7/22/12

ORNGE: the gory details

ORNGE and its associated companies employ more than 400 people, including paramedics, pilots and aviation specialists.  ORNGE has its own aircraft and land ambulances, stationed at 12 bases across Ontario.  It also contracts with private service providers throughout the province to transport patients.

Until about six years ago, the Ministry of Health and Long-Term Care (MOHLTC) contracted with private operators to provide its air ambulance program.  In 2005, the Ministry appointed a not-for-profit corporation called the Ontario Air Ambulance Corporation to become responsible for all air ambulance operations.  Subsequently, this corporation became Ornge.

Initially, Ornge focused on air ambulance services.  But in 2007, the government amended the legislation to allow Ornge to provide land ambulance services.  The following year, the Ministry contracted with Ornge to transfer critically ill patients by land ambulance between health-care facilities.  The government provided Ornge with $13 million in the 2007/08 fiscal year for this purpose.  This scheme, cooked up with the Association of Municipalities of Ontario, removed some work from CUPE and OPSEU organized municipal ambulance services which were also losing work to private companies that were taking over the transport of less ill patients at health care facilities. 

Ornge receives about $150 million in annual funding from the government (about 0.3% of the total MOHLTC budget).  ORNGE has borrowed about $300 million to finance the purchase of aircraft and its headquarters.  That debt is included in the province’s consolidated financial statement.

For-Profit:  Ornge’s management, with the approval of Ornge’s board, created a number of
for-profit and not-for-profit subsidiaries and other companies.  The relationships between these entities are extremely complex.  ORNGE entered into financial arrangements with many of these entities — they provided most of ORNGE’s services and then billed ORNGE for those services, according to a recently published
report from the Auditor General regarding ORNGE (on which this briefing note draws, in part).

The Auditor General requested documents relating to these arrangements, but was given access to “only those documents relating to entities that were controlled by ORNGE or of which ORNGE was the beneficiary.”  The Auditor was refused access to the records of any of the other entities.  The ORNGE board advised the Auditor General that this was because the Ministry was not funding the other entities directly or indirectly.  So the Auditor General was unable to obtain:

  • the lists of the shareholders of these other entities; 
  • the compensation contracts for members of senior management and the board who were receiving remuneration through these entities; 
  • the agreement regarding the payment of $4.8 million dollars to one of these entities by a corporation which had sold aircraft to ORNGE for $148 million.
The extremely well connected Toronto corporate law firm Fasken Martineau provided advice to ORNGE entities (billing for 22,000 hours — i.e. ten and a half years of work or over $9.5 million).  Fasken fashions itself as providing expert advice on public private partnerships. 

Alfred Apps, who worked on the ORNGE file with Fasken at the time (and who is also the former president of the Liberal Party of Canada), aggressively defended the establishment of these subsidiaries and companies by ORNGE.  He claims that the Auditor General Jim McCarter and the media had totally misunderstood and misconstrued the corporate restructuring.  Before the Legislative Committee examining ORNGE, Apps endorsed ORNGE's business practices, saying the corporate structure was a "conventional" one that was "commonplace" in the private equity world.  Apps also claimed that he "saw absolutely nothing inappropriate about" the $4.8-million “marketing services” payments made by a helicopter manufacturer to ORNGE after the manufacturer was paid $148 million by ORNGE for Helicopters.  (The Auditor General found little evidence to merit such a payment and the Ontario Provincial Police is now investigating it.)    

Corporate style salaries:  News reports from the Toronto Star uncovered that these for-profit corporations established by Ornge were paying exorbitant salaries to the ORNGE bosses.  The Star reports that the (now deposed) ORNGE CEO Chris Mazza was earning $1.4 million (and also received another $1.2-million loan and cash advance the same year).  Mazza’s salary created much outrage, when it was revealed.  Mazza’s salary and many of the other salaries of top officials were not reported publicly as they, nominally at least, came from these other entities created by ORNGE.  In 2011, almost all of ORNGE’s senior management became employees of a new for-profit international business.

Government oversight of the ORNGE corporate entities:  The Auditor General’s report on ORNGE found that ORNGE informed the Ministry about several for-profit companies it created in early 2011.  However, the Ministry did not look into the arrangements, despite the fact that it knew some of the new companies would be directly involved in delivering air ambulance services and would be outside of ministry oversight.  The Auditor General’s report notes:


Despite this, however, the Ministry did not obtain sufficient additional information about these entities. As a result, the Ministry cannot periodically spot-check whether the costs incurred by these entities and billed back to Ornge are reasonable or whether potential conflicts of interest have been avoided. Avoid­ing potential conflicts would be especially important given that the January 2011 letter indicated that some members of Ornge’s management and board were shareholders of certain of these entities.

