AHS and the province, and the destruction of evidence sought by the auditor general.
“That should be chilling to Albertans — not concerning,” said Rebecca Graff-McRae, the research manager at the University of Alberta’s Parkland Institute.
The provincial government said the DynaLife contract would save millions of dollars a year, but instead cancelled it less than a year later after numerous issues with service delivery and DynaLife’s own financial problems.
The province ultimately purchased DynaLife in 2023 for nearly $100 million and absorbed it into the public provider, Alberta Precision Laboratories (APL).
Key findings
Among the key findings in the report:
- Minimal records were kept of important discussions between AHS executives, the minister and the health department —including those where key decisions were made.
- Neither AHS, nor the department, followed its own processes to prepare a business case for outsourcing community laboratory services.
- AHS continued with the procurement despite knowing that the goal of cost savings was likely unattainable. AHS did not evaluate the assumptions and accuracy of DynaLife’s financial proposals.
- Between 2013 and 2023, Alberta taxpayers paid $125 million in incremental costs for government-initiated laboratory procurements that were either abandoned or unsuccessful.
Wylie’s investigation found the province and AHS did not produce a business plan for the DynaLife outsourcing, relying instead on a 2019 report from Ernst & Young. That report, which estimated annual savings from outsourcing at $102 million, was later found by AHS to have a “calculation error” that reduced the savings estimate to $77 million.
That estimate was further reduced to a range of $18 million to $36 million after analysis by AHS and APL — the same amount that the AHS analysis predicted would be saved if APL delivered all services across the province.
The auditor general’s report notes that this would suggest the savings were due to “having a single organization delivering all services, rather than from outsourcing to a private provider.”
“I think in this case, it is really problematic that there were issues around basic measures of accountability like proper recordkeeping,” said Lorian Hardcastle, an assistant professor of health law at the University of Calgary.
In a statement from a spokesperson for Primary and Preventative Health Services, the Alberta government said it identified DynaLife’s inability to deliver adequate services “immediately following the general election” in 2023.
“That is why in June of 2023, we directed that the agreement with DynaLife be terminated and shifted services to Alberta Precision Labs, which has resulted in significant improvements to wait times across the province.”
However, CBC News previously reported that the province was aware of issues with DynaLife well before the election in May 2023, including a formal notice of the company’s insolvency position in March 2023.
A long history
The Alberta government has a lengthy history with DynaLife.
The company had been providing lab services in Edmonton and northern Alberta for years when in 2014 the Progressive Conservative government awarded a $3 billion contract to Sonic Healthcare, an Australian firm, to replace DynaLife and hospital labs operated by AHS and Covenant Health.
DynaLife appealed that decision, but when the NDP formed government in 2015, it cancelled the deal with Sonic.
The NDP then decided to buy DynaLife, absorbing its for-profit operations into the public sphere in a plan that was estimated to cost $65 million — about $30 million less than the UCP would pay in 2023. The government also planned a “superlab” in Edmonton that would house all lab processing under one roof.
But after Jason Kenney’s 2019 election victory, his United Conservative Party government killed those plans and ordered a review of AHS to find efficiencies and cost savings.
That report — completed by Ernst & Young in 2020 — recommended that AHS “further leverage private contracts” for lab services “with an initial focus on community-based testing.” It estimated that doing so could save up to $102 million annually.
AHS later did its own analysis and revised that estimate to between $18 million and $36 million per year.
Although the Ernst & Young report’s recommendation eventually led to the DynaLife contract, the auditor general noted that AHS identified a calculation error that resulted in the projected savings being overestimated by tens of millions of dollars.
The auditor general’s report did not specify the nature of the calculation error. Ernst & Young declined to comment on the report.
Challenges
The auditor general’s report notes the many challenges faced during the investigation, particularly with lack of co-operation from key officials and difficulty accessing evidence.
“Our access to information was restricted by AHS and this restriction was supported” by the Ministry of Health, says the report.
AHS asserted privilege over many documents “without, in some instances, clear rationale or evidence,” and had a team of lawyers conduct a line-by-line review of the thousands of documents sought by the auditor general.
In a statement provided to CBC News, an AHS spokesperson said the organization has “new leadership in place at every level” and is “committed to ensuring that our procurement processes are accountable and transparent.”
The report also says that “records were password protected and inaccessible, missing or destroyed when key staff were terminated,” noting a particular instance when AHS destroyed notebooks belonging to former CEO Mauro Chies “despite our request to preserve evidence.”
“This actually goes right to the heart of what keeps our democracy democratic, and keeps it from being a free-for-all where elected officials can say, once voted in, ‘I have the ability to do whatever I want,’” said Graff-McRae.
Asked whether the destruction of evidence was a violation of law, Wylie said, “I do not have an answer for you on that.”
A government spokesperson issued a statement about the concerns raised in the report.
“Although we cannot speak for the conduct of Alberta Health Services in this matter, the government did, in fact, co-operate fully with the auditor general’s investigation and any suggestion to the contrary is incorrect.”
Taxpayer dollars
Wylie’s report found that between 2013 and 2023, Alberta spent $125 million on “government-initiated laboratory procurements that were abandoned or unsuccessful.”
This included $90 million for outsourcing community lab services, as well as $35 million for the procurement of the NDP’s superlab construction and its subsequent cancellation by the UCP.
Hardcastle said she believes the government’s move to privatize community lab services was not based on good-faith number crunching.
“I don’t think this was really a business decision,” she said. “I think it was an ideological decision.”
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