Various excuses have been proffered by government or ex-government officials.  Former, Health Minister George Smitherman blamed civil servants for not keeping on top of ORNGE.  Current Minister Deb Matthews said she feared putting patients in jeopardy, then claimed
(to jeers) that she had limited power over ORNGE as it was federally incorporated.  The Deputy Minister of Health and LTC, Saad Rafi (who used to work for Deloitte as a leading proponent of P3s) suggested that while the government provides ORNGE funding through a contractual agreement, it had little control over it.  "It is not an agency of the government, nor a Crown corporation nor any other extension of the government.  (It) is a not for profit corporation governed by the Canada Corporation Act that operates as an independent undertaking."

Another former health minister, David Caplan (who quit one day before the Auditor General released a scathing report on eHealth that criticized the contracting-out at the agency) did make some connection between the for-profit entities established and the problems that occurred:  “So what went wrong with Ornge and who’s responsible? I believe Ornge can
best be described as a rogue agency.  The Ornge management quietly attempted to restructure the not-for-profit Ornge into a for-profit corporate entity that would serve their interests and obscure the lines of accountability.”

The Auditor General remarked to the media following his report on ORNGE:  "It was a very complex corporate structure, and ORNGE certainly was resistant to our efforts to try to understand that corporate structure and where the money was flowing.  It was like pulling teeth...Every time we turned a corner a red flag was being raised."

Dubious corporate practices:  The Auditor General's report notes that the ORNGE corporate headquarters (“the Crystal Palace”) was purchased for $15 million.


Ornge then entered into a complex arrangement with some of the other entities it created to sell the building and lease it back to itself. An independent real-estate appraiser we engaged estimated that, under its lease with a related Ornge company, Ornge’s rent payments are 40% higher than the fair-market rent…. Ornge’s above-market rent enabled one of the entities involved in the arrangement, Ornge Global Real Estate, to obtain $24 million in financing for the building that Ornge paid $15 million for. We understand that the $9 million “profit” generated as a result was being flowed to a company called Ornge Global Holdings LP for Ornge’s future purchase of limited partner­ship (ownership) units of that company. At the time of our audit, Ornge Global Holdings LP was owned by members of Ornge’s senior management and the board.”

The Auditor General’s report also notes that the $4.8 million paid by the helicopter manufacturer (noted above) was retroactively transferred to one of Ornge’s for-profit corporate entities shortly after the Auditor General’s audit fieldwork began.  As a result the Auditor General was unable to review the contract as part of its audit.

The ORNGE foundation was given another $2.9 (US) million ‘charitable donation’ from a European helicopter maker “to provide improved patient care and facilitate the education and training of trans­port medicine professionals.”  In fact, $500,000 of that money was spent on two custom-built Orange County Chopper motorcycles.  The choppers were displayed on a motorcycle television show and at a Blue Jays baseball game, and one was on display at the Ornge headquarters during the auditor general’s investigations.

Air ambulance problems:  In March 2009, eighteen months before the scheduled receipt of new aircraft, ORNGE purchased 11 used helicopters (all over 20 years old) for $28 million.  By early 2011, it was trying to sell these helicopters for just $8 million.  As well, although ORNGE’s own analysis indicated that six airplanes and nine helicopters would be sufficient, ORNGE bought 10 new airplanes and 12 new helicopters (in addition to the 11 used helicopters).  It also planned to use aircraft service providers for some flights.  Ornge put seats in some of its helicopters making them useless for ambulance use.

There were also serious problems with the new helicopters ORNGE purchased: there was no room to perform CPR without first rotating and lowering the stretcher from the take-off and landing position.  There was insufficient space to allow patients’ heads to remain elevated for the entire flight.  Some patients require elevation to avoid breathing problems, so such patients require a breathing tube (i.e. intubation) while in these helicopters.

Government funding of Ornge for air ambulance services increased by more than 20% between the 2006/07 fiscal year (ORNGE’s first full year of operations) and the 2010/11 fiscal year.  However, over the same period, the total number of patients transported by air decreased by 6%.

Land ambulance problems:  ORNGE purchased 18 land ambulances for about $2.1 million between August 2006 and January 2007, and a municipality gave it a nineteenth ambulance, before ORNGE decided to operate just eight ambulances.  ORNGE won the right to take over critical care land ambulance transfers, but it only actually delivered 14% of the patients promised.  ORNGE received $65 million funding for land ambulance from 2006/7 through 2010/11. 

The cost to ORNGE of transporting a patient by land in 2010/11 was $7,700, only 7% less than air transport.  Under Ornge’s contract with the Toronto EMS, TEMS’s 2010/11 per-patient transport cost was $1,700, or $6,000 less per patient.  As well, most of the patients transported by Ornge land ambulance did not need critical care paramedics (only 900 out of 2,500 were for critically ill patients in 2009/10). 

Well connected advisors:  Aside from Alfred Apps, other hired guns for ORNGE included
Prime Minister Stephen Harper's former chief of staff Guy Giorno, Lynne Golding, who is married to federal cabinet minister Tony Clement (who as Ontario Minister of Health led the charge for the first P3 hospitals in Ontario over a decade ago and also, according to Chris Mazza, started the push to set up ORNGE), and Don Guy, McGuinty’s former Chief of Staff and director of the Liberal’s election campaign.  Millions of dollars were paid to high priced and high powered corporate lawyers.  Sometimes Ornge is simply portrayed as a rogue organization.  In fact it had expert advice from the elite of the Canadian establishment.

Current status:  A Legislative Committee is examining the Ornge situation. 
Ex CEO Chris Mazza was called to appear May 16, but his lawyer has claimed his client was
too depressed to appear before the committee.  As noted in a post a few days ago, Mazza has appeared before the committee last week and deflected blame for ORNGE's problems to the Ministry of Health and LTC.  Apps has denied that he lobbied on behalf of ORNGE, but an email obtained by MPP Frank Klees raises some questions on this point.  Klees has said Apps will be called back before the legislative committee, after Apps has had a chance to recall and investigate the circumstances of the email.  There is still no word yet if the OPP will press criminal charges regarding ORNGE.  The for-profit corporations established by ORNGE are being wound down (if this is not completed already).

Comments: Globe columnist Andre Picard comments there has been “much interest in spinning off government services (particularly in health care) in a bid to make them look leaner and businesslike. But, as the Ornge saga demonstrates, there is too often more blind faith in the benefits of private enterprise than there is sound regulation and oversight. What followed the ‘privatization’ of Ornge was, in the words of Ontario Auditor-General Jim McCarter, years of ‘questionable business practices.’ "

Indeed:
·         Aircraft that were not needed were bought;
·         Aircraft that did not meet even basic requirements were bought;
·         Old aircraft were bought at great expense and then put up for sale at drastically reduced prices only a couple of years later;
·         ORNGE engaged in expensive self-promotion;
·         The cost of at least some services was very high;
·         Costs increased even as service levels declined;
·         ORNGE (and its associated companies) paid very high salaries to its top officials;
·         Those salaries were kept from public scrutiny through the creation of for-profit corporations;
·         The introduction of for-profit corporations into the business obscured legitimate public oversight.  (There is some evidence to think this was the intention.)  It also enabled some very dubious business practices (e.g. the salaries, the lease deal for ORNGE’s headquarters).


Notably the previous major scandal involving the MOHLTC also involved too much faith in private sector solutions and too little oversight.  eHealth turned most of its work over to a legion of high-billing consultants (at one point they had fewer than 30 full-time employees but had engaged more than 300 consultants).  They doled out millions of dollars in contracts with little apparent attempt to open the deals to outside bidders.

Finally, Alfred Apps is probably correct.  Much of what went on at ORNGE is simply ordinary behaviour in the private sector:  the corporate structures, the high salaries for top officials, the glossy self-promotion, the secrecy, and the lack of account to the public for the many business errors made by Ornge.  It is because it was done by an organization that was funded by the public (and that was supposed to be in the public sector) that it became a scandal.  Other attempts to move public sector work into the corporate sector are subject to the same problem. 
                                                

1 comment:

  1. Switzerland-based company Pilatus Aircraft who designed this very beautiful aircraft named Pilatus PC-12 which is used as a cargo as well as Air ambulance and this Air ambulance Non emergency medical ride is very famous among the entire world. Companies who involve in this business highly prefers this aircraft and they hired a very experienced crew (Pilots, Flight Nurses, paramedic) for this aircraft. Most of this aircraft is used by Canada and USA based companies. More than 10 Pilatus PC-12s aircraft are used by ORNGE Canada-based company to serve their client with the high-class arrangement.

